An outspoken State Supreme Court justice in Brooklyn known for taking on banks and throwing out foreclosures has fined HSBC Bank USA $10,000 for "frivolous conduct" in trying to seize a home without proper paperwork.
Justice Arthur M. Schack sanctioned the U.S. subsidiary of London-based HSBC Holdings Plc last week, citing the bank's "waste of judicial resources" in continuing a foreclosure action "with all of its defects."
In his ruling, he said the bank's "use of robosigners" is "completely without merit in law," and he accused the bank of asserting "material factual statements that are false."
He also sanctioned HSBC's legal counsel, the law firm of Shapiro DiCaro & Barak LLC, for the same reasons, putting blame specifically on attorney Frank M. Cassara but imposing a $5,000 fine on the firm instead of the attorney.
The judge did not fine HSBC USA CEO Irene M. Dorner, whom he had ordered to appear in a hearing July 15 to justify why he should not sanction her or the bank. Dorner was out of the country and did not appear at that hearing, but rather sent an attorney as her representative.
That had triggered indignant outrage among a few online pundits and foreclosure victims, but Schack acknowledged in his ruling that, because she had the attorney present, "It's HSBC that I might be able to sanction, not Ms. Dorner as an individual."
An HSBC spokesman said the bank should not be blamed because it didn't handle the loan but was only responsible for administering the mortgage investment trust that included the loan.
"HSBC did not service this loan and neither prepared nor filed any of the underlying legal documents presented to the court," said spokesman Neil Brazil. "HSBC's role in this case is limited to that of trustee . We are evaluating the ruling."
Major lenders and servicers have been under fire for more than a year over allegations of faulty court filings and sloppy foreclosure paperwork. One source of controversy revolves around so-called "robosigners," bank or law firm staff who were signing tens of thousands of documents, claiming personal knowledge of cases when they did not. The lenders have even been accused of fraud.
At the heart of the matter are the technical legal requirements that a lender must actually hold the mortgage and the loan note in order to have the right to foreclose. But banks that sold mortgages used the Mortgage Electronic Registry Service to track ownership of the loans, allowing their employees to sign court documents on behalf of each other to simplify the process.
The sanctions stem from a foreclosure case in Brooklyn, in which HSBC acted as trustee for holders of a mortgage-backed security investment that included a loan on the home of Ellen N. Taher.
HSBC argued that administering the loans and pursuing a foreclosure were the responsibility of Ocwen Loan Servicing and claimed that it wasn't even aware of the issue with the loan until after Schack's July 1 dismissal of the foreclosure became public. But Schack rejected what he called an attempt to shift blame when HSBC's name is still on the documents.
"I don't think it's going to affect the bottom line too much . HSBC will not file for Chapter 11 because of whatever I do one way or the other."