"Interest tolled from day of
default because of Bad Faith dealing. Too bad this isn't imposed on every bank
every time they operate in bad faith!"
HSBC Bank USA, NATIONAL ASSOCIATION AS TRUSTEE
FOR MORTGAGEIT SECURITIES CORP. MORTGAGE LOAN TRUST SERIES 2007-1 MORTGAGE
PASS-THROUGH CERTIFICATES, Plaintiff, v John McKenna, Jr. A/K/A JOHN T. MCKENNA,
JR., MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. AS NOMINEE FOR MORTGAGEIT,
NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY PARKING VIOLATIONS
BUREAU, NEW YORK CITY TRANSIT ADJUDICATION BUREAU, JOHN DOE (Said name being
fictitious, it being the intention of Plaintiff to designate any and all
occupants of premises being foreclosed herein, and any parties, corporations or
entities, if any, having or claiming an interest or lien upon the mortgaged
premises.), Defendants.
5871/09
SUPREME
COURT OF NEW YORK, KINGS COUNTY
37
Misc. 3d 885;
952 N.Y.S.2d 746; 2012 N.Y. Misc. LEXIS 4720; 2012 NY Slip Op
22285
October
3, 2012, Decided
NOTICE:
THE LEXIS PAGINATION OF THIS
DOCUMENT IS SUBJECT TO CHANGE PENDING RELEASE OF THE FINAL PUBLISHED
VERSION. THIS OPINION IS UNCORRECTED
AND SUBJECT TO REVISION BEFORE PUBLICATION IN THE PRINTED OFFICIAL REPORTS.
COUNSEL:
[***1] For Plaintiff: Allison J. Schoenthal,
Esq. and Nicole E. Schiavo, Esq. of Hogan Lovells U.S. LLP.
For
John McKenna, Defendant: John E. Petiton, Esq.
JUDGES:
Jack M.
Battaglia, Justice, Supreme Court.
OPINION
BY: Jack M.
Battaglia
OPINION
[*887]
[**748] Jack M. Battaglia, J.
[EDITOR'S NOTE: The following
court-provided text does not appear at this cite in Misc. 3d.]
[EDITOR'S NOTE: The following
court-provided text does not appear at this cite in N.Y.S.2d.]
[*none]
[**none] Recitation in accordance
with CPLR 2219(a) of the papers submitted on the Report and
Recommendation of Special Referee Deborah L. Goldstein dated July 8, 2011 and
the Supplemental Report and Recommendation of the Special Referee dated July
13, 2012:
-Report and Recommendation
Exhibits A-B
-Affirmation of Michael
Jablonski, Esq. in Support of Plaintiff HSBC USA's Opposition to the
Recommendation of Deborah L. Goldstein
Exhibits A-N
-Affidavit of Jessica Jones
Exhibits A-F
-Plaintiff HSBC Bank USA's
Memorandum of Law in Support of its Opposition to the Recommendation of Referee
Deborah L. Goldstein
-Letter of John E. Petition, Esq.
Exhibits A-D
-Supplemental Report and
Recommendation
Exhibits A-H
Plaintiff was represented by
Allison J. Schoenthal, Esq. and Nicole E. Schiavo, Esq. of Hogan Lovells U.S.
LLP. Defendant John McKenna was represented by John E. Petiton, Esq.
[*887contd]
[**748contd] This action was
commenced on March 11, 2009 to foreclose a mortgage on property located at 448
Decatur Street, [***2] Brooklyn. The
subject Mortgage, dated March 27, 2007, was given to "MORTGAGEIT" as
Lender to secure payment of an Adjustable Rate Note with the same date in the
principal amount of $624,000, which note was also given to
"MORTGAGEIT" as Lender. The Borrower designated in the note and
mortgage is defendant John T. McKenna, Jr. The note shows an undated
indorsement on behalf of "MortgageIt, Inc." to the order of Plaintiff,
and an Assignment of Mortgage dated March 2, 2009 purports to assign the
subject mortgage from Mortgage Electronic Registration Systems, Inc.,
designated in the Mortgage as "a nominee for Lender" and so-called
"mortgagee of record," to Plaintiff.
This mortgage foreclosure action
was referred to the Mandatory Foreclosure Conference Part, where it was first
calendared for May 21, 2009. On May 25, 2011, after 18 further scheduled
appearances, the action was referred to this Court.
A conference was held on June 27,
2011, at which time Special Referee Deborah L. Goldstein advised the Court that
she was requesting a finding by the Court that Plaintiff had not complied with
its obligations under CPLR 3408, and, upon such finding, imposing a
suitable penalty. A schedule was agreed
[***3] upon for Special Referee Goldstein to prepare a written report
and recommendations, which she did with a Report and Recommendation [*888]
dated July 8, 2011, and for Plaintiff and defendant/mortgagor John
McKenna, Jr. to comment, which they each did.
