New York State Department of Financial Services (NYDFS) Superintendent Benjamin Lawky announced this week that he is stepping down from his post, but he has at least one more parting gift for the real estate industry: tackling the Empire State’s systemic foreclosure problem.

New York State Department of Financial Services (NYDFS) Superintendent Benjamin Lawsky announced this week that he is stepping down from his post, but he has at least one more parting gift for the real estate industry: tackling the Empire State’s systemic foreclosure problem.

Lawsky, who has served as NYDFS superintendent for four years, will leave the department in June. But in a presentation at the Mortgage Bankers Association’s National Secondary Market Conference & Expo, held this week in Manhattan, Lawsky appeared to remain committed to financial services industry reform as he summarized a recent NYDFS report that identified the reasons why New York is plagued by one of the nation’s largest backlogs of delinquent mortgages.

Benjamin

Benjamin “Johnny” Lawsky

According to the MBA, in the first quarter of this year, 5.5 percent of mortgages in New York were in some state of foreclosure. That’s well above the national average of 2.2 percent, and second only to New York’s neighboring state of New Jersey.

The problem is largely due to the existence of a “shadow docket” of foreclosure actions clogging up New York’s courts, the NYDFS report concluded.

In 2013, Gov. Andrew Cuomo signed legislation intended to move the cases forward. New York’s foreclosure law was amended to require all banks and mortgage servicers attempting to foreclose on a home to engage in a face-to-face settlement conference with the borrower and negotiate in good faith, in order to give the borrower every opportunity to save his or her home. No case can move forward until the conference process ends.

But the mandatory settlement conference “has not been the timely and efficient forum for foreclosure resolution that was once envisioned,” Lawsky conceded.

According to the report, despite a requirement that all conferences be held within 60 days of filing, downstate New York conferences are scheduled, on average, 161 days after filing. With an average of another 110 days to complete the settlement conferences, the entire process takes nine months, the report concluded.

The report also revealed that the longest delay in the foreclosure process occurs between the conclusion of the mandatory settlement conference and the entry of judgment of foreclosure and sale — an average of 430 days downstate, and 343 days upstate.

“Although it may not be immediately obvious, our current system hurts virtually everyone involved in the foreclosure process,” Lawsky said.

The inefficient process prevents struggling borrowers from getting their day in court to negotiate face to face with their lenders as interest and fees pile up, the report concluded. But these problems don’t just affect borrowers, Lawsky noted.

Courts are overburdened by a glut of slow-moving cases, delaying justice for other litigants and creating extra expense for the state’s taxpayers. Communities across the state are blighted by abandoned homes mired in litigation, which become increasingly uninhabitable over time, bringing down local property values. Local governments and their taxpayers are stretching already tight budgets to maintain these properties just enough to avoid safety hazards.

In addition, mortgage investors are unable to return properties to the market, even when they have been long abandoned. According to the report, “Lenders and investors often can do nothing but watch their investments fall into disrepair and lose value due to an unnecessarily protracted foreclosure process. Unable to return foreclosed properties to the market while they may still be marketable, foreclosure plaintiffs either take a loss in the foreclosure sale or abandon their foreclosure actions and write off their investments, once again leaving the burden of maintaining abandoned properties with the surrounding communities.”

The NYDFS recommended in the report that lawmakers more clearly define “failure to negotiate in good faith” in the context of the mandatory settlement conferences and impose penalties for failure to meet deadlines.

It also recommended requiring foreclosure plaintiffs to inform homeowners about their rights and obligations with respect to remaining in and maintaining their homes, streamlining the foreclosure process for properties that are truly vacant and have been abandoned by their owners and offering a nonjudicial process for uncontested mortgage foreclosures of commercial properties.

Lawsky will not be at his post when any of these reforms take place, however, as he will depart the NYDFS in less than a month.

“To be clear: This is a problem long in the making. And I doubt it is one that we will definitively solve this legislative session,” Lawsky said. “Nevertheless, we believe it is important to spark a conversation about how to address this problem effectively and responsibly — in a way that protects the rights and dignity of homeowners.”

Lawsky was unanimously confirmed to his position by the New York State Senate in May 2011 and was considered a formidable foe of large banks. He was once depicted on the cover of the Village Voice as “Johnny Lawsky,” the sheriff “who picked a fight with Wall Street.”

Lawsky recently announced sweeping reforms of the title insurance industry, including several measures intended to crack down on illegal kickbacks to real estate partners and lower title insurance premium rates on both mortgage and refinance transactions.

According to The New York Times, Lawsky will start his own legal consulting firm and teach at Stanford University. Cuomo will appoint a successor.

Email Amy Swinderman.

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