New York Creates New Foreclosure Courts to Clear Backlog

Given the horrible history of special foreclosure courts in Florida, which as we recounted (see here and here for some past discussions) resulted in a bank-friendly travesty of justice, one has good reason to regard dedicated foreclosure courts with more than a modicum of concern.

The variant that is planned to be implemented in New York appears to be more fair-minded in intent than its Florida cousin. And while it appears unlikely to produce the sort of kangaroo court outcome that occurred there, it is not hard to see that this initiative is likely to fall well short of its objectives.

Let’s start with the overview from Reuters:

A new court initiative will allow all New York homeowners facing foreclosure to obtain legal representation and streamline the process of settling mortgage disputes out of court, Chief Judge Jonathan Lippman said Tuesday during his annual State of the Judiciary speech.

The “unprecedented” deal between the state, legal service groups and four large banks — Wells Fargo, Citibank, Chase and Bank of America — includes the creation of a new court part that will hear only foreclosure settlement conferences, Lippman said. Each week of the month will be dedicated to a different bank, with one attorney assigned to handle all cases for that lender.

“There will be no more excuses, no more delays,” Lippman said. “Real negotiations will take place, and homeowners will leave the table with the best available offer.”

The court system, Lippman said, is seeking to avoid scenarios that can delay settlement conferences for years, including homeowners being told their paperwork is out-of-date and lawyers for banks claiming to have incomplete sets of documents.

The program will kick off in New York City, where non-profit legal service groups have agreed to represent all homeowners entering the settlement conference process.

The article mentions the fact that a New York court requirement implemented in October 2010, that required lawyers filing for foreclosures to certify that they had taken reasonable steps to verify the accuracy of the information in the filing. That in turn lowered the bar for sanctioning lawyers who failed bogus information or documents signed by parties with no personal knowledge. That led to a near-halt of new foreclosure actions, which speaks volumes as to the accuracy of prior filings. If the problems were mere “paperwork,” you might have seen a hiatus as banks implemented new procedures, but this points to far more basic problems with the banks’ ability to prove they have the right to foreclose on loans they service.

My skepticism relates to the banks’ intent. The assumption is that they want to foreclose and that the various complaints about foreclosure delays reflect their frustration. But this is like Bre’er Rabbit complaining about being thrown in the briar patch. Banks make money on attenuated foreclosures. Georgetown law professor Adam Levitin has written about how servicers put borrowers in a fee sweatbox. If nothing else, they continue to earn servicing fees even when a borrower is hopelessly delinquent, as well as late fees, which they finally recoup when the home is sold. So I’m not confident the banks are going to enter into these talks with an eye to modifying mortgages. As both Adam Levitin and attorney and securitization expert Tom Adams have said, servicers are not set up to do mods. It’s like a new loan underwriting and they don’t have the staff or the fee structures for that to make sense.

Nevertheless, there is one area where this effort could make a big difference, and that is in short sales. I’ve heard complaints from different states that banks won’t even respond to a short sale proposal. In LA, owners have to advertise “no short sale,” otherwise brokers won’t bring buyers to a viewing. This format will make it awfully difficult for a bank to reject a short sale offer that is in line with current market prices. So this new system will probably yield some benefit but I don’t expect it to be the remedy that its sponsors hope it will be.

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18 comments

  1. Conscience of a Conservative

    We need to clear the system, and if a specialized court helps proces foreclosures faster while holding lawyers and banks accountable then it’s an idea worth trying.

    1. required

      Absolutely! We can’t work under a byzantine court system designed to protect both lenders AND borrowers. Therefore changes to the law must be enacted to better protect the lenders. After all, some animals are more equal than others.

  2. jake chase

    Has anyone tried bringing an action against a servicer seeking to compel the servicer to prove its right to enforce the mortgage? How do the courts react to such suits? I would try that if I had a mortgage, whether or not I was in default or under water.

    1. Pearl

      Jake Chase,

      I know this very issue was addressed in Morgan v Ocwen (decided last July in the Federal Court for the Northern District of Georgia), in which Federal Court Judge Amy Totenberg ruled against the loan servicer, Ocwen Loan Servicing LLC.

