If you have a foreclosure case initiated against you, it is not guaranteed that your mortgage lender will take your home. Instead, there are different solutions that may be able to assist you in catching up and staying current on your mortgage payments. However, in order for any of these solutions to be feasible, your mortgage lender must agree to them.
In general, mortgage lenders would rather receive the money they are owed than seize your house. Unfortunately, some lenders – especially those facing a significant amount of foreclosure cases when the market crashed – did not want to take the time or resources to negotiate and explore possible solutions with homeowners. In these cases, homeowners found themselves with few options but to find a new place to live. In response to the trend of refusing to engage in sufficient negotiations and to limit the number of homeowners who were foreclosed on, the New York legislature enacted CPLR § 34081 in 2008, which mandated that mortgage lenders participate in settlement conferences and mediation prior to obtaining a foreclosure judgment on certain properties. In 2009, the legislature amended the law to require settlement conferences for all residential foreclosure cases.
“Good Faith” Requirement
In the mandatory settlement conferences, the law requires that lenders be open to discussing the possibility of alternatives to foreclosure, including the following:
The law specifically directs lenders to discuss the possibility of a loan modification, as this will not displace homeowners. Simply discussing potential solutions is not enough under the law, however, as the statute specifically requires that a lender enter negotiations in “good faith.” In the legal realm, “good faith”2 can include having an honest purpose, engaging in fair dealing, and not having any intentions to mislead or defraud. This not only means that the lender must be open to finding resolutions, but also that they do not take any actions that would intentionally prevent the homeowners from qualifying for a modification or dissuade them from agreeing to a modification.
Case Law Regarding Good Faith Negotiations
Because foreclosure cases are judicial in New York, the court overseeing a particular foreclosure case is required by 22 NYCRR 202.12-a 3 to ensure that good faith negotiations take place and that the rights of both parties under the law are protected. If a homeowner believes that the lender has bad faith or is unduly delaying the settlement process for self-serving reasons, they can raise a defense to the court that the lender has not complied with CPLR § 3408. The court can then hold a bad faith hearing to determine whether or not the lender met the requirements under the law. As a result of court intervention in cases involving alleged lack of good faith, there have been numerous court opinions in New York in the last seven years that can help to create a more nuanced and clarified idea of what constitutes “good faith” or “bad faith” and the penalties that lenders may face for noncompliance. The following are only a few examples of case law addressing the nature of good faith negotiations.
U.S. Bank National Association v. Padilla 31 Misc.3d 1208(A), 2011 WL 1348387 (N.Y. Sup)4 – In this case, the court found that U.S. Bank had held several settlement conferences and made numerous, disjointed, and often contradictory requests for information and documentation. Though the homeowner attended all conferences and provided everything requested, the lender still failed to provide a clear answer why a modification was not granted. The court stated that the purpose of these conferences was to try to find a resolution and unnecessary tactics or delays are not in line with the law. The court stated, “Plaintiff’s piecemeal requests at each conference only serve to unnecessarily delay the modification application process while racking up interest, fees, and penalties to plaintiff’s benefit and the homeowner’s detriment.” The court then required the bank to provide a clear answer on a modification with a specific explanation if a modification was denied.
IndyMac Bank v Yano-Horoski, 26 Misc 3d 717 [Sup. Ct, Suffolk County 2009], rev’d as to sanction 78 AD3d 895 [2d Dep’t 2010]5 – In this case, it was alleged that mortgage lender IndyMac has continued the settlement conference date several times, delaying the process and never showing intentions to cooperate with possible negotiations. The court ruled not only that IndyMac had “unclean hands” but that the court was “unable to find so much as a scintilla of good faith on the part of” the lender. The judge become a type of hero of the foreclosure crisis when he canceled the remainder of the homeowner’s mortgage loan as a result (see below for additional information regarding this remedy).
Penalties for Lack of Good Faith
Many courts have also addressed the possible penalties that a lender may or may not face if they fail to meet the good faith requirement. The following are some examples of such court rulings.
Bank of Am., N.A. v. Lucido, 950 N.Y.S.2d 721 (N.Y. Sup. 2012)6 – The homeowner was provided with exemplary damages and Bank of America was prohibited from collecting any legal costs or fees, attorney’s fees, or interest from the homeowner.
One West Bank, FSB v. Greenhut, 957 N.Y.S.2d 265 (N.Y. Sup. 2012) – Court issued financial sanctions due to the lender’s bad faith.
Deutsche Bank Trust Co. of Am. V. Davis, 934 N.Y.S.2d 33 (N.Y. Sup. 2011) – Foreclosure proceedings were halted until the bank proved it intended to continue in good faith.
Wells Fargo Bank, N.A. v. Meyers, 2013 WL 1811781, at * 9 (N.Y. A.D. 2 Dep’t. 2013) – A court order requiring a modification was overturned and the Appellate Division ruled that courts do not have the power to force an agreement between a lender and homeowner.
IndyMac Bank v Yano-Horoski, 26 Misc 3d 717 [Sup. Ct, Suffolk County 2009], rev’d as to sanction 78 AD3d 895 [2d Dep’t 2010] – As mentioned above, the judge canceled the rest of the mortgage loan as a remedy. However, on appeal, it was ruled that courts cannot cancel a homeowner’s obligation to pay a mortgage as an equitable remedy for bad faith dealings.
In addition to the above cases, the Attorney General’s office in New York has taken it upon itself to sue different mortgage lenders that repeatedly engaged in bad faith practices, including unreasonable and self-serving delays. In such lawsuits, the AG can not only seek damages for the defendants who were harmed by bad faith actions but also seek a court order that compels lenders to comply with the law and file all necessary documents in a timely manner in all future foreclosure cases. Such litigation can be costly for lenders.
A New York Foreclosure Defense Lawyer Can Protect Your Legal Rights
At the law office of foreclosure attorney Ronald D. Weiss, P.C., we will work to ensure your right to good faith negotiations and all other rights throughout the foreclosure process are protected. Please call us today at 631-271-3737 to discuss your situation.