* NY says HSBC ignored law designed to protect homeowners
* Bank declines to comment
By Neale Gulley and Jonathan Stempel
BUFFALO, N.Y./NEW YORK, June 4 (Reuters) - New York state sued HSBC Holdings Plc for ignoring a law designed to protect struggling homeowners from being thrown into foreclosure without getting a chance to renegotiate their mortgages.
The lawsuit filed by Attorney General Eric Schneiderman accuses Europe's largest bank of letting foreclosure cases languish by ignoring a state law intended to give homeowners a chance to negotiate loan modifications.
Schneiderman said such delays have trapped as many as 25,000 homeowners in a "shadow docket" of foreclosure cases backlogged as long as 2-1/2 years, causing them to rack up thousands of dollars of needless interest, fees and penalties.
"Mick Jagger was wrong. If you're a homeowner, time is not on your side," Schneiderman said at a news conference, referencing the 1964 Rolling Stones hit "Time is On My Side."
Neal McGarity, an HSBC spokesman, declined to comment.
The lawsuit was filed on Monday in a New York state court in Buffalo and made public on Tuesday.
It accuses HSBC of regularly ignoring a state law requiring lenders to file paperwork, known as a request for judicial intervention, which entitles homeowners to settlement conferences within 60 days to negotiate loan modifications.
He said a sampling showed that since 2010 HSBC has been too slow to file required paperwork in 297 cases in the counties of The Bronx, Erie, Monroe and Suffolk, and that thousands of similar cases may exist in 58 other counties in the state.
"(HSBC's) business practices not only violate the law, but they make it more likely that homeowners will unnecessarily lose their homes," Schneiderman said in a court filing.
The attorney general is still eyeing possible lawsuits against Bank of America Corp and Wells Fargo & Co for violating terms of a nationwide settlement over mortgage servicing abuses.
Schneiderman accused the nation's second- and fourth-largest banks last month of having failed to timely process modification applications. Wells Fargo is also the largest U.S. mortgage lender.
The $25 billion settlement reached in February 2012 also covered Ally Financial Inc, Citigroup Inc and JPMorgan Chase & Co, but not HSBC.
Schneiderman has not publicly suggested plans to sue those other lenders, but on Tuesday said unnamed financial institutions may become targets.
"Part of it depends on how this goes," he said, referring to the HSBC lawsuit. "We are hopeful banks will see this and comply."
As of March 31, HSBC Bank USA had $183.9 billion of assets, and operated more than 250 branches in 11 U.S. states and Washington, D.C., with about two-thirds of the branches in New York state.
Schneiderman's lawsuit seeks restitution for homeowners, a waiver of improper accrued charges and fees, other damages, and a requirement that HSBC file papers properly in the future.
The case is New York v. HSBC Bank USA et al, New York State Supreme Court, Erie County, No. 001660-2013.
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