Suit Targets Lenders' Firm Over Foreclosure Filing Requirements

Andrew Keshner

New York Law Journal

A putative class action is targeting one of New York state's most ubiquitous firms representing lenders in foreclosure actions, claiming the firm's alleged failure to file particular court papers is depriving homeowners of the chance to participate in mortgage modification conferences.

In a lawsuit filed in the Eastern District of New York, MFY Legal Services claims that Steven J. Baum P.C., an Amherst-based firm representing banks in a large share of New York state foreclosure actions, engaged in "unfair and unconscionable debt collection and deceptive practices" by failing to file the specialized Request for Judicial Intervention that triggers settlement conferences.

The conferences are meant to bring lenders and homeowners together to negotiate a mortgage modification before the action can proceed.

In Cole v. Baum, 11-cv-3779, MFY alleges that "Defendant Baum's unlawful conduct has caused serious damage to Plaintiffs and the Class by prolonging the amount of time that Plaintiffs' and Class members' mortgage loans remain delinquent, which has caused their loan balances to swell due to unnecessary delinquent interest accruals and needless foreclosure, and delinquency related fees being assessed against their loan accounts."

The Aug. 3 complaint coincided with the release of an MFY Legal Services study faulting the Baum firm and others that handle foreclosure matters for lenders for not filing the documents that trigger settlement conferences.

MFY tracked foreclosures filed in Brooklyn and Queens in both November 2010 and March 2011. Of 922 foreclosure actions filed in those two months, the study said 805 actions, or 87 percent, lacked the request for judicial intervention as of June 2011.

According to the study, out of 159 cases handled by the Baum firm, requests for judicial intervention were filed in 10 cases.

Steven J. Baum denied the suit's allegations of deceptive practices and said he had not yet had a chance to verify MFY's purported data.

But he noted in a statement that the lack of requests for judicial intervention filed actually indicates that the firms are not the problem, but illustrates the need to re-examine the court system's filing requirements.

Baum's statement refers to requirements that the proof of service of the summons and complaint be filed at the same time as the request for judicial intervention, and an attorney affirmation vouching for the accuracy of the underlying documents. Those requirements, he said, are time consuming and require thorough review.

Previously, only two documents, the proof of service and the request for judicial intervention, had to be filed at the same time under Uniform Rules for the New York State Trial Courts §202.12-a(b)(1).

In the wake of the "robo-signing" scandal last year, Chief Administrative Judge Ann Pfau in October added the affirmation requirement, in which lenders' attorneys must confirm they have performed due diligence by ensuring accuracy of the documents with a representative of the foreclosing institution.

The number of foreclosure actions have dropped in the wake of the affirmation requirement. According to Office of Court Administration statistics, from January to July 2010, there were 24,169 residential foreclosure filings. From January to July 2011, there have been 4,834 filings. OCA foreclosure data is only counted from the filing of the request for judicial intervention.

The MFY suit claims foreclosure firms are "overwhelmingly reluctant" to sign affirmations, explaining the "standstill" in request for judicial intervention filings.

Under CPLR 3408(a), the settlement conference is to be scheduled by the court within 60 days of proof of service.

Meanwhile, lenders are coping with increased scrutiny and regulations that often vary from state to state. For example, 16 of the nation's top mortgage servicers are adjusting to consent order requirements under a settlement with the Office of the Comptroller of the Currency, Office of Thrift Supervision and the Federal Reserve System. Among those requirements are the establishment of a certification process for the law firms that the lenders use.

NEED FOR CONFERENCES

Elizabeth Lynch, a staff attorney with MFY Legal Services, said that without the settlement conferences, homeowners could not avail themselves of help from local housing counselors or court oversight to counter delays from lenders.

"We basically have nobody to turn to," she said, adding that accumulating fees could make it more difficult for homeowners to obtain modifications in the future.

Lynch said that while the affirmation had originally been implemented to protect homeowners by assuring accurate papers and a fair process, the requirement is backfiring.

The delay in filing further harms homeowners, she said, adding, "I think in a way, it makes a mockery of the due diligence affirmation."

The suit seeks to recoup late fees, delinquent interest and other foreclosure-related expenses for homeowners who have not yet proceeded to settlement conference, she said.

Baum said in his statement that he found it ironic that MFY "seeks to speed up the foreclosure process when the October 2010 message from the Office of Court Administration concerning Affirmations was clear: foreclosure counsel should take its time and make sure all is in order before coming to court."

In an interview, Baum added, "If the plaintiffs want these settlement conferences to be triggered faster, the answer is to have the OCA amend their current rules to allow for the affirmation to be filed at a later time and that later time could be at the settlement conference. That would allow at least 60 days to have the affirmation completed."

The Baum firm has appeared in 67,000 settlement conference appearances since they were first mandated in 2008, according to Baum.

The OCA said courts oversaw more than 62,000 settlement conferences in the January to July 2010 period. In the comparable 2011 time period, there were just over 50,000 conferences.

A November 2010 OCA study showed that while conferences were labor-intensive, averaging about six to eight appearances per case, they were ensuring fewer default judgments and more settlements.

MFY is handling the case with the law firm of Harwood Feffer.