UNIONPORT — Daisy Vargas, a payroll manager, takes her money management seriously — perhaps obsessively, as her husband often teases her.
That is why, in 2009, as she forecast her household budget six months into the future, she saw storm clouds: her husband, a Rikers Island corrections officer who had been injured on the job, was now receiving disability pay worth about half his normal income.
Vargas immediately went to her bank, HSBC, and asked it to reduce her mortgage payments. Her application was repeatedly held up, she said.
Before she knew it, six months had passed and her prediction played out — they missed a mortgage payment.
One week later, a foreclosure notice arrived.
“That’s when everything started to go nuts,” said Vargas, 56.
The Vargases were prepared to pay the bank what they owed.
Instead, bank delays kept the couple’s case out of court and confined to the so-called “shadow docket” for nearly a year — a no man’s land where foreclosure cases are rarely resolved — as their loan continued to swell with interest and fees.
By the time they were able to settle their case, some three-and-a-half years after the bank sued to foreclose on them, the Vargases owed more than $60,000 in fees and penalties.
“At this rate,” said Daisy’s husband, Samuel, “we’ll be 84 years old and still paying off our mortgage.”
By not filing paperwork in foreclosure cases that would trigger required settlement conferences, banks have trapped an estimated 14,000 to 25,000 New Yorkers in legal purgatory, where interest accrues and credit crumbles but resolution remains out of reach.
On Thursday, several state officials visited the Vargases’ tidy redbrick house to announce efforts to abolish this shadow docket — a lawsuit against the bank HSBC for its delays and a bill to prevent banks from keeping foreclosure cases out of court.
“We’re always trying to catch up to make sure we’re ahead of the banks, who in most cases just don’t want to abide by the law,” said the bill’s lead sponsor, State Sen. Jeff Klein.
HSBC did not immediately respond to a call and email Thursday requesting comment.
After the so-called “robo-signing” scandal, in which mortgage lenders signed off on vast amounts of foreclosure documents without checking their accuracy, the state courts adopted a rule in 2010 requiring lenders’ attorneys to personally certify the accuracy of their forms when filing foreclosure suits.
Soon after, apparently to sidestep the new rule, the banks began to file foreclosure suits as normal, but avoid taking the next step, which would require lawyers to sign the certification.
As a result, the cases were not sent to court and a rule that requires court-supervised settlement conferences between lenders and homeowners was not triggered.
While homeowners waited months or even years for the banks to file the paperwork that would send their cases to court, the banks continued to charge interest and fees on their loans, which diminished the homeowners’ odds of qualifying for loan modifications.
“For homeowners facing foreclosure, time is their greatest enemy,” state Attorney General Eric Schneiderman said last month when filing the suit against HSBC. “Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind.”
The new bill, which passed both houses of the state legislature and is awaiting the governor’s signature, would require lenders’ lawyers to sign the accuracy certification when they first file a foreclosure suit, so that these damaging delays become impossible.
The Vargases’ case languished in the shadow docket, awaiting a settlement conference, for about 10 months, according to Justin Haines of Legal Services NYC, which assisted the couple.
That delay alone likely cost them roughly $20,000 in interest and fees, Haines said.
Even after the conferences began, they dragged on for more than two years, as the fees and interest ballooned to more than $60,152.68.
Meanwhile, the couple’s lives were upturned.
They were forced to sell their cars and cut their credit cards.
Daisy’s son dropped out of college and took a job as a hospital guard to help pay the bills.
Her 87-year-old mother and three-year-old granddaughter, who both live with her, had to sleep in the living room so that the top floor could be rented out.
The family prepared, each Thanksgiving and Christmas, to make it their last in the house.
Finally, last November, the bank agreed to a loan modification.
The couple now pays $75 more per month than they did in 2009, when they originally sought a loan-payment reduction in order to avoid default, they said.
“We don’t want other people to have to go through this,” Samuel said. “They treat you so bad — like you’re not human.”