      There are a couple of very good summaries of Morgan v Ocwen listed below. The case, as far as I know, is still being litigated on the claims that Judge Totenberg allowed to go forward: injunctive relief (Count II), wrongful foreclosure (Count VI), negligence (Count VIII), intentional infliction of emotional distress (Count VII), and RICO (Count IX).

      http://4closurefraud.org/2011/08/15/big-win-in-ga-morgan-v-ocwen-mers-only-a-secured-creditor-may-conduct-a-non-judicial-foreclosure-in-georgia/

      http://abigailcfield.com/?p=245

      The actual ruling in Morgan v Ocwen has finally been added to Google Scholar:

      http://scholar.google.com/scholar_case?case=2622041891901397430&q=michael+l.+morgan+v.+ocwen+loan+servicing&hl=en&as_sdt=2,11

  3. keepon

    Force-feeding geese is cruel, High Court rules – Haaretz Daily …www.haaretz.com/…/force-feeding-geese-is-cruel-high-court-rules-1…

    Dec 8, 2003 – The Supreme Court ruled yesterday that the force-feeding of geese for the production of goose liver is illegal…

  4. Bravo

    This is a step in the right direction in my view. Provided lenders have to firmly document the trail of note assignments from originator to the securitization trust (thru the MERS maze) verifying that they were in compliance with terms specified in the pooling and servicing agreements, this process makes a whole lot more sense than a national “one size fits all” modification mandate from the Obama administration, which should have been limited to meaningful penalties for robosigning. Give the borrower (whether current or in default) some legal counsel, get the facts established with regard to borrower payment history, affirm accuracy of servicer charges to the borrower, and affirm that lender has legal standing to foreclose, then let the local presiding judge bang the two heads together to come up with a compromise modification.

  5. DanJS

    On reflection, forcefeeding geese could be perceived as egregious as wrongful foreclosure being forced upon a homeowner without first proving the foreclosing party has “right of standing” to initiate the action….

    However, it would seem that concern and discussion about this issue does not seem to be in the right venue.

    Now if PETA and their crowd could “stuff the foreclosure courts” with herds of kangaroos serving “friends of the court briefs” from their ah… “pouches”…. my mind could be changed very quickly.

  6. Bravo

    To avoid the kangaroo courts and using the New York format as a template, you could get a given state’s judicial brass together with state consumer advocate legal types and banker representatives, to come up with some modification guidelines that are deemed appropriate for their state. By breaking down the solutions to a local level, you have a chance. Instead, we have a national mandate that will be difficult to monitor and implement, and appears to have given the lionshare of preference to California.

  7. Susan the other

    I would like to see each state set up courts to cure all titles which have been fouled by MERS. Once the titles are cured, then other prrocedures can go forward because the standing will be proven already.

  8. ericmcsquare

    Unless and until there is an actual stick forcing the banks to negotiate in good faith this will accomplish nothing.

    My suggestion for the stick would be if the Borrower has submitted the paperwork and the bank loses it or has no one with settlement authority the case is automatically dismissed without prejudice (i.e. the bank may refile when appropriate) and a $300.00 payment required to be made by the bank to the borrower before the case may be refiled. If there was this stick I think settlements would go much quicker.

  9. Jane Doe

    one of my clients has been waiting a year and half because he asked for documentation that the bank owns his mortgage

    the judges have allowed this to occur.

    that’s not going to change unless they address the issue with judges ignoring the law.

  10. John Regan

    Of course, ANY specially designated court to faciliate bank foreclosures is completely wrong in every way. Every matter before the courts is important: child custody, divorce, criminal matters, personal injury matters. It’s no more urgent that the bank wants to foreclose than a thousand other things.

    Too bad that “non-profit legal services groups” have agreed to lead their clients to slaughter, but that’s par for the course at this point. Everyone’s a toady for Goldman Sachs now.

    People are behind on their mortgages because they have lost their jobs or become sick or experienced some other unanticipated setback. Very few of them will be able to change their circumstances and start paying again. There is no compromise to be had that doesn’t involve leaving them homeless.

    This is what we are talking about: facilitating homelessness, putting people including families and children out of the homes they have lived in. Out on the street, for many of them.

    It’s sick and disgusting that the legal profession’s only answer to this is to move it right along with the banks’ own special “courts”.

  11. chris

    I think that is the issues that banks and the adminstration are trying to brush under the rug. The banks have been foreclosing on properties they have had no legal right to recapture or own. There are countless chain of title issues that are unresolved but speeding up the process is to allow banks to skirt the law and to take houses they don’t have right to own. All of this is a dog and pony show with banks winning and adminstration buying votes. The settlement is a joke and a boone for banks and gives the public the impression that the banks are clean and can not engaged farily. of course most banks can not be engaged fairly but that is another story. The system has been polluted by banks and securitization and now it will all get brushed under the rug only to have a crisis down the road that will again wipe out trillions of dollars of hard earned capital of the common man, banks will be bailed out and politicians will talk tough in public while sleeping with adminsitration and bankers.

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