New York Attorney General Eric Schneiderman Tuesday sued HSBC Bank USA and HSBC Mortgage Corp., saying they broke state foreclosure laws.
Schneiderman said the mortgage companies were putting at-risk homeowners into legal limbo by failing to file required paperwork in hundreds of cases. That paperwork, called a "request for judicial intervention," triggers a court-supervised settlement conference where the borrower and lender can negotiate foreclosure options, such as loan modifications.
"Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can't even get the legally required settlement conference that could help them keep their homes," Schneiderman said.
Under state law, lenders who sue to foreclose are required to file the judicial intervention paperwork when they file their "proof of service" -- a part of the foreclosure process -- with the county clerk. The process mandates that the lender then attend a settlement conference within 60 days.
The suit seeks to compel HSBC to file the paperwork immediately in all cases in which it has already filed a proof of service and to file the paperwork in all future cases. The suit also seeks financial damages for homeowners injured by the bank's practices and to waive certain fees, penalties and interest charges.
Schneiderman estimated 25,000 families in the state are trapped in what he called a "shadow docket" because mortgage lenders, including HSBC and others, have delayed filing the required paperwork.
He said his investigation identified nearly 300 instances of HSBC's failing to file the paperwork in Suffolk, Erie, Monroe and Bronx counties. His office provided a list of HSBC foreclosures in Suffolk in which the bank had not filed paperwork for the settlement conferences in 30 cases as of April 1. In one of those the bank's paperwork was almost 21/2 years past due.
The delays can cause fees and interest charges to pile up, putting the homeowner further behind financially.
HSBC spokesman Neal McGarity said the bank would "respond appropriately" to Schneiderman and that "HSBC is committed to compliance with all applicable laws, which includes those related to foreclosure."
Rabbi Simcha Lefkowitz, executive director of Labor & Industry for Education, a Cedarhurst nonprofit that offers foreclosure counseling, said his organization tries to help people with the mandatory conference but sometimes they don't have a chance because banks don't file the paperwork.
"The danger is the legal proceedings continue without it and they'll get foreclosed and thrown out of their houses," Lefkowitz said.
A bill introduced in the State Legislature at Schneiderman's urging would add an additional filing requirement to make it harder for banks to delay the mandatory conferences.
Eric Soufer, spokesman for the Independent Democratic Conference which leads the Senate in coalition with the Republicans, said he expects the bill to pass before the legislative session ends June 20.