HSBC has been sued by the state of New York because it allegedly failed to file a required form on foreclosures. Other mortgage servicers could be the target of further litigation.
State law requires that the form, a “request of judicial intervention,” be filed when a proof of service is filed with the county clerk.
Once the form is filed, the lender and borrower must attend a court-supervised settlement conference within 60 days. Distressed borrowers are given an opportunity to negotiate foreclosure alternatives like loan modifications.
But “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,” according to an announcement from New York Attorney General Eric T. Schneiderman.
Schneiderman claims that a “shadow docket” has developed as a result of thousands of foreclosure cases that “are languishing for months, even years” because of delays in filing the settlement conference paperwork.
Citing data from the Office of Court Administration, Schneiderman says 25,000 loans are lingering in the “shadow docket.”
RealtyTrac reported that it took 1,049 days as of the first quarter to complete a foreclosure in the New York — longer than any other state.
The slow process has pushed the Empire State’s distressed inventory to 215 months in February, the worst of the 20-largest metropolitan statistical areas, according to Morningstar Credit Ratings LLC.
HSBC Bank USA and HSBC Mortgage Corp. have failed to filed the form in 300 instances uncovered from a state investigation that included a sampling of foreclosure filings from four counties.
So Schneiderman filed a lawsuit in New York Supreme Court on Tuesday against the bank and the mortgage unit.
The attorney general claims that by failing to file the form, HSBC is generating thousands of dollars in interest, assessed fees and penalties — putting borrowers at even greater risk of foreclosure.
Schneiderman hopes to compel the defendants to immediately file the request of judicial intervention in all foreclosure cases where a proof of service has been filed. He also wants to make sure that the form if filed simultaneously with proof of service in all future cases.
The state also wants HSBC to waive all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the form is filed.
In addition, Schneiderman wants to force HSBC to “grant restitution for interest charges, fees and penalties paid by the homeowner that accrued beginning 60 days after the filing of proof of service on the homeowner; and grant damages to homeowners injured by HSBC’s illegal practices.”
Schneiderman added that he “is committed to bringing similar actions against other mortgage lenders who hold borrowers in the shadow docket in defiance of state law.”