CPLR 3408 requires a mandatory settlement
conference in every "residential foreclosure action" involving a home
loan as defined in RPAPL 1304 "in which the defendant is a resident
of the property subject to foreclosure." (See CPLR 3408 [a].)
The statute further provides, "Both the plaintiff and defendant shall
negotiate in good faith to reach a mutually agreeable resolution, including a
loan modification, if possible." (CPLR 3408 [f].)
The Report and Recommendation of
Special Referee Goldstein seeks the imposition of a penalty on Plaintiff for
failing to negotiate in good faith as required by CPLR 3408 (f).
Although Special Referee Goldstein also refers to Part 130 of the Rules of the
Chief Administrator (see 22 NYCRR §130.1 et seq.) and Judiciary
Law §§753 and 754, the essential thrust of the report to this Court
is the contention that Plaintiff acted in bad faith in refusing to agree to a
"short sale" of the
[**749] mortgaged property as
proposed by [***4] defendant McKenna.
Plaintiff raised a threshold
question, however, as to whether defendant McKenna is or has ever been "a
resident of the property subject to foreclosure" (see CPLR 3408
[a]), so as to trigger Plaintiff's obligation to negotiate with him
"in good faith to reach a mutually agreeable resolution" (see CPLR
3408 [f].) Plaintiff submitted copies of documents dated subsequent to the
commencement of this action that show defendant McKenna's address to be
different from the property subject to foreclosure; and the Report and
Recommendation notes that, at least at one point, "the premises were
vacant because it required repairs."
Since the July 2011 Report and
Recommendation does not state that the Special Referee had made any finding as
to Mr. McKenna's residency at the mortgaged property, with a Decision and Order
dated October 3, 2011, the Court referred the matter back to Referee Goldstein
with a direction that she "supplement her Report and Recommendation with a
statement as to her finding that defendant McKenna was a resident of the
mortgaged property when the action was commenced and through the settlement
conference process; or, if she has not made such finding, she shall [***5] direct and schedule such proceedings,
including such further appearances and submissions as she might deem
appropriate, so that she might make a determination on the issue of
residency."
The Court notes that, even if a
settlement conference was not required by CPLR 3408, a referral to the
Mandatory Foreclosure Conference Part was appropriate in the first instance. At
the time this action was commenced, Kings Supreme Court Uniform Civil Term
Rules provided, "In addition to a conference mandated by statute, a
conference will be ordered in every case when there is an appearance by the
defendant owner of the equity of redemption" (see Part F, Rule 7.)
The local rule, therefore, required a conference even where CPLR 3408
would not. (See also Uniform Civil Rules for the Supreme Court and
the County Court § 202.12-a [f], 22 NYCRR § 202.12-a [f]
[distinguishing between "owner-occupied and . . . non-owner occupied
residential properties"].)
[*889]
A determination as to whether the mortgagor would be deemed "a
resident of the property subject to foreclose" for purposes of CPLR
3408 (a) is crucial, however, to whether there is an obligation under CPLR
3408 (f) to negotiate "in good faith to reach a mutually [***6] agreeable resolution." No such
obligation is imposed by uniform court rules or the local rule, assuming that
it could be. The July 2011 Report and Recommendation cites to no other source
of an express "good faith" obligation that would apply to conferences
that are not mandated by CPLR 3408 (a).
After additional conferences with
the parties and further submissions by them, Special Referee Goldstein issued a
Supplemental Report and Recommendation dated July 13, 2012, in which she
concluded that the "good faith" obligation imposed by CPLR 3408
(f) should apply here. Her reasons for so concluding were summarized as
follows:
"I.
Defendant Submitted Evidence Proving That He Resided At The Brooklyn Premises
At The Time of Commencement and During CPLR 3408 Conferencing
Defendant submitted
uncontroverted testimonial and documentary evidence proving that he resided at
the Premises from January 2009 through December 2010, the two-year period
during which he and his wife were separated. Based on the evidence, this
Referee has determined [**750] that Defendant resided at the Premises at the
time of commencement in March 2009 and throughout the majority of CPLR 3408
conferencing. Plaintiff failed to satisfy
[***7] its burden of disproving Defendant's residence at the
Premises."
"II.
Plaintiff Failed To Submit An Affidavit of Exemption From CPLR 3408 With An Affidavit
Of Investigation In Compliance With Kings County Local Rules, Part F (7)
While Defendant submitted
affidavit testimony regarding his residence at the Brooklyn Premises from
January 2009 through December 2010, Plaintiff failed to submit an affidavit for
an exemption from CPLR 3408 and an affidavit of investigation regarding
Defendant's residency, as explicitly required under the Kings County Local
Rules, Part F (7)."
"III.
