HSBC ignored a law designed to protect struggling homeowners and in doing so put them at greater risk of losing their homes, according to a lawsuit filed against the British bank by the state of New York on Tuesday.
The New York attorney general, Eric Schneiderman, said an investigation had found the British bank had failed to meet state requirements for giving borrowers an opportunity to negotiate loan modifications.
"Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can't even get the legally required settlement conference that could help them keep their homes," Schneiderman said in a statement.
Schneiderman asked a judge to force HSBC to follow the state notification law, to waive all additional interest and other charges levied on homeowners who were not notified of their settlement rights, and to grant damages and restitution to affected borrowers.
HSBC was not immediately available for comment.
New York state requires lenders to file paperwork that triggers a "request for judicial intervention" when they sue a homeowner for foreclosure. The filing is supposed to lead to a settlement conference within 60 days, to try to resolve the issue before moving to final foreclosure.
The attorney general's investigations found "close to 300 instances" in which HSBC was too slow to file the proper paperwork in four New York counties. Schneiderman said some HSBC paperwork was filed two years late.
The suit cites the case of Rebecca Karm of Erie County, New York. Karm faced foreclosure after medical problems and the loss of her job led to financial difficulties. According to the suit, HSBC began its foreclosure process on 12 November 2010 but did not notify the courts to begin the settlement process until 8 June 2012. The 547-day delay added $23,000 in fees to Karm's loan balance, which she would have avoided had she been gone through the state settlement process, Schneiderman contends.
Last year, New York's office of court administration reported that 25,000 of the state's homeowners were in a "shadow docket" – their foreclosure proceedings were under way but lenders had yet to file a request for judicial intervention.
"For homeowners facing foreclosure, time is their greatest enemy," said Schneiderman. "Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind. I am committed to doing everything I can to stand up for New Yorkers who are trapped in the 'shadow docket' and denied their right to fight for their homes."
Schneiderman last month announced plans to sue Bank of America and Wells Fargo for violating terms of a $25bn nationwide settlement over mortgage servicing abuses. That agreement covered five major banks, but did not include HSBC.
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