BILL NUMBER:S3491

TITLE OF BILL:  An act to amend the penal law, in relation to residen-
tial mortgage foreclosure fraud prevention

PURPOSE OR GENERAL IDEA OF BILL:  To protect New Yorkers facing the
foreclosure of their homes from "robosigning" and other fraudulent busi-
ness practices during the foreclosure process by imposing both misdemea-
nor and felony-level penalties on those who intentionally engage in such
conduct and on "high managerial agents" of residential mortgage busi-
nesses who recklessly tolerate such fraudulent conduct by their employ-
ees and agents.

SUMMARY OF SPECIFIC PROVISIONS:

Section 1 amends Penal Law section 187.00 to add seven new definitional
subdivisions, including a definition of "residential mortgage foreclo-
sure 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 2 amends Article 187 of the Penal Law to add a new section
187.30, defining the class A misdemeanor of Residential Mortgage Fore-
closure 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 manage-
rial agent" of a residential mortgage business who knows that one or
more of his or her agents or employees are engaged in Residential Mort-
gage Foreclosure Fraud in the First Degree as described above, fails to
take reasonable measures to prevent such conduct from continuing.

Section 3 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, applica-
tion for or underwriting of residential mortgage loans, and does not
specifically address fraud in the residential mortgage foreclosure proc-
ess. 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 servi-
cers 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 know-
ledge.  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 approxi-
mately 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 inves-
tigations by governmental authorities, including several by the Office
of the NYS Attorney General (GAG) to determine the scope of the fraud
committed against the courts of this State. In April 2011, GAG 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 veri-
fied 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 coordi-
nated review by state and federal regulators. In 2010, following revela-

tions of the widespread use of robo-signed affidavits in foreclosure
proceedings across the country, New York, along with other state attor-
neys 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 land-
mark settlement with the five leading bank mortgage servicers resulting
in substantial changes to the servicers' servicing and foreclosure-re-
lated 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 prob-
lems in the preparation of foreclosure documents by bank mortgage servi-
cers 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 servi-
cers 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 resi-
dential 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, mort-
gage 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 fore-
closure 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: 120 days.