Big Banks Accused of ‘Systematic Fraud’ in New York Foreclosure Auctions

An investigation by New York Focus and Gothamist found lenders are using a disputed method of calculating debts in thousands of foreclosures and taking money from hundreds of former homeowners.

Chris Bragg and David Brand · December 3, 2025

The article shared from AXJ News links to an investigative report published on December 3, 2025, by New York Focus and Gothamist, authored by Chris Bragg and David Brand. It accuses major banks and their law firms of engaging in what plaintiffs describe as “systematic fraud” in New York foreclosure auctions.The core issue revolves around a disputed method for calculating interest and debts in foreclosure cases. Lenders (often big banks or their trustees) and their attorneys have reportedly used the full “judgment amount” (which includes accumulated interest, fees, etc.) as the base for calculating additional post-judgment interest. This inflates the total debt owed, allowing lenders to claim more money from surplus proceeds (any excess funds after the home is sold at auction) or to reduce what former homeowners might recover.Critics, including attorneys for affected homeowners, argue this practice amounts to charging interest on interest (compound interest), which they say violates New York state law prohibiting compound interest on most residential mortgages (citing General Obligations Law §5-527). It also contradicts the New York court system’s own guidance and forms for court-appointed referees, which instruct using the simpler, lower “principal balance” (original loan amount outstanding) for interest calculations. A 2015 appellate court ruling reportedly supported the lower-figure approach.Key findings from the investigation (based on an independent analysis of thousands of state court records):

This method has been used in thousands of foreclosure cases (nearly 7,200 since 2013 in some follow-up reporting).
It has affected hundreds of former homeowners, potentially depriving them of tens of thousands of dollars each in surplus funds or equity.
At least 14 law firms (frequently representing banks) routinely employed this calculation.
In some cases, it “chills” bidding at auctions by inflating the starting/opening bid price, allowing banks to win properties for nominal amounts (e.g., one later-reported example involved a Brooklyn home sold for $100 to the bank due to the inflated figure).

A prominent example involves a homeowner named Small (case referenced in the reports), where the disputed calculation increased the amount taken by tens of thousands of dollars, leaving her with far less than she might have been entitled to.Attorney Mark Anderson has filed lawsuits (including federal ones) against lenders, servicers, and law firms, accusing them of “systematic fraud and theft” to boost profits at former homeowners’ expense. There are at least five ongoing federal lawsuits alleging violations of laws like the Fair Debt Collection Practices Act, unfair/deceptive practices statutes, and possibly RICO.The investigation prompted responses:

New York State Senator Zellnor Myrie introduced legislation shortly after (December 4, 2025) to impose uniform standards on foreclosure sales and curb the disputed method.
The issue has been discussed on outlets like WNYC, The Brian Lehrer Show, and Marketplace, highlighting broader implications for housing justice and former homeowners losing “generational wealth.”

The original full article is available at:

This appears to be a significant ongoing story in New York housing and foreclosure law as of late 2025 into 2026, with potential for legislative changes and more lawsuits. If you’re looking for updates, specific case details, or related developments, let us know!

https://nysfocus.com/2025/12/03/new-york-foreclosure-banks-fraud-court

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