An appeals court in New York overturned a Brooklyn judge's 2011 decision to dismiss a foreclosure and order $15,000 in sanctions against HSBC.

The court ruled Kings County Judge Arthur Schack abused his authority by consulting the Internet and newspapers for evidence of "robosigning," or submitting court documents that were signed by low-level employees without direct personal knowledge of their contents.

The decision takes issue with a popular strategy lawyers often promote in challenging foreclosures by claiming lenders don't have legal right to collateral. The theory involves claims that the chain of ownership was broken through robosigning, leaving the property in legal limbo, which can prevent the home from being foreclosed.

It was the second time Schack was disciplined for taking the politically popular, but legally questionable move of dismissing foreclosure proceedings against borrowers who had clearly defaulted on loans. The judge also was reversed in a similar case in 2011.

In the latest decision, the Appellate Division of the New York State Supreme Court warned Schack about not following the law.

“We take this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent,” the five-judge panel said. The case was remanded to be heard by a different judge.

According to the decision, Eileen N. Taher defaulted on her home loan and HSBC initiated foreclosure proceedings in 2009. As is common in foreclosure proceedings, Taher never appeared in the case.
Schack, after performing his own investigation including reading newspaper articles and the Internet, ruled HSBC lacked standing to foreclose because it had engaged in robosigning.

The judge had criticized HSBC for allowing Ocwen, the mortgage servicer, to handle the foreclosure, and ordered $15,000 in sanctions against the bank and its lawyers for that and various other transgressions.

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