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WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP

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MEMORANDUM IN OPPOSITION June 19, 2012 A.10629-A Rules -Weinstein (Assembly Rules Cal. 340) S.7759 Saland (Senate Rules Committee) AN ACT to amend the penal law, in relation to enacting the foreclosure fraud prevention act of 2012 This memorandum in opposition is written on behalf of our client, the New York Bankers Association (NYBA). NYBA is comprised of 150 community, regional and money-center commercial banks and thrift institutions operating in New York State, with over 200,000 New York employees. This bill would create criminal penalties for any person who, being an agent of a residential mortgage business acting within the scope of his or her employment, intentionally engages in fraud or deception by authorizing, preparing, executing, offering or presenting for filing any written instrument when that person knows such document contains a material false statement, material false information or a material omission and knows or believes that document will be filed with a court or other public office or public servant. Residential mortgage foreclosure fraud in the second degree would be a class A misdemeanor. Residential mortgage foreclosure fraud in the first degree would be a class E felony. Among others, those persons acting as high managerial agents, who know that one or more agents of the business are engaged in the prohibited conduct, or fail to take reasonable measures to prevent it from continuing, would be deemed to be committing a class E felony. NYBA opposes this bill because, while imposing criminal penalties in addition to the existing penalties for fraud which are already well embedded in New York law, it is sweeping in its scope, vague and subject to misinterpretation. As such and because the consequences of violating it are so severe it is likely to chill the ability of lenders to exercise their lawful right to bring foreclosure actions against defaulting mortgagors. This will, no doubt, ultimately hurt the recovery of New Yorks residential housing industry and our overall economy. It is unclear from this proposal, what statement, or information provided or omitted would be deemed to be material under its terms. Nor is it clear how one could always be expected to determine in advance whether a document would one day be filed in support of or in conjunction with a pending or prospective residential mortgage foreclosure action. It is even less clear how a high managerial agent could determine what would constitute knowledge that an underling was engaged in the vaguely defined residential mortgage foreclosure fraud, or when he or she would be
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deemed to have failed to take reasonable measures (also undefined) to prevent it from continuing. This legislation is also inequitable and internally inconsistent. In this regard, for example, defendants and their representatives who engage in activity prohibited by this proposal, would not be deemed to be violating the law or be subject to its penalties. Nor apparently would employees or agents who were acting outside of the scope of their employment in committing residential mortgage fraud. Yet employees who act within the scope of their employment are by their very nature adhering to existing law if they are engaged in a legitimate enterprise. This law would therefore create an environment in which heretofore legitimate business and foreclosure activity (such as, for example, an attorney filing an affirmation in a foreclosure case) could later be interpreted to have been criminal in nature, and not only for the bad actor but also for supervisors up the chain of command. This is particularly striking as the laws effective date would be 90 days from the enactment date, meaning that actions already taken with respect to foreclosure actions in the pipeline, could suddenly have criminal ramifications for plaintiff employees and agents. In light of the vagueness and subjectivity of the proposal, its sweeping scope for potential liability for even one violation (for everyone in the management chain, from the lowest clerk to increasingly higher level supervisory personnel), and the criminal penalties contained in this proposed law for alleged violations, it is clear that it would chill plaintiffs from filing legitimate foreclosure actions. The law would undoubtedly then act as one more impediment to the foreclosure process - already one of the longest in the nation. In fact, in some part of New York State it already exceeds 900 days. It should be noted, too, that New York now has the unfortunate distinction of ranking fourth in the nation with respect to the number of foreclosed homes in its inventory a clear impediment to the recovery of New Yorks real estate market and its economy. For these reasons, the New York Bankers Association opposes this legislation and urges that it be held. Respectfully Submitted, WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP

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