Plaintiff Is Judicially Estopped From Challenging Application of CPLR 3408
[*890]
Plaintiff is judicially estopped from challenging application of the
good faith requirement of CPLR 3408 (f). The doctrine of judicial
estoppel' or estoppel against inconsistent positions' may be invoked to prevent
a party from inequitably adopting a position directly contrary to or
inconsistent with an earlier assumed position in the same proceeding' Maas
v. Cornell Univ., 253 AD2d 1, 5, 683 N.Y.S.2d 634, affd. 94 NY2d
87, 721 N.E.2d 966, 699 N.Y.S.2d 716."
Nature
and Scope of CPLR 3408 Reference
The Court is unaware of any court
rule or judicial decision that specifically addresses whether referral [***8] for determination for purposes of CPLR
3408 should be considered made pursuant to the "hear and
determine" provisions of CPLR 4301 et seq. or pursuant to the
"hear and report" provisions of the statute and the Uniform Rules for
the Supreme Court and County Court §202.44 ( see 22 NYCRR
§202.44). The specific Uniform Rules for mandatory settlement proceedings
do not address referrals. (See Uniform Civil Rules for the Supreme Court
and County §202.12-A, 22 NYCRR §202.12-A.)
An Order of Reference to Hear and
Determine dated June 1, 2011 of Hon. Sylvia O. Hinds-Radix, Administrative
Judge for Civil Matters, Second Judicial District, provides in part:
"ORDERED that foreclosure
actions assigned to the Residential Foreclosure Conference Part shall be
presided over by Court Attorney Referees Paul Nuccio, Deborah Goldstein, Dale
Berson, Noreen Soto-Fier, and Jeffrey Amster, sitting separately on dates and times
to be designated by the court, to hear and determine whether a mutually
agreeable resolution to the foreclosure proceeding pending before them can be
reached at the mandatory conference stage; and it is further
ORDERED that Referees Nuccio,
Goldstein, Berson, Soto-Fier, and Amster may conference, [***9] negotiate, settle, adjourn, and make
procedural determinations regarding the qualifications of cases pending before
them in the Residential Foreclosure Conference Part, as defined by the laws of
New York State, and in conjunction with all applicable federal legislation
and/or programs; and it is further
ORDERED that Referees Nuccio,
Goldstein, Berson, Soto-Fier, and Amster mayso-order stipulations [*891]
with the consent of both parties to a pending action; . . ."
In addition to specific authority
to appoint a referee to act in particular contexts, such as to supervise
disclosure (see CPLR 3104) and to transfer an interest in real
property (see RPAPL §1611), courts are authorized [**751]
to "appoint a referee to determine an issue, perform an act, or
inquire and report in any case where this power was heretofore exercised and as
may be hereafter authorized by law" (see CPLR 4001.) Whether
the appointed referee is to determine an issue or to inquire and report is
directed by the order of reference (see CPLR 4311), but is not
solely within the court's discretion. Rather, a reference to determine may only
be made in certain cases (see CPLR 4317), as may a reference to
report (see CPLR 4212), and the referee's [***10] respective powers thereupon are
defined by statute (see CPLR 4301 [referee to determine]; CPLR
4201 [referee to report].)
The hallmark of the reference to
determine is the consent of the parties. (See CPLR 4317 [a].) A
reference to determine may be made without the consent of the parties only
"where the trial will require the examination of a long account, including
actions to foreclose a mechanic's lien; or to determine an issue of damages
separately triable and not requiring a trial by jury; or where otherwise
authorized by law." (See CPLR 4317 [b].) A reference to
report may be made "upon a showing of some exceptional condition requiring
it or in matters of account." (See CPLR 4212.)
Here, as noted above, the June 1,
2011 order of the Administrative Judge is designated an Order of Reference to
Hear and Determine, and, as will appear again, the decretal paragraphs reflect
that. The Order cites as authority CPLR 4301 (Powers of referee to
determine), CPLR 4311 (Order of Reference), and CPLR 4312 (Number
of referees; qualifications), but does not cite either of the statutory
provisions that address the circumstances in which a reference to report (see CPLR 4212) or a
reference to determine [***11] (see
CPLR 4317) may be made.
Specifically, the referees
assigned to the Residential Foreclosure Conference Part may "hear and
determine whether a mutually agreeable resolution to the foreclosure proceeding
pending before them can be reached at the mandatory conference stage";
"may conference, negotiate, settle, adjourn, and make procedural
determinations regarding the qualifications of cases pending before them in the
Residential Foreclosure Conference Part, as defined by the laws of New York
State"; [*892] and "may so-order stipulations with the
consent of both parties."
Similar issues arise with respect
to a referee's report and recommendations at the conclusion of settlement
conference proceedings that do not result in a "mutually agreeable
resolution," including any determination as to whether either of the
parties failed to negotiate in good faith. The June 1, 2011 Order of Reference
to Hear and Determine provides in part:
"ORDERED that upon the
conclusion of a mandatory settlement conference, the presiding referee shall
issue a Residential Foreclosure Conference Order, in the form annexed, to be
filed with the County Clerk in and for the County of Kings, memorializing the
results of the [***12] conference and
setting forth those further proceedings that shall occur in the pending foreclosure
action."
