Senate Bill S7759

                                BILL NUMBER:S7759

TITLE OF BILL:
An act
to amend the penal law, in relation to enacting
the "foreclosure fraud
prevention act of
2012"

PURPOSE OR GENERAL IDEA OF BILL:
To protect New Yorkers facing the foreclosure of their homes from
"robosigning" and other fraudulent business practices during the
foreclosure process by imposing both misdemeanor and felony-level
penalties on those who intentionally engage in such conduct and on
"high managerial agents" of residential mortgage businesses who
recklessly tolerate such fraudulent conduct by their employees and
agents.

SUMMARY OF SPECIFIC PROVISIONS:
Section 1 establishes the title of the act as "The Foreclosure Fraud
Prevention Act of 2012."

Section 2 amends Penal Law section 187.00 to add seven new
definitional subdivisions, including a definition of "residential
mortgage foreclosure fraud," which is committed by a person who,
being an employee or agent of a residential mortgage business acting
              

within the scope of his or her employment, intentionally engages in
fraud or deception by authorizing, preparing, executing, offering or
presenting for filing any written instrument which such person: (a)
knows contains a material false statement, material false information
or a material omission; and (b) knows or believes will be filed with
a court or other public office or public servant, including but not
limited to a federal, state or local agency, department or bureau, in
support of or in conjunction with a pending or prospective
residential mortgage foreclosure action.

Section 3 amends Article 187 of the Penal Law to add a new section
187.30, defining the class A misdemeanor of Residential Mortgage
Foreclosure Fraud in the Second Degree, and a new section 187.35,
defining the class E felony of Residential Mortgage Foreclosure Fraud
in the First Degree.

Residential Mortgage Foreclosure Fraud in the Second Degree is
committed by an employee or agent of a residential mortgage business
who engages in "residential mortgage foreclosure fraud" as defined in
section two of the bill. Residential Mortgage Foreclosure Fraud in
the First Degree is committed by a person who:
(1) as part of a "systematic ongoing course of conduct," engages in
"residential mortgage foreclosure fraud" with respect to five or more
pending or prospective residential mortgage foreclosure actions
within a one-year period; or
(2) as a "high managerial agent" of a residential
mortgage business who knows that one or more of his or her agents or
employees are engaged in Residential Mortgage Foreclosure Fraud in
the First Degree as described above, fails to take reasonable
measures to prevent such conduct from continuing.


Section four establishes the effective date of the Act as ninety days
after it shall have become a law.

EXISTING LAW:
Article 187 of the Penal Law, which establishes the misdemeanor and
felony-level crimes of "Residential Mortgage Fraud," is aimed
primarily at fraudulent conduct in the solicitation of, application
for or underwriting of residential mortgage loans, and does not
specifically address fraud in the residential mortgage foreclosure
process. Nor do other existing Penal Law offenses that relate to
falsifying business records or offering false written instruments for
filing target specific fraudulent conduct in the foreclosure process
that is the subject of this legislation.

JUSTIFICATION:
The abuses committed in recent years by mortgage servicers in mortgage
foreclosure proceedings are well documented. Multiple employees of
the major servicers have admitted in sworn testimony that they
perpetrated systematic fraud on the courts in foreclosure proceedings
by "robo-signing" affidavits -- ie., attesting to personal knowledge
about mortgages and properties despite having no such knowledge.
These abuses occurred in hundreds of thousands of proceedings
nationwide. The dramatic increase in the number of foreclosure
proceedings being commenced compounded the problem. In 2005,22,601
foreclosure actions were filed in New York, and by 2010 the number of
annual filings had increased to 42,356. During 2009, there were
approximately 54,500 mortgage foreclosure proceedings pending in New
York courts and during 2010, the number of pending actions increased
to over 77,800.

