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.

'OUTSIDE-THE-BOX'

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 residential foreclosures.

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 created."

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, outside-the-box" proposal.

"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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