The annexed form includes
direction to a judge for determination of any question as to the good faith
participation of any party in settlement conference proceedings.
The June 21, 2011 Order of
Reference to Hear and Determine does not expressly include the authority to
hear and determine any question as to the applicability of the duty of good
faith imposed by CPLR 3408 (f) in settlement conference proceedings
mandated by CPLR 3408 (a), nor does the Order expressly include the
authority to hear and determine any question as to [**752]
whether a party discharged its duty to negotiate in good faith. The
Court will assume that a reference for such purposes would not be appropriate
under CPLR 4317 (b). (See Schanback v Schanback, 130 AD2d 332,
337-44, 519 N.Y.S.2d 819 [2d Dept 1987]; see also Marett v Pegalis &
Wachsman, P.C., 176 AD2d 321, 322, 574 N.Y.S.2d 762 [2d Dept 1991]; but
see Tri-State Sol-Aire Corp v United States Fid. & Guar. Corp., 161 AD2d
757, 556 N.Y.S.2d 656 [2d Dept 1990]; City of Poughkeepsie v
Poughkeepsie Associated Fire Dept., 125 AD2d 522, 523, 509 N.Y.S.2d 601 [2d
Dept 1986].)
"[T]he scope of a referee's
duties are defined by the order of
[***13] reference" (First Data Merchant Servs. Corp. v One
Solution Corp., 14 AD3d 534, 535, 789 N.Y.S.2d 198 [2d Dept 2005]; see also
Hovhannessian v. Yetemian, 75 AD3d 623, 623-24, 904 N.Y.S.2d 671 [2d Dept
2010]); and "[a] referee has no power beyond that limited in the order
of reference" (L. H. Feder Corp. v. Bozkurtian, 48 AD2d 701, 368
N.Y.S.2d 247 [2d Dept 1975]; see also Fernald v Vinci, 302 AD2d 354,
355, 754 N.Y.S.2d 668 [2d Dept 2003].) Although statute and caselaw address
the functions and authority of referees at various stages of a mortgage
[*893] foreclosure action (see RPAPL
§§ 1321 [1], 1351 [1], 1361 [2]; 2-20 Bergman on New York
Mortgage Foreclosures §20.03; Central Mtge. Co. v Acevedo, 34 Misc 3d
213, 220, 934 N.Y.S.2d 285 [Sup Ct, Kings County 2011]; Mortgage Elec.
Registration Sys., Inc. v Maki, 9 Misc 3d 983, 984-85, 801 N.Y.S.2d 515
[Sup Ct, Seneca County 2005]), no
statute and little caselaw deals with the settlement conference proceedings
mandated by CPLR 3408 (a).
To the extent that the June 2011
Order of Reference authorizes the court attorney referees to "make
procedural determinations regarding the qualifications of cases pending before
them in the Residential Foreclosure Conference Part," to supervise
settlement discussions (i.e., "conference, negotiate, settle, [and]
adjourn [***14] . . . cases pending before
them"), and to "determine whether a mutually agreeable resolution to
the foreclosure proceeding . . . can be reached at the mandatory conference
stage," it is more than arguable that these are "administrative
rather than judicial act[s] of the trial judge" (see Levenson v
Lippman, 4 NY3d 280, 291, 827 N.E.2d 259, 794 N.Y.S.2d 276 [2005]), within
the "broad power to supervise the administration and operation of the
Unified Court System" (see Matter of Met Council, Inc. v Crosson, 84
NY2d 328, 334-35, 642 N.E.2d 1073, 618 N.Y.S.2d 617 [1994]) that the State
Constitution gives to the Chief Judge, the Chief Administrative Judge, and
their delegatees, including the appointed administrative judges in the various
judicial districts (see State Constitution, article VI, §28; Levenson
v Lippman, 4 NY3d at 290.)
In any event, to the extent that
these matters and the authority to direct to a judge any question as to the
good faith participation of any party in mandated settlement proceedings, which
necessarily involves the determination that particular settlement conference
proceedings are mandated (see Goldstein v Sokel, 194 AD2d 518, 519, 598
N.Y.S.2d 308 [2d Dept 1993]; see also Bimbalas v. Margaratis, 224 AD2d
756, 757, 636 N.Y.S.2d 955 [3d Dept 1996]; Laquidora v Van Buskirk
Bldrs., 87 AD2d 711, 711, 448 N.Y.S.2d 892 [3d Dept 1982]), [***15] are deemed the subject of a reference
to hear and report (see CPLR 4001, 4201, 4311), the
reference is warranted by the "exceptional condition" (see CPLR
4212) presented by the foreclosure crisis. In the absence of [**753]
the reference, the mandated settlement conferences would have led to
"terrible calendar congestion" (see In re Eastern & Southern
Dists. Asbestos Litig., In re New York City Asbestos Litig., 129 FRD 434, 435
[EDNY 1990]), and a "large expenditure of court resources which are in
short supply and are required for other purposes" (see In re New York
City DES Litig., 142 FRD 58, 60 [EDNY 1992].)
