Foreclosure Fraud Act Passes Assembly

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The New York State Assembly passed the Foreclosure Fraud Prevention Act of 2013 last week, which imposes both misdemeanor and felony-level penalties on banks and lenders which knowingly engage in fraud. The bill also includes penalties for certain supervisory employees of banks and lenders, referred to as “high managerial agents,” who know about fraudulent conduct by their employees and agents, but fail to take reasonable measures to stop the conduct, according to information supplied by New York State Assemblyman Fred W. Thiele Jr.

The legislation creates the crime of residential mortgage foreclosure fraud in the second degree, a class-A misdemeanor, punishable by up to one year in jail and a $1,000 fine. The penalty is directed at employees or agents of residential mortgage companies who knowingly prepare and file false documents in a residential foreclosure action.

In addition, the bill would make residential mortgage foreclosure fraud in the first degree a class-E felony, punishable by up to four years in state prison. This penalty is directed at agents who engage in five or more acts of residential mortgage foreclosure fraud and at those “high managerial agents” who know that one or more of their employees are engaged in residential mortgage foreclosure fraud and fail to take reasonable steps to stop it.

“We’ve all heard the stories: lenders ‘robo-signing’ document after document in an assembly-line fashion and without adequate attorney supervision, claiming to have personal knowledge about mortgages and properties that they actually did not,” Mr. Thiele said in a press release issued on Thursday. “That practice has led to improper foreclosure proceedings that are forcing innocent, hardworking New Yorkers out of their homes. This is fraud plain and simple. We have taken steps over the past few years to protect hardworking families from unseemly mortgage practices, but we have not specifically criminalized these fraudulent practices. This legislation will take that extra step.”

The Assembly also recently passed a bill that would address the backlog known as the “shadow docket” by requiring foreclosure plaintiffs to file a certificate of merit in residential foreclosure actions. The certificate of merit would be accompanied by copies of the legal documents, which a lender must have in order to foreclose. Provisions in the bill would require counsel for lenders to certify that such action can be commenced.

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