BILL NO A10629

SAME AS No same as

SPONSOR Rules (Weinstein)

COSPNSR Lentol, Lopez V, Rivera P, Robinson, Colton, Hooper, Clark, Lavine,
Weprin, Rosenthal, Miller M, Abinanti, Weisenberg, Barrett, Brindisi,
Bronson, Zebrowski, Roberts, Russell, Ramos, Gabryszak, Skartados,
Cymbrowitz

MLTSPNSR

Amd S187.00, add SS187.30 & 187.35, Pen L

Enacts “the foreclosure fraud prevention act of 2012”; creates the crimes of
residential mortgage foreclosure fraud in the first and second degrees.

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A10629 Memo:

BILL NUMBER:A10629

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 “robo-
signing” 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 fraudu-
lent 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 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 3 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 or reasonably
should know 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, “recklessly tolerates” such conduct or otherwise fails
to take reasonable measures to prevent it from continuing.

Section four establishes the effective date of the Act as ninety days
alter 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 under-
writing 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 fraudu-
lent 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-sign-
ing” affidavits — i.e., 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 foreclo-
sure 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 (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 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 robe-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 or reasonably should
know of such fraudulent or deceptive conduct by their agents and employ-
ees, 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.

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A10629 Text:

S T A T E O F N E W Y O R K
________________________________________________________________________

10629

I N A S S E M B L Y

June 11, 2012
___________

Introduced by COMMITTEE ON RULES — (at request of M. of A. Weinstein,
Lentol, V. Lopez, P. Rivera, Robinson, Colton, Hooper, Clark, Lavine,
Weprin, Rosenthal, M. Miller, Abinanti, Weisenberg, Barrett, Brindisi,
Bronson, Zebrowski, Roberts, Russell, Ramos, Gabryszak, Skartados,
Cymbrowitz) — (at request of the Department of Law) — read once and
referred to the Committee on Codes

AN ACT to amend the penal law, in relation to enacting the “foreclosure
fraud prevention act of 2012″

THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

1 Section 1. This act shall be known and may be cited as the “foreclo-
2 sure fraud prevention act of 2012.”
3 S 2. Section 187.00 of the penal law is amended by adding seven new
4 subdivisions 5, 6, 7, 8, 9, 10 and 11 to read as follows:
5 5. “RESIDENTIAL MORTGAGE FORECLOSURE FRAUD” IS COMMITTED BY A PERSON
6 WHO, BEING AN AGENT OF A RESIDENTIAL MORTGAGE BUSINESS ACTING WITHIN THE
7 SCOPE OF HIS OR HER EMPLOYMENT, INTENTIONALLY ENGAGES IN FRAUD OR DECEP-
8 TION BY AUTHORIZING, PREPARING, EXECUTING, OFFERING OR PRESENTING FOR
9 FILING ANY WRITTEN INSTRUMENT WHICH SUCH PERSON:
10 (A) KNOWS CONTAINS A MATERIAL FALSE STATEMENT, MATERIAL FALSE INFORMA-
11 TION OR A MATERIAL OMISSION; AND
12 (B) KNOWS OR BELIEVES WILL BE FILED WITH A COURT OR OTHER PUBLIC
13 OFFICE OR PUBLIC SERVANT, INCLUDING BUT NOT LIMITED TO A FEDERAL, STATE
14 OR LOCAL AGENCY, DEPARTMENT OR BUREAU, IN SUPPORT OF OR IN CONJUNCTION
15 WITH A PENDING OR PROSPECTIVE RESIDENTIAL MORTGAGE FORECLOSURE ACTION.
16 6. “AGENT” SHALL HAVE THE SAME MEANING AS PROVIDED IN PARAGRAPH (A) OF
17 SUBDIVISION ONE OF SECTION 20.20 OF THIS CHAPTER.
18 7. “HIGH MANAGERIAL AGENT” SHALL HAVE THE SAME MEANING AS PROVIDED IN
19 PARAGRAPH (B) OF SUBDIVISION ONE OF SECTION 20.20 OF THIS CHAPTER.
20 8. “WRITTEN INSTRUMENT” SHALL HAVE THE SAME MEANING AS PROVIDED IN
21 SUBDIVISION THREE OF SECTION 175.00 OF THIS PART.
22 9. “RESIDENTIAL MORTGAGE BUSINESS” MEANS A LENDER OR ANY OTHER PART-
23 NERSHIP, CORPORATION, COMPANY, TRUST OR ASSOCIATION ENGAGED IN WHOLE OR

EXPLANATION–Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD16190-02-2
A. 10629 2

1 IN PART IN THE BUSINESS OF ORIGINATING, GRANTING, SERVICING OR FORECLOS-
2 ING UPON RESIDENTIAL MORTGAGE LOANS.
3 10. “LENDER” MEANS A MORTGAGE BANKER AS DEFINED IN PARAGRAPH (F) OF
4 SUBDIVISION ONE OF SECTION FIVE HUNDRED NINETY OF THE BANKING LAW OR AN
5 EXEMPT ORGANIZATION AS DEFINED IN PARAGRAPH (E) OF SUBDIVISION ONE OF
6 SECTION FIVE HUNDRED NINETY OF THE BANKING LAW.
7 11. “RESIDENTIAL MORTGAGE FORECLOSURE ACTION” MEANS AN ACTION BROUGHT
8 PURSUANT TO THE REAL PROPERTY ACTIONS AND PROCEEDINGS LAW TO FORECLOSE
9 UPON A RESIDENTIAL MORTGAGE LOAN.
10 S 3. The penal law is amended by adding two new sections 187.30 and
11 187.35 to read as follows:
12 S 187.30 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE SECOND DEGREE.
13 A PERSON IS GUILTY OF RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE
14 SECOND DEGREE WHEN HE OR SHE COMMITS RESIDENTIAL MORTGAGE FORECLOSURE
15 FRAUD.
16 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE SECOND DEGREE IS A CLASS
17 A MISDEMEANOR.
18 S 187.35 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE FIRST DEGREE.
19 A PERSON IS GUILTY OF RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE
20 FIRST DEGREE WHEN:
21 1. AS PART OF A SYSTEMATIC ONGOING COURSE OF CONDUCT, SUCH PERSON
22 ENGAGES IN THE CONDUCT PROHIBITED BY SECTION 187.30 OF THIS ARTICLE WITH
23 RESPECT TO FIVE OR MORE PENDING OR PROSPECTIVE RESIDENTIAL MORTGAGE
24 FORECLOSURE ACTIONS WITHIN A ONE-YEAR PERIOD; OR
25 2. BEING A HIGH MANAGERIAL AGENT OF A RESIDENTIAL MORTGAGE BUSINESS,
26 HE OR SHE:
27 (A) KNOWS OR REASONABLY SHOULD KNOW THAT ONE OR MORE AGENTS OF SUCH
28 BUSINESS ARE ENGAGED IN THE CONDUCT PROHIBITED BY SUBDIVISION ONE OF
29 THIS SECTION; AND
30 (B) RECKLESSLY TOLERATES SUCH CONDUCT OR OTHERWISE FAILS TO TAKE
31 REASONABLE MEASURES TO PREVENT IT FROM CONTINUING.
32 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE FIRST DEGREE IS A CLASS
33 E FELONY.
34 S 4. This act shall take effect on the ninetieth day after it shall
35 have become a law.

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