The foreclosure crisis, moreover,
spawned legislation and home-owner-assistance programs on the federal and state
levels, [*894] which present complex
legal and factual issues that benefit from the expertise of the special
referees, and which further warrant the reference to hear and report ( see
CPLR 4212; Walter v Walter, 38 AD3d 763, 765, 835 N.Y.S.2d 196 [2d
Dept 2007].) "The referee's function is to apply his expertise to the
resolution of complicated issues of fact, or to apply complicated principles of
law in resolving disputed facts." (Glass v Thompson, 51 AD2d 69, 73,
379 N.Y.S.2d 427 [2d Dept 1976].)
The Court notes that, [***16] although most of the settlement
conference proceedings took place before the issuance of the June 2011 Order of
Reference, the July 8, 2011 Report and Recommendation was made at this Court's
direction at the June 27, 2011 appearance before it, and that the July 13, 2012
Supplemental Report and Recommendation was made, after further proceedings
before the Special Referee, at the Court's direction in its October 2011 Decision
and Order. In any event, neither party objected to the original reference to
the Mandatory Foreclosure
Conference Part in May 2009, nor
to the reference on June 27, 2011 for Special Referee Goldstein's report as to
Plaintiff's alleged lack of good faith, nor to the reference in the October 3,
2011 Decision and Order for Special Referee Goldstein's report as to defendant
McKenna's residency. ( See Matter of Wolf v Assessors of the Town of
Hanover, 308 NY 416, 420, 126 N.E.2d 537 [1955]; Matter of Union Indem.
Ins. Co. of N.Y., 67 AD3d 469, 471, 893
N.Y.S.2d 513 [1st Dept 2009]; 587 Dev., Inc. v Pizzuto, 8 AD3d 5, 777
N.Y.S.2d 494 [1st Dept 2004].)
The questions then become, first,
whether Special Referee Goldstein's finding that the settlement conference
proceedings in this case were mandated by CPLR 3408 (a), so as [***17] to impose on the parties the
obligation to negotiate "in good faith to reach a mutually agreeable
resolution" (see CPLR 3408 [f]), should be confirmed or
rejected; and, if confirmed, whether her finding that Plaintiff failed to
participate in good faith should be confirmed or rejected, and, if confirmed,
the appropriate remedy.
"Although the court is
entitled to reject the report of a referee and make new findings . . . , the
report and recommendations of a referee should be confirmed if his or her
findings are supported by the record." (Galasso, Langione & Botter,
LLP v Galasso, 89 AD3d 897, 898, 933 N.Y.S.2d 73 [2d Dept 2011]; see
also Zupa v Keitt, 84 AD3d 792, 794, 927 N.Y.S.2d 787 [2d Dept 2011]
["substantially supported by the record"]; MacNiallias v Potter,
82 AD3d 718, 719, 917 N.Y.S.2d 895 [2d Dept 2011]; Varriano v Steering
Wheel Rentals, Inc., 73 AD3d 756, 756-57, 899 N.Y.S.2d 652 [2d Dept 2010]; Royal
& Sun Alliance v [*895] New York Cent. Mut. Ins. Co., 29 AD3d 886,
887, 814 N.Y.S.2d 553 [2d Dept 2006]; Capili v Ilagan, 26 AD3d 354, 354,
810 N.Y.S.2d 480 [2d Dept 2006] ["substantially supported by the
record"]; Slater v Links at North Hills, 262 AD2d 299, 299, 691
N.Y.S.2d 101 [2d Dept 1999]; Frater v Lavine, 229 AD2d 564, 564, 646
N.Y.S.2d 46 [2d Dept 1996].) The referee's findings are particularly
entitled to deference [***18] where
credibility [**754] is at issue, since the referee has the
opportunity to see and hear the witnesses. (See Galasso, Langione &
Botter, LLP v Galasso, 89 AD3d at 898; Perez v Fiore, 78 AD3d 1143,
1144, 912 N.Y.S.2d 118 [2d Dept 2010]; Slater v Links at North Hills,
262 AD2d at 299; Frater v Lavine, 229 AD2d at 564.)
Mandatory
Settlement Conference/CPLR 3408(a)
As previously noted, CPLR 3408
(a) mandates a settlement conference "[i]n any residential foreclosure
action involving a home loan," as the term "home loan" is
defined in RPAPL §1304, "in which the defendant is a resident of
the property subject to foreclosure." The term "home loan" is
defined as:
" Home loan' means a loan,
including an open-end credit plan, other than a reverse mortgage transaction,
in which:(i) The borrower is a natural person;(ii) The debt is incurred by the
borrower primarily for personal, family, or household purposes;
(iii) The loan is secured by a
mortgage or deed of trust on real estate improved by a one to four family
dwelling, or a condominium unit, in either case, used or occupied, or intended
to be used or occupied wholly or partly, as the home or residence of one or
more persons and which is or will be occupied by the borrower [***19] as the borrower's principal dwelling;
and(iv) The property is located in this state." (RPAPL §1304 [5] [a].)
