Legislature Responds to Foreclosure Issues

The foreclosure crises of the last several years imposed a significant burden on the court system in New York. From 2005 to 2010, the number of foreclosure filings increased from 22,601 to 50,827. In Nassau County alone they increased from 1,310 to 5,378.1

Both the courts and the New York State Legislature have responded with various measures.

In 2008, Chapter 472 was signed into law by Governor David Patterson which required settlement conferences for all matters which involved sub-prime loans in owner occupied residences. For those cases filed after September 2008, a court conference was mandated to be held 60 days after proof of service had been filed by the Plaintiff.

In 2009, the Legislature enacted Chapter 507 which required settlement conferences for all owner-occupied residences, regardless whether a sub-prime loan was involved or not. This law also required courts to send copies of the Request for Judicial Intervention (RJI) or the homeowner contact information to Division of Housing and Community Renewal approved housing counseling agencies, and required plaintiffs in foreclosure actions who obtain a judgment of foreclosure to maintain the property until ownership had been transferred and the new deed recorded. In addition, Chapter 507 created a cause of action for a municipality, a tenant lawfully in possession, or the board of managers of a condominium association or homeowners association to recover the cost of maintenance.

In 2010, “robo-signing” was re­vealed. This was a practice in which representatives from lending institutions, most notably Bank of America, would review thousands of foreclosure documents in short periods of time and sign notarized documents to be submitted in court actions. In response to this practice, on October 20, 2010, Chief Judge Jonathan Lippman issued a new court rule requiring attorneys for all banks and lenders in foreclosure actions to submit affirmations stating that they took steps to verify the accuracy of documents submitted in the action. For a period of time the number of filings throughout the state dropped considerably.2

The Office of Court Administration (OCA) offered a program bill to address the issue of what it called the “shadow docket.” These were cases where the foreclosing lender filed and served a summons and complaint, but never filed a RJI. According to OCA, there were thousands of cases whereby homeowners had actions pending against them, but did not have their “day in court” to resolve the matter. The program bill, S.4530/A.5582 was signed by Governor Cuomo on July 31, 2013 as Chapter 306 of the Laws of 2013. This law creates a new section 3012-b of the CPLR which requires several new procedures for plaintiffs in foreclosure actions. Before the action is commenced, the attorney must attach a certificate to the complaint declaring that the attorney has reviewed the merits of the action, and that after consulting with representatives of the plaintiff or reviewing pertinent documents, the attorney has concluded to the best of his or her knowledge, information and belief, that there is a reasonable basis for commencement of the action. The attorney must also attach copies of the relevant instruments of indebtedness and any instruments of modification consolidation and assignment.

If the required documents have been lost, the attorney must attach supplemental affidavits by the attorney or representatives of the plaintiff. The law also amends CPLR 3408 to require the plaintiff to file proof of service within 20 days of service. If the plaintiff fails to provide copies of the documents required by this law, the court, upon motion by a party or its own motion, may dismiss the complaint or make a final or conditional order as it deems just, including the denial of the accrual of interest, attorneys’ fees, or other fees relating to the underlying debt. Such dismissal shall be without prejudice and not on the merits of the action.

Currently there are several other bills pending in Albany which would also address various aspects of the foreclosure situation. A.7395/S.5251, which passed only in the Assembly this past session, would enact the “Foreclosure Fraud Prevention Act of 2013.” This bill would essentially criminalize the practice of robo-signing, by creating the misdemeanor of Residential Mortgage Foreclosure Fraud in the Second Degree. Such a crime is committed when an agent of a residential mortgage business intentionally engages in fraud of deception by authorizing, preparing, executing, offering or presenting for filing any written instrument which such person (a) knows contains a material false statement and (b) knows or believes that the instrument will be filed with a court or other public office. The Class E Felony of Residential Mortgage Fraud in the First Degree is committed when a person’s acts satisfy all of the elements of Mortgage Foreclosure Fraud in the Second Degree with respect to five (5) or more pending or prospective residential mortgage foreclosure actions within a one (1) year period, or being a “high managerial agent” of a residential mortgage business in which he or she knows one or more agents are engaged in Residential Mortgage Foreclosure Fraud and also fails to take reasonable measures to prevent such conduct from continuing.

A.1082/S.44 would amend the Real Property Law by requiring all parties with recorded property interests to record a mortgage ownership assignment document with the recording officer (usually the county clerk) which identifies the owner of the mortgage interest. The form must be recorded within 90 days or the mortgagees or assignees would be subject to a $250 fine. This bill passed the Assembly in 2010 and 2011, but never passed in the Senate. This year the bill was reported out of the Judiciary Committee but did not advance further.

A.88/S.3655 would amend the Real Property Actions and Proceedings Law to require mortgage foreclosure plaintiffs to provide contact information of the employee or agent responsible for maintenance of the foreclosed property to the municipality in which the foreclosed property is located. This information would also have to be posted on the vacant property. This bill passed the Assembly in 2012, and in 2013 was reported from the Assembly Judiciary Committee, but did not advance further.

Thomas McKevitt represents the 17th Assembly District and is the assistant floor leader of the Republican Conference. He is also Special Counsel to Sahn Ward Coschignano & Baker, PLLC in Uniondale.

1. 2010 Report of the Chief Administrator of the Courts, Appendix 3.
2. 2011 Report of the Chief Administrator of the Courts, p.2.