NY To Require That Banks Send Decision-Makers, Not Mouthpieces, To Foreclosure Proceedings

Like many states that are trying to both expedite judicial review of foreclosures and keep as many people in their homes as possible, New York has enacted new measures, like requiring that bank lawyers verify foreclosure paperwork and that all homeowners receive legal assistance. But a big problem keeps coming up that continues to cause delays — no one in the room actually has the authority to change a loan agreement.

That is going to change, with the state’s Chief Judge announcing that the lender must have at least one person present at the foreclosure proceedings who can make a decision then and there on adjusting the mortgage.

“There will be no more excuses, no more delays,” said Lippman. “Real negotiations will take place.”

Surprisingly, four of the nation’s largest lenders — Chase, Citigroup, Wells Fargo, and Bank of America — have all agreed to follow by this new rule.

Perhaps they are realizing that it might be better for them to modify mortgages and eventually make back their money than risk selling for a loss at a short sale or auction.

The program will begin in Queens this spring and move out across the rest of NYC and into the suburbs before eventually, if it proves successful, rolling out statewide.

New York Courts to Intensify Efforts to Prevent Foreclosures [NY Times]


Edit Your Comment

  1. Costner says:

    In related news, new mortgages in the state of New York will now be even more expensive due to the costs of sending employees to every single foreclosure proceeding.

    Every action has an equal and opposite reaction.

    • MutantMonkey says:

      The amount of money these people will be clearing should be more than enough to make-up for whatever their salaries are. If this has any impact on mortgages, it shouldn’t be any more than maybe an extra hundred dollars per mortgage, likely less.

      • Firethorn says:

        Don’t forget that they’re already sending a ‘mouthpiece’ who has no power, now all they have to do is empower the mouthpiece or send somebody with authority.

        The pay difference might actually be minimal or even cheaper if it saves time. Especially so if it prevents delays at the courthouse.

        Of course, while waiting for the full article to load my thought was ‘can’t the judge do that?’ Of course, if the judge is pissed off at the company for sending a mere mouthpiece, the company might not like how the mortgage ends up modified.

        • Costner says:

          They still need a laywer to handle the legal aspect, and now they need a representative who has power to negotiate loan terms. I see no way this wouldn’t end up costing the bank (and ultimately the borrowers) money.

          It is all find and dandy if it actually works, but people are naive if they think the bank hasn’t already figured out it is most cost effective to foreclose. In most cases they have already done the math and know on average it saves them money to foreclose vs. trying to keep someone in a house that will continue to have problems paying for it for the next decade or so.

          People need to start realizing that most foreclosures occur because there is no other viable solution. When someone doesn’t have the money to pay their loan payment or went through a job loss or divorce and can’t even make 30% of their payment, there is no way to keep them in that house. The bank knows this. The homeowner knows this. It is just a matter of accepting it.

          A bit of advice every borrower should heed is to never establish an emotional connection to something you are making payments on (mail order brides and puppies excluded).

          • Tiercelet says:

            Yes, but this isn’t the case for most of these people.

            The bank wants to foreclose because at this point it is the servicer but not the holder of the note. The mortgage got sold off to some chump institutional investor as a mortgage-backed security. The bank merely collects the payments and sends them to the investors (for a fee). Of course, if the house is foreclosed, they can assess all kinds of late-payment fees, foreclosure fees, and (in many cases) junk fees that are repayable first to the servicer — thus they can squeeze the borrower for as long as possible.

          • Such an Interesting Monster says:

            This is an overly simplified and not-all-that-realistic view of a rather complicated and complex issue. In most of these cases people can’t pay their mortgages due to an extended unemployment compounded in many cases by predatory terms of the mortgage, like a massive increase of the interest rate after 3-5 years. Yes there are cases of people simply being in a house they cannot possibly afford, but those are not the norm.

            The conventional wisdom of it being more cost-effective for a bank to foreclose is no longer the case, as the banks are slowly finding out. With housing values at an all time low and a glut of foreclosures on the market the chance of getting back more than but a fraction of what is owed is slim. And good luck trying to get the rest of the money out of the former owners you’ve now left homeless on top of unemployed.

            Banks are now discovering it actually works out better for them to work with the homeowners to keep them in the house and keep them paying even if it means reducing their interest rates and giving them time to recover from a prolonged unemployment. Because the alternative is having a foreclosure they can’t sell that is prone to squatters, HOA fees and fines, and vandalism on top of the property taxes they are supposed to be paying.

    • ARP says:

      True, but they may realize that it might be worthwhile (and more profitable for them) to actually negotiate a settlement rather than foreclose since they have to send someone out anyway.

    • Lyn Torden says:

      Actually, that requirement already existed. There was difficulty in enforcing it because once the issues was discovered, it was already delayed. This is really a program to enforce the issue before parties show up in court.

      IMHO, Judges should simply have the power/authority to dismiss a foreclosure action when the “plaintiff authority” fails to appear, forcing the bank to re-file, and giving the defendant more time to live in the home. Actually, I think they may have that authority, already. They really need more authority to enforce imposed loan modifications when the bank fails to send someone with the authority to do that.

      Judge: How about you accept a modification of the loan terms to reduce the interest rate to X% and move the loan schedule up so the last due payment is now due at the end of this month?
      Plaintiff attorney: I have not been granted the authority to do that.
      Judge: Well, you are legally an officer of the court, so I hereby grant that authority to you personally right now … [*BANG* of the gavel]
      Plaintiff attorney: Uh …
      Judge: The clerk’s office is downstairs in room 201. Go get a mediation room right now. … Next!