When CPLR 3408 (a) and RPAPL
§1304 (5) (a) are read together, it appears that a settlement conference
will be mandated where two "residency" requirements are met, one
considered as of the time the subject mortgage is given, and one considered as
of the time the foreclosure action is commenced. Under this reading, although
the borrower need not reside at the property when the mortgage is given if the
property "is or will be occupied by the borrower as the borrower's
principal dwelling" (see RPAPL § 1304 [5] [a] [iii]), a conference
is only mandated where the borrower "is a resident of the property
[*896] subject to foreclosure" (see
CPLR 3408 [a]) when the foreclosure action is commenced.
At least two trial courts have
rejected this reading of CPLR 3408 (a). (See One West Bank, FSB v
Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], *** 4 [Sup Ct,
Westchester County 2012]; Accredited Home Lenders, Inc. v Hughes, 22
Misc 3d 323, 326-27, 866 N.Y.S.2d 860 [Sup Ct, Essex County 2008].) These
courts rely upon the definition of "home loan" in RPAPL §1304,
which necessarily is applied at the time the
[***20] loan is obtained and necessarily speaks of intention and future
occupancy, buttressed by an assumed legislative intent "to remove owners
of investment properties or second homes from the ambit of the statute, not to
require a homeowner to remain at the mortgaged premises even as a foreclosure
action is being prepared or pending." (See One West Bank, FSB v
Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], *** 4; Accredited
Home Lenders, Inc. v Hughes, 22 Misc 3d at 326-27.) The language of CPLR
3408 (a) itself is not examined.
At least three trial courts,
without discussing any question as to the meaning of CPLR 3408 (a), and
implicitly placing the burden on the issue on the plaintiff/mortgagee, have
ruled that the evidence submitted was insufficient for a conclusion that a
settlement conference was not mandated. (See Rossrock Fund II LP v Arroyo,
34 Misc 3d 1211[A], 943 N.Y.S.2d 794, 2012 NY Slip Op 50048[U] [Sup Ct, Kings
County 2012]; Butler Capital Corp. v Cannistra, 26 Misc 3d 598, 604-05,
891 N.Y.S.2d 238 [Sup Ct, Suffolk County
[**755] 2009]; Indymac
Federal Bank FSB v Black, 22 Misc 3d 1115[A], 880 N.Y.S.2d 224, 2009 NY Slip Op
50133[U] [Sup Ct, Rensselaer County 2009]; see also One West Bank, FSB v
Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], at *** 4; [***21] Accredited Home Lenders Inc. v
Hughes, 22 Misc 3d at 326.)
"[T]he statutory text is the
clearest indicator of legislative intent . . . If the terms of the statute are
clear and unambiguous, the court should construe it so as to give effect to the
plain meaning of the words used . . . The objective of the court in this regard
is to discern and apply the will of the Legislature, not the court's own
perception of what might be equitable." (Maraia v Orange Regional Med.
Ctr., 63 AD3d 1113, 1116, 882 N.Y.S.2d 287 [2d Dept 2009] [internal
quotation marks and citations omitted].)"
However, "a statute's
language need not be literally or mechanically applied' when to do so would
cause an anachronistic or abused result'." (People v Paulin,17 NY3d
238, 243, 952 N.E.2d 1028, 929 N.Y.S.2d 36 [2011] [quoting Doctors
Council v New York City Employees' Retirement Sys., 71 NY2d 669, 675, 525
N.E.2d 454, 529 N.Y.S.2d 732 (1988)].)
[*897]
This Court can easily agree that the "plain language" of the
definition of "home loan" found in RPAPL §1304, which requires
that specified notices be given to the borrower prior to commencement of a
foreclosure action, includes intention and future occupancy in the
determination of residency. (See One West Bank, FSB v Greenhut, 36 Misc 3d
1205[A], 2012 NY Slip Op 51197[U], at *** 4 [***22] .) But the controlling
language for present purposes is found in CPLR 3408, i.e.,
"in which the defendant is a resident of the property subject to
foreclosure" (see CPLR 3408 [a] [emphasis added].) The
quoted language qualifies the incorporated definition of "home loan,"
again determined at the time the mortgage is given, for purposes of a
determination made after a foreclosure action is commenced as to whether a
settlement conference should be mandated. The Legislature's presumed intent for
that purpose might well be limited to attempting to keep people in their homes,
which is not furthered by diverting limited resources to people who, for
reasons unrelated to the foreclosure, are no longer, or perhaps never were,
"a resident" of the property.
