New York Attorney General Eric Schneiderman filed suit against HSBC Bank USA and its HSBC Mortgage Corp. division over allegations that the global bank is putting distressed borrowers more at risk by delaying state-mandated foreclosure settlement conferences.
The case revolves around what is known as the "shadow docket" in New York.
Lenders and servicers who sue to foreclose in New York are required under state code to file a "request for judicial intervention" form (RJI) with the proof of service at the county clerk’s office. The form is essentially the document that triggers state-mandated foreclosure settlement conferences between borrowers and lenders.
Once it's filed, a settlement conference has to take place within 60 days of the initial filing to inform borrowers of any foreclosure-relief mechanisms available to them.
Schneiderman claims banks — including HSBC — are delaying the filing of the form to indefinitely stall required foreclosure conferences.
As a result, a type of shadow docket of cases is lingering, with borrowers — already facing a potential default — still waiting to receive word on their state-mandated settlement conferences with financial firms.
During this waiting period, the borrower is often getting hit with additional fees and interest, Schneiderman says.
About 25,000 families are allegedly caught in this so-called shadow docket. Once they get out of it, it may be too late to save their homes with all of the new fees and penalties tacked on, Schneiderman asserts.
"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," said Attorney General Schneiderman. "For homeowners facing foreclosure, time is their greatest enemy. Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind. I am committed to doing everything I can to stand up for New Yorkers who are trapped in the 'shadow docket' and denied their right to fight for their homes."
Schneiderman says an investigation discovered that HSBC Bank and HSBC Mortgage "repeatedly failed to timely file the RJI in hundreds of foreclosure cases."
The AG claims a sampling of filings identified at least 300 instances in which the appropriate filing was not submitted with the proof of service. In a few cases, borrowers had to wait more than two years for HSBC to trigger a foreclosure conference with a filing.
In a lawsuit filed with the New York Supreme Court, Schneiderman wants to compel HSBC to submit the appropriate forms alongside the proof of service.
In cases where no filing has been offered, Schneiderman wants an accounting of all interest charges, penalties and fees that accrued beginning 60 days after the filing of the proof of service was documented. He also wants to waive all accrued interest charges, fees and penalties that occurred 60 days after the filing of the proof of service while granting restitution for any funds paid by homeowners who already passed the 60-day period.
Scheiderman also is asking for damages to compensate borrowers hurt by any of the alleged practices.