NEW YORK, April 2 (Reuters) - New York is launching a pilot
program aimed at clearing the backlog of inactive residential foreclosure cases that have been stranded in legal limbo on
state courts' so-called "shadow" docket.
On March 28, the Unified Court System proposed the creation
of a special calendar to identify inactive residential mortgage
foreclosure actions that have been filed with county clerks, but
never officially activated on the court docket. The proposal
gives judges the power to schedule a settlement conference or
take other action to move the cases forward.
Under 22 NYCRR 202.12-a, lenders must file proof of service
of the summons and complaint in a residential mortgage
foreclosure action within 120 days of bringing the action. When
they file proof of summons, they also must file a request for
judicial intervention and a lawyer's affirmation vouching for
the accuracy of the documents. Once the paperwork is complete,
courts can schedule a settlement conference.
But lenders increasingly are filing foreclosure actions
without the accompanying proof of service, attorney affirmation,
or RJI, according to a letter from the court announcing the
proposal. Those cases wind up on the "shadow inventory," meaning
they are not on the court's formal docket and judges can't take
steps to resolve the case.
To combat this, the court system is planning to debut as
early as June a pilot program in Kings County that would
identify inactive foreclosure actions and authorize courts to
take action before the affidavit, RJI or affirmation is filed.
Once the inactive cases have been identified, they could be
referred to a special delinquency calendar or a housing agency.
Alternatively, a status conference could be scheduled to assess
whether the case is ripe for settlement.
If settlement efforts fail and the case is referred to the
court for foreclosure proceedings, then the required paperwork
would still need to be filed. But by eliminating the requirement
at the inception of the cases, the courts are hoping to do away
with a major hurdle, according to Judge Judy Kluger, chief of
policy and planning of the New York Unified Court System.
"The purpose of the new rule is to trigger some kind of
action in these cases earlier than it would have occurred
before," Kluger said. "We feel we have, through this rule, the
ability to bring those cases before a judge and to determine
whether a foreclosure settlement conference is appropriate."
Depending on how the Kings County pilot program works, the
rule eventually could be rolled out in other counties, starting
with those hardest hit by the foreclosure backlog, Kluger said.
According to court statistics, the shadow foreclosure docket
has recently skyrocketed in Kings County, from 718 pending in
2010 to 2,100 in 2011. That number includes both commercial and
Bruce Bergman, an attorney with Berkman Henoch Peterson
Peddy & Fenchel, said the proposal seemed like a win-win for
mortgage lenders and servicers, as well as homeowners. When
foreclosure actions stall, lenders risk watching the value of
the underlying loan or property erode, while interest and legal
fees accumulate, he said.
"This will be a way for the courts to speed the action
forward, which, it seems to me, is helpful for everyone,"
Bergman said. "It ameliorates the burden of delay that the
apparent need for an affirmation at the inception of a case had
Steve Kayman, a Proskauer Rose attorney who chairs the New
York City Bar Task Force on Residential Mortgage Foreclosures,
praised New York court administrators for their "proactive,
"The court system is reaching out to these cases to try to
ameliorate the hardships this shadow inventory is causing to
homeowners and society at large," Kayman said. "We're not going
to deal with the shadow inventory as well as the regular
inventory if we can't get these cases resolved or moved along."
(Reporting by Jessica Dye)
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