This reading of the statute is
supported by Kings County Local Rules, Part F (7), relied upon by Special
Referee Goldstein, which provides:
"Every affidavit for an
exemption from a conference made pursuant to CPLR 3408 and RPAPL 1304
must specify the grounds for same and provide supporting documentation and
affidavits from persons with direct knowledge. Where the claim is that the
borrower is not living in the subject house, then an affidavit [***23] of investigation substantiating this
allegation must be appended which states inter alia that the borrower is not
living in the house and that no action by the mortgagee or its agents procured
same. This affidavit shall be included in the motion for a Judgment of
Foreclosure and Sale."
The words, "is not living in
the subject house" does not appear to this Court to be in any way
ambiguous, and is consistent with the statutory language, "is a resident
of the property."
The meaning of
"residency" for purposes of CPLR 3408 (a) must yet be
determined. In this case, however, that determination would be unnecessary were
the Court to accept Special Referee Goldstein's alternative contention that
Plaintiff's failure to submit affidavits and
[**756] documentation that would
comply with the just-quoted rule in effect waived any claim that CPLR 3408
(f) [*898] does not apply; or that Plaintiff is
judicially "estopped" from challenging the application of CPLR
3408 (f) by reason of Plaintiff's participation in foreclosure settlement
conference proceedings.
"Generally and excepting
instances where there would be transgressions of public policy, all rights and
privileges to which one is legally entitled, ex contractu [***24] or ex debito justicial,
may be waived." (Hadden v Consolidated Edison, Co., 45 NY2d 466, 469,
382 N.E.2d 1136, 410 N.Y.S.2d 274 [1978].) "A waiver, the intentional
relinquishment of a known right . . . , may be accomplished by express
agreement or by such conduct or failure to act as to evince an intent not to
claim the purported advantage." (Id.)
First, assuming that the quoted
rule was in effect at the commencement of this action, the rule by its terms speaks of "exemption
from a conference" and not "exemption" from the "good
faith" obligation imposed by CPLR 3408 (f). There is nothing about
the failure to seek an exemption from a conference, or about participation in
settlement conference proceedings, that evinces an intent to subject oneself to
an enforceable obligation to act in "good faith" where the obligation
would not otherwise exist. This would appear to be particularly true in Kings
County where, immediately following the quoted rule, there is a rule that,
"In addition to a conference mandated by statute, a conference will be
ordered in every case when there is an appearance by the defendant owner of the
equity of redemption" (see Kings County Local Rules, Part F (8).)
As articulated by the authority
cited [***25] by Special Referee
Goldstein, "Under the doctrine of judicial estoppel, or estoppel against
inconsistent positions, a party is precluded from inequitably adopting a
position contrary to or inconsistent with an earlier assumed position in the
same proceeding." (See Mass v Cornell Univ., 253 AD2d 1, 5, 683 N.Y.S.2d 634 [3d Dept]
[emphasis added], aff'd 94 NY2d 1, 720 N.E.2d 850, 698 N.Y.S.2d 574
[1999].) The doctrine only applies where, as a result of the earlier
assumed position, the party secured a judgment or some other favorable judicial
action. (See Ferrierra v Wyckoff Hgts. Med. Ctr., 81 AD3d 587, 588, 915
N.Y.S.2d 631 [2d Dept 2011]; Angel v Bank of Tokyo-Mitsubishi, Ltd., 39
AD3d 368, 371, 835 N.Y.S.2d 57 [1st Dept 2007]; Bono v Cucinella, 298
AD2d 483, 484, 748 N.Y.S.2d 610 [2d Dept 2002].) There has been no judicial
ruling accepting any contention by Plaintiff that defendant McKenna "is a
resident of the property subject to foreclosure" (see CPLR 3408
[a].)
The Court finds and concludes
that the record is sufficient to support the finding of Special Referee
Goldstein that a settlement [*899] conference was required in this action pursuant
to CPLR 3408 (a), such that the parties were each under an obligation
pursuant to CPLR 3408 (f) to "negotiate in good faith to reach a
mutually agreeable [***26]
resolution," whether the evidentiary burden on the issue is placed on the
plaintiff/mortgagee, as other courts have done (see One West Bank, FSB v
Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], at *** 3), or upon
the defendant/mortgagor, who might be in a better position to produce material
evidence.
The Court notes that neither CPLR
3408 nor RPAPL §1304 contains a definition of "residence"
or "dwelling" for their respective or joint purposes, and neither
Plaintiff nor defendant McKenna nor Special Referee Goldstein has suggested
that the term be given any meaning other than
[**757] that commonly understood.
For purposes of the Rent Stabilization Code, the term "primary
residence" "is judicially construed as an ongoing, substantial,
physical nexus with the premises for actual living purposes." (See
68-74 Thompson Realty, LLC v McNally, 71 AD3d 411, 412, 896 N.Y.S.2d 323 [1st
Dept 2010] [internal quotation marks, ellipses, and citations omitted].)
