When a mortgage lender files a foreclosure action in New York, a foreclosure judgment is not inevitable. As an effort to assist homeowners facing foreclosure, New York law requires that lenders engage in settlement conferences with the defendants to see if another resolution is possible. Common resolutions include mortgage loan modifications, deeds in lieu of foreclosure, and short sales. A loan modification is generally the preferable agreement, however, a short sale and deed in lieu of foreclosure allow the property owner to surrender their property on their own terms instead of due to a foreclosure judgment.
Because a successful settlement conference will halt a foreclosure case in its tracks, it is important to understand the requirements and expectations for these conferences. If lenders do not meet all requirements, foreclosure defendants can challenge whether the case should proceed.
Foreclosure settlement conferences are mandatory in many cases under New York Civil Practice Law and Rules (CPLR) Rule 3408. This rule begins by stating the following:
In any residential foreclosure action involving a home loan as such term is defined in section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure, plaintiff shall file proof of service within twenty days of such service, however service is made, and the court shall hold a mandatory conference within sixty days after the date when proof of service upon such defendant is filed with the county clerk, or on such adjourned date as has been agreed to by the parties, for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate.
The law entitles you to a settlement conference if you are a residential property owner of a borrower-occupied property that is up to four units or a condo.
Within 60 days after service of the foreclosure action, the court will notify you of the time and place of your settlement conference. This notice will also inform the parties what to expect and what to bring. The 60-day deadline from the filing of the proof of service for the Summons and Complaint is not a strict one, but if the conferences were not held at all in a case, the Court may require them.
For several years, settlement conferences were frustrating for borrowers, and lenders often did not show up with the intention of negotiating. At the end of 2016, the legislature amended the law to make the settlement conference requirements more specific, in hopes of improving the success rate of settlement negotiations.
In the past, for example, settlement negotiations would go on for one to two years and each case would require five to 10 conferences to resolve. Now the maximum seems to be three. A magistrate, judge or clerk presides.
If the defendant fails to appear without a valid reason , the conferences end in default. If the plaintiff fails to appear, the defendant receives more time in the form of an adjournment.
The following are some requirements and guidelines under the current law.
The law states that “at any conference held pursuant to this section, the plaintiff and the defendant shall appear in person or by counsel, and each party’s representative at the conference shall be fully authorized to dispose of the case.” Prior to the 2016 amendments, many homeowners would engage in settlement conferences only to learn that the person sent on behalf of the lender had no authority to agree to a settlement.
In one case, US Bank NA v. Sarmiento, the homeowner participated in numerous settlement conferences with no resolution, partly because US Bank kept sending representatives with little knowledge of the matter and who had no legal authority. In that case, the Court Attorney Referee overseeing the settlement conferences finally had to specifically demand that a “representative with personal knowledge and settlement authority to appear in person at the next settlement conference.” The amendments to the law make this a requirement from the very start.
Again, prior to the 2016 amendments, homeowners would repeatedly arrive at settlement conferences and the lender would not have the necessary paperwork or information to proceed. Now, in an attempt to prevent wasted time, the law specifies which documents each party should bring, as follows:
For the plaintiff, such documents shall include, but are not limited to, (i) the payment history; (ii) an itemization of the amounts needed to cure and pay off the loan; (iii) the mortgage and note or copies of the same; (iv) standard application forms and a description of loss mitigation options, if any, which may be available to the defendant; and (v) any other documentation required by the presiding judge. If the plaintiff is not the owner of the mortgage and note, the plaintiff shall provide the name, address and telephone number of the legal owner of the mortgage and note. For cases in which the lender or its servicing agent has evaluated or is evaluating eligibility for home loan modification programs or other loss mitigation options, in addition to the documents listed above, the plaintiff shall bring a summary of the status of the lender’s or servicing agent’s evaluation for such modifications or other loss mitigation options, including, where applicable, a list of outstanding items required for the borrower to complete any modification application, an expected date of completion of the lender’s or servicer agent’s evaluation, and, if the modification(s) was denied, a denial letter or any other document explaining the reason(s) for denial and the data input fields and values used in the net present value evaluation. If the modification was denied on the basis of an investor restriction, the plaintiff shall bring the documentary evidence which provides the basis for the denial, such as a pooling and servicing agreement.
Prior to 2016, the law only specifically mentioned “loan modifications” when it came to possible settlement agreements. However, the law was updated to include a variety of possible solutions, stating that “[b]oth the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including but not limited to a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation, if possible.” Under the current law, lenders should examine the possibility of several different alternatives to foreclosure to meet the requirements in each settlement conference.
The law also expands the scope of conferences—in the early foreclosure crisis conferences were just for persons with high-interest rates and problematic, irregular loans. The law, however, retroactively extended conference topics to all residential loans over time.
This section of the law also addresses “good faith” negotiations, which we will examine in detail in Part Two of this article.
The law sets out guidelines so that homeowners should know what to expect when attending a settlement conference. Your foreclosure defense lawyer can identify when a lender is not in compliance with the law and can take appropriate action to ensure you get a fair chance at a settlement. If you’re facing foreclosure, call the Law Office of Ronald D. Weiss at (631) 271-3737 or contact us online today.