The wide-spread practice of robo-signing has prompted a number of
investigations by governmental authorities, including several by the
Office of the NYS Attorney General (OAG) to determine the scope of the
fraud committed against the courts of this State. In April 2011, OAG
issued subpoenas to Steven J.
Baum, P.C., at the time one of the major mortgage foreclosure legal
firms in New York State handling approximately 40% of all mortgage
foreclosure filings in the State. The Attorney General's
investigation, which recently led to a $4 million settlement with the
Baum Firm, found that the Firm routinely brought foreclosure
proceedings without taking appropriate steps to verify the accuracy
of the allegations or the plaintiffs right to foreclose. From at
least 2007 through sometime in 2009, Firm attorneys repeatedly
verified complaints in foreclosure actions stating, among other
things, that the plaintiff was "the owner and holder of the note and
mortgage being foreclosed," when, in many securitized loan cases, the
Firm did not have documentary proof that the plaintiff was the owner
and holder of the note and mortgage.

The Attorney General further found that attorneys routinely verified
complaints that had been prepared by non-attorneys in an
assembly-line fashion and without adequate attorney supervision --
which verifications stated, among other things, that the attorneys
had read the complaints and knew their contents -- without reviewing
the contents of the complaints or the underlying documents such as
the original note or mortgage or any mortgage assignments.


Robo-signing and related foreclosure abuses have also prompted a
coordinated review by state and federal regulators. In 2010,
following revelations of the widespread use of robo-signed affidavits
in foreclosure
proceedings across the country, New York, along with other state
attorneys general, formed a working group to investigate the
problem. The major mortgage servicing banks soon acknowledged that
individuals had been signing thousands of foreclosure affidavits
without reviewing the validity or accuracy of the sworn statements.
Several national banks then agreed to stop their foreclosure filings
and sales until corrective action could be taken. In April, 2012, New
York and 48 other state attorneys general along with federal
agencies, including the Departments of Justice, Treasury, and Housing
and Urban Development reached a landmark settlement with the five
leading bank mortgage servicers resulting in substantial changes to
the servicers' servicing and foreclosure-related practices and
approximately $25 billion in monetary sanctions and relief.

Federal banking regulators also examined the foreclosure and servicing
practices of more than a dozen major banks and uncovered extensive
problems in the preparation of foreclosure documents by bank mortgage
servicers and also inadequate policies, staffing and oversight of
internal foreclosure processes. In their report, the federal
regulators concluded that "most servers had affidavit signing
protocols that expedited the processes for signing foreclosure
affidavits without ensuring that the individuals who signed the
affidavits personally conducted the review or possessed the level of
knowledge of the information that they attested to in those
affidavits.... Examiners also found the majority of servicers had
improper notary practices that failed to conform to state legal
requirements."

The New York Legislature responded to the residential mortgage crisis
with comprehensive legislation enacted in 2008 and 2009. Intended to
address the high number of defaults by unrepresented defendants in
residential foreclosure proceedings, the new legislation provided
additional protections for homeowners, including but not limited to a
requirement that, at least 90 days before commencing foreclosure
proceedings, mortgage lenders and assignees notify homeowners about
the availability of housing counseling and foreclosure prevention
services (see, RPAPL § 1305). Within 60 days of the filing of proof
of service, the court must hold a mandatory settlement conference, to
which the plaintiff must bring specified key documents, including the
mortgage and note, or the name, address, and phone number of the
legal holder of the mortgage if it is not the plaintiff; payment
history; and an itemization of the amounts needed to cure and pay off
the loan (see, CPLR 3408(e).

While an important step in the right direction, these recent
legislative advances and civil enforcement actions against
"foreclosure mills" are not enough to ensure that New York homeowners
are fully protected from ongoing misconduct and outright fraud in the
residential foreclosure arena. Accordingly, this legislation would
impose tough new criminal sanctions -- including felony-level
penalties -- against agents and employees of residential mortgage
businesses who intentionally engage in fraud or deception in the
preparation, execution or presentation for filing of written


instruments containing material false information or statements, or
material omissions, with knowledge or belief that the documents will
be filed in conjunction with a residential mortgage foreclosure
action. Further, under the legislation, those "high managerial
agents" of a residential mortgage business who know of such
fraudulent or deceptive conduct by their agents and employees, but do
nothing to prevent it, will face similar, felony-level, punishment as
well.

PRIOR LEGISLATIVE HISTORY:
New Bill.

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
90 days.