New York Attorney General Sues HSBC

New York State has a law designed to give homeowners a chance to negotiate with banks over mortgages, but the Attorney General thinks at least one big bank is not playing by the rules.  So, Eric Schneiderman, the Attorney General of NY filed Suit against HSBC.

The Attorney General claims delays in following the law are huge problem and, according to the New York Times, “…delays have trapped as many as 25,000 homeowners in a “shadow docket” of foreclosure cases backlogged as long as 2-1/2 years, causing them to rack up thousands of dollars of needless interest, fees and penalties.”

The suit alleges 297 specific cases in which the bank delayed filing paper work for,  “judicial intervention, which entitles homeowners to settlement conferences within 60 days to negotiate loan modifications.”  This does not seem like all that onerous a requirement on a bank prior to foreclosing on a house that will take them months to liquidate anyway.

It is interesting to see the NY AG going after a big bank this aggressively.  New York is, obviously, the U.S. home of the financial world, so such an aggressive stance could be contagious.  Indeed the article in Bloomberg News claims the AG is considering pursuing similar action against other large banks. Bloomberg reports that HSBC was not part of the $25 Billion settlement reached last year for Mortgage fraud.  The case is New York v. HSBC Bank USA et al, New York State Supreme Court, Erie County, No. 001660-2013.

It’s a first step towards enforcing banking regulations on a major international bank.  What is worth remembering is that this is what we need offices like the Attorney General to be able to do.  It is just not possible for individual homeowners to fight a bank with the international might of HSBC almost no matter what the circumstance.

There is no allegation in the current article, at least, the HSBC defrauded anybody so we do not see any current action for a qui tam having been filed under the New York False Claims Act.  However, the big banks in New York are probably wondering about it right now.  If there is any potential case which would damage the State of New York under the state False Claims Act it is this same Attorney General who would have the job of investigating and potentially prosecuting.

Is Mr. Schneiderman sending the banking industry a message by filing such a case?  HSBC can afford to settle claims which involve 297 homeowners.  The story was picked up by Reuters and run in the New York Times with (relatively) little fanfare.  The Times probably is not excited about covering a case filed in Upstate NY.  It seems like a modest start to dealing with a relatively big issue if in fact there are 25,000 homeowners whose rights have been violated as the AG claims.  We’ll see what happens. Maybe there will be a quick settlement and all this will go away and the homeowners will be happy.

Or maybe this is just the first case and we will hear of many more.  In any event, we are grateful the Attorney General is at least prepared to take some action to enforce his law even against the largest banks in the world.