New York Attorney General, Eric T. Schneiderman, has announced the introduction of a bill that would protect New Yorkers from fraudulent business practices in the foreclosure process, including “robosigning.”
The Foreclosure Fraud Prevention Act of 2012 imposes new criminal penalties for those who intentionally engage in foreclosure fraud, including managers of residential mortgage businesses who knowingly tolerate fraudulent foreclosure practices committed by their employees and agents.
Specifically, the legislation, sponsored by Assemblymember Helene Weinstein (D-Brooklyn), makes it a Class A misdemeanor, punishable by up to a year in jail and a $1,000 fine, for an employee or agent of a residential mortgage business to knowingly authorize, prepare, execute or offer for filing false documents in a pending or prospective residential foreclosure action.
The bill makes it a class E felony, punishable by up to four years in state prison, for such employees to engage in multiple acts of foreclosure fraud (“robosigning”), and also makes it a class E felony for a “high managerial agent” of a residential mortgage business to “recklessly tolerate” such fraudulent conduct by his or her agents or employees.
Schneiderman’s attempt to protect New Yorkers from foreclosure abuses is timely. The proposed legislation follows the approval in April of a $25 billion settlement between major banks and states that settled state and federal investigations finding that the country’s five largest loan servicers routinely engaged in robosigning and other mortgage foreclosure abuses.
$130 million of the settlement went to New York. While the largest consumer financial settlement in U.S. history, this settlement was also expected to, and has, jump-started foreclosure proceedings that were previously stalled by uncertainty about the liability of banks.
According to data firm RealtyTrac, foreclosure starts rose year-over-year in May for the first time in more than two years as banks resumed dealing with distressed properties . Overall foreclosure activity, which includes default notices, scheduled auctions and bank repossessions, affected 205,990 properties in May, a 9.1 percent increase from April.
Florida is among the states with the largest increase in scheduled foreclosures – an increase of 83 percent since last year. RealtyTrac says more than 200,000 new foreclosures have been filed across Florida, at an average sales price of $120,500.
This new wave of foreclosures is obviously not a good thing for those being foreclosed upon, and Schneiderman’s proposed legislation is designed to deter further abuses by banks as they pursue these foreclosures. But for the overall economy, these new foreclosure filings may be helpful in that they are long overdue, having been delayed by banks due to legal uncertainty. The sooner they can be processed, the sooner the properties can be put back into the housing market and home prices can begin to recover more quickly.
That said, it is likely to be a bumpy road ahead for the housing market as these remaining foreclosures are dealt with. Similarly, Schneiderman’s proposed legislation may face a bumpy road to passage.
The State Senate, where Schneiderman, a Democrat, served prior to becoming New York’s Attorney General, is controlled by Republicans, and Schneiderman’s Foreclosure Fraud Prevention Act has yet even to find a Senate sponsor.