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Superintendent Lawsky Protects Homeowners In Foreclosure From Delays Caused By Abusive Law Firm’s Closing

Superintendent Lawsky Protects Homeowners In Foreclosure From Delays Caused By Abusive Law Firm’s Closing

Benjamin M. Lawsky, Financial Services Superintendent, today said homeowners facing foreclosure should not have to pay additional costs or penalties because of the closing of the largest foreclosure law firm in New York.

“New Yorkers facing foreclosure should not be penalized in any way because of delays which may arise because many mortgage servicers will now need to find new counsel. It adds insult to injury for New Yorkers to suffer further as a result of the shuttering of this abusive and discredited firm,” Superintendent Lawsky said.

In an industry-wide letter to mortgage servicers operating in New York, Superintendent Lawsky said servicers should proceed expeditiously to substitute new counsel in foreclosure cases previously handled by the Steven J. Baum law firm, which closed last month. However, he said homeowners should not be charged penalties, fees, costs or interest accrued as the direct result of delays caused by the Baum firm’s closing and the substitution of counsel.

A leading mortgage servicer, Ocwen Financial Corporation, has already signed an agreement with the Department of Financial Services (DFS) promising to refrain from charging homeowners for such costs. Ocwen agreed it would not penalize homeowners affected by the Baum closing in an amendment to an agreement reached in September with DFS to adhere to groundbreaking mortgage servicing reforms designed to address troublesome practices in the servicing industry generally.

Based in Amherst in Erie County, Baum closed after being fined $2 million by the federal government for its foreclosure practices, including allegations of “robo-signing,” and after Freddie Mac and Fannie Mae removed the firm from their lists of approved law firms.

The Baum firm represented plaintiffs in an estimated 40 percent of the foreclosure proceedings in New York in 2010. Servicers across the state will now have to hire new counsel, who will have to gather and review case files, and ask courts for the approval of new legal representation. As a result, significant delays in pending foreclosure cases are expected.

In the letter to servicers, Lawsky noted that one Baum attorney had asked for a 60 to 90 day continuance for a settlement conference in order to facilitate a change in counsel. Such a delay could cost a homeowner between $1,540 and $2,310 in additional interest charges based on a $150,000 mortgage at a 6.5 percent interest rate.

Meanwhile on December 12, 2011, another mortgage servicer, Specialized Loan Servicing LLC, became the eighth servicer to agree to adhere to the landmark reforms in Lawsky’s Agreement on Servicing Practices. The others are Ocwen, Morgan Stanley, Saxon, American Home Mortgage Servicing, Vericrest Financial, Goldman Sachs Bank and Litton Loan Servicing. Specialized Loan Servicing LLC, headquartered in Highlands Ranch, Colorado, services more than 216,000 loans nationally with a total unpaid principal balance of more than $16.4 billion and more than 5,800 loans in New York with a total unpaid principal balance of more than $829 million.

Specialized also agreed to refrain from charging homeowners for costs due to delays caused by the Baum firm closing or substitution of counsel.

“I commend Specialized Loan Servicing for being a leader and agreeing to adhere to these higher standards that protect homeowners from abuse. The Cuomo Administration has made it clear that we will do everything possible to see that fair and sensible reforms are put in place in the mortgage industry,” Lawsky said. “Moreover, with the letter issued to the servicing industry today, we are ensuring that borrowers facing foreclosure will not be charged for delays in court appearances, including settlement conferences, which may occur through no fault of their own due to the Baum firm closing.”

Kirsten Keefe, Senior Attorney in the Albany office of Empire Justice Center said, “Empire Justice Center applauds the NYS Department of Financial Services for taking swift steps to prevent any negative financial impact on the thousands of distressed homeowners affected by the closure of the Baum firm. There is a misperception that foreclosure delays benefit homeowners, but that is not the case. Not only is there a psychological cost to homeowners when cases drag on, but there are serious and significant financial consequences as hundreds to even thousands of dollars of additional interest accrues each month a loan languishes in foreclosure. Every dollar of added interest, fees or costs jeopardizes a homeowner’s ability to save their home. We hope the DFS’s actions today are embraced quickly by all servicers so that these innocent homeowners are not left paying for the mistakes of others.”

Josh Zinner, Co-Director of the Neighborhood Economic Development Advocacy Project (NEDAP), said: “The abusive foreclosure practices of the Baum law firm have caused great harm to homeowners and communities throughout the state. We strongly support efforts by the Department of Financial Services to ensure that New York homeowners are not penalized by mortgage servicers for the demise of the Baum law firm.”

Chuck Bell, Programs Director of Consumers Union, said: “Foreclosure proceedings are traumatic enough for consumers, without the pain and expense of lengthy legal delays, higher interest charges and fees. We applaud the Cuomo administration’s efforts to provide vigorous oversight of mortgage servicing practices, and protect New York consumers against the huge potential disruption caused by the closure of the Baum law firm.”

The agreements announced today were arranged through the work of Executive Deputy Superintendent Joy Feigenbaum of the Financial Frauds & Consumer Protection Division, Associate Counsel Brian Montgomery, Assistant Counsel Max Dubin and Associate Counsel Ellen Buxbaum with the assistance of Deputy Superintendent of Mortgage Banking Rholda Ricketts.

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