    • Such an Interesting Monster says:

      Or maybe they’ll realize that actually trying to work things out with homeowners to prevent foreclosure will be more cost-effective than having to go to court.

    • consumerfan says:

      Nah, just send their robosigner in.

    • exconsumer says:

      I, for one, would prefer a slightly more expensive yet legal and functional bank to loan from. And when you add in the cost of dealing with a bank that is not bound by law . . . yeah, you might even come out ahead.

      • Robert Nagel says:

        Why do you think it will be only “slightly” more expensive. Did I miss something in the article referencing this amount? The cost may actually be much more expensive and the availability of mortgages to those who on the borderline may become severely lessened.

        • Conformist138 says:

          Where did you get the idea that it would be anything more than slightly? They already are sending employees, now they’re just told at least one of them needs to have authority to act. Just how much more does it cost to have someone who can make decisions?

          I mean, it should be obvious – at a legal proceeding, someone needs to be there who actually has the authority to negotiate on each side. That they need to be explicitly told this is really sad. The homeowners couldn’t just send their neighbors as ineffectual placeholders, so why should the banks get to send useless drones who can’t do anything?

          • shinazzle23 says:

            Reminds me of that old Dilbert cartoon:

            Q: Hey Wally, What’s a “Decision”?

            A: It sounds like something our competitors do.

  2. raydee wandered off on a tangent and got lost says:

    Now this is something that sounds like progress. Empower your employees to make decisions. Trust them to do things in the best interests of all parties involved, and you’ll see results.

  3. CubeRat says:

    ” Surprisingly, four of the nation’s largest lenders ‚Äî Chase, Citigroup, Wells Fargo, and Bank of America ‚Äî have all agreed to follow by this new rule. “

    If the homeowner has waited until the foreclosure proceedings to attempt to reach a workout/settlement, I suspect the answer will be ‘no’. This requirement will probably only help a debtor that has not been able to contact the lender & has all necessary paperwork with them.

  4. travisd1000 says:

    Isn’t sending a representative to a negotiation who does not actually have the power to, you know, “negotiate”, pretty much define “in bad faith”?

  5. history_theatrestudent says:

    Won’t this just lead to agents with a very narrow frame of negotiation, or the setting of company policy that ties the hands of those involved in the negotiation process? Granted a judge might be able to order a review of the negotiator’s training procedure, manual, contract or other things be reviewed to help being some means of good faith negotiation.

  6. dush says:

    “requiring that bank lawyers verify foreclosure paperwork and that all homeowners receive legal assistance.”

    Lawyers win again.

  7. bhr says:

    Here is the problem I see with this. Mortgages are based on a number of factors, including debt, credit, income, home values, so I am not sure how a representative of the bank will be able to make an instant decision on loan modifications based on any of that information. Most likely the lenders will come in advance with a proposal (deferred interest, lower rate, ect) and the court will allow the customer to decide on it . My question is if the banks will be forced to offer modifications to all customers.

    The point becomes what happens when the customer in court fails to meet the new terms? It takes a long time to get a home to foreclosure, and I could see a customer taking advantage of this policy to get another 3-4 months in a home.

  8. Bob Lu says:

    I don’t understand. How is the judge not the decision maker?

    • sendbillmoney says:

      I’ll take a shot at this (IANAL).

      Certain decisions have to be made by the parties.

      The judge makes findings of law. If there isn’t a jury, the judge will also make findings of fact. The judge can also open a can of contempt whoop@$$ on people who behave badly.

      If a party has contractual rights to X, a judge can’t unilaterally declare that the party is willing to accept less than X.

  9. I-man says:

    My finacee is going through the foreclosure/modification hell right now (we’re in Connecticut). The way I see the process working is this:

    1. Bank agrees to consider a loan modification and requests a ton of paperwork that shows every detail of the owner’s financial situation.
    2. Owner sends in paperwork.
    3. Bank and owner go to a mediation hearing.
    4. Bank’s lawyer claims they don’t have required paperwork and requests a postponement.
    5. Bank requests all paperwork be re-submitted and , BTW, the lawyer’s fees have been added to what the owner owes.
    6. Owner resubmits paperwork.
    7. Bank and owner go to mediation hearing. Bank makes some ridiculous offer (i.e. we’ll reduce your principle by $5.00 and your interest rate to 6.9% but you have to pay us $20000 in fees).
    8. Owner makes a counter-offer to bank’s lawyer. Bank’s lawyer says he’ll submit it to bank.
    9. Bank tells owner they need new paperwork to be submitted to consider offer.
    10 . Goto step 2. Repeat until ???

    My take on the process is that the bank is trying to drag out the process to make the owner give up and let the foreclosure go through. The bank can then claim to be trying to help the owner while in fact, is doing nothing.

  10. HogwartsProfessor says:

    Anybody else immediately flash on the Mouth of Sauron?

  11. areaman says:

    Surprisingly, four of the nation’s largest lenders ‚Äî Chase, Citigroup, Wells Fargo, and Bank of America ‚Äî have all agreed to follow by this new rule.

    I’m not that surprised. I think they have come to some level of acceptance of what’s going and are starting to act like adults.