Defendant McKenna submitted his
own affidavit, asserting that in March 2007, after separating from his wife, he
purchased the mortgaged property at 448 Decatur Street in Brooklyn. He had
lived with his wife at 65 Ontario Road in Bellerose. The Decatur Street
property is a three-unit [***27]
residential building, which Mr. McKenna purchased subject to existing tenancies
in all units. He asserts that, although he "always intended to move into
the first floor apartment" (see affidavit ¶ 4), he did not obtain
possession of the apartment until December 2008. After making extensive
necessary repairs, he moved into the first floor unit in January 2009,
approximately three months prior to
commencement of this action. From November 2009 through November 2010, he spent
weekends with his wife at the Bellerose house, "with the goal of
reconciling our differences," and moved back into the Bellerose house in
December 2010. Mr. McKenna also submitted copies of his federal tax returns for
2009 and 2010, and his state tax return for 2010, each of which shows his
address at the Decatur Street property.
Plaintiff submited copies of
defendant McKenna's federal tax returns and W-2 wage and Tax Statements for
2007 and 2008, and a W-2 for 2009 (for $115.86); three bank statements from
2009 and three from 2010; and an earnings statement from 2009; all of which
show McKenna's address at Ontario Road in Bellerose. Plaintiff also relies on its
process server's Affidavit of [*900]
Service dated March 18, [***28]
2009, purporting to establish service on Mr. McKenna pursuant to the "nail
and mail" provisions of CPLR 308 (4) at the Ontario Road address;
and which further asserts that the process server confirmed that the address
was Mr. McKenna's residence with "Mr. Cavichi, white male, 70-80 years
old, at 63 Ontario Road." Mr. McKenna disputes proper service in his
answer, and in his affidavit asserts that he "did not have confidence in
forwarding [his] personal information to [his] house" on Decatur Street (seeaffidavit
¶ 8.)
Considering "residency"
as a component of the definition of "home loan," there is no evidence
in the record to contradict defendant McKenna that, at the time the loan was obtained,
the mortgaged property was "intended to be used or occupied wholly or
partly, as [his] home or residence . . . and [would] be occupied by [him] as
[his] principal dwelling" (see RPAPL §1304 [5] [a] [iii].)
The tax returns and W-2 statements for 2007 and 2008 merely confirm what Mr.
McKenna acknowledges, i.e., that he did not occupy the Decatur Street
building until December 2008. There is no evidence to contradict Mr. McKenna's
assertions in explanation about his inability to obtain possession [***29] from the tenants and the necessity of
repairs. Special Referee Goldstein was entitled to accept Mr. McKenna's
testimony on these matters.
Considering "residency"
at the time of commencement of the action, the only evidence that would
undermine defendant McKenna's assertions that he occupied the Decatur Street
building from January 2009 until December 2010, except for weekends during the
period November 2009 through November 2010, are the bank and earnings
statements that show the Ontario Road address. Mr. McKenna offered an
explanation [**758] that is plausible on its face, particularly
in light of his weekend access to mail at that address, and Special Referee
Goldstein was entitled to credit it.
Although evidence on these
matters would be more available to defendant McKenna, and there was no formal
disclosure during the settlement conference proceedings, Mr. McKenna provided
documentation at Plaintiff's request. Plaintiff does not assert that it was in
any way hindered in obtaining information on these matters from Mr. McKenna. If
a mortgagee applies for an "exemption" from settlement conference
proceedings on the ground that the mortgagor is "not living in the subject
house," it is required [***30] to
submit "an affidavit of investigation substantiating this
allegation." (See Kings County Local [*901]
Rules, Part F [7].) No less should be required here. The process
server's conversation with a person at a neighboring address in Bellerose does
not qualify.
This action was commenced in
March 2009, and referred for settlement conference proceedings in May 2009. The
parties appeared in the conference part 14 times from May 2009 through December
2010, and four times in 2011 until the action was referred to this Court in
May 2011. Special Referee
Goldstein was given sufficient opportunity to assess Mr. McKenna's credibility.
The only remaining question on
this point is whether Mr. McKenna's departure from the Decatur Street building
in December 2010 to reconcile with his wife, which he readily acknowledges,
affects the "good faith" obligation imposed by CPLR 3408 (f).
The short answer would be that the determination of residency for purposes of CPLR
3408 (a) is made at the commencement of the action, and there is nothing in
the statute to suggest that it is subject to re-determination. (See One West
Bank, FSB v Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], at *** 4;
Accredited Home Lenders, Inc. v Hughes, 22 Misc 3d at 326-27.) [***31] In this case, moreover, the Special
Referee's Report and Recommendation dated July 8, 2011 relies only on events
prior to December 2010 as the basis for the Special Referee's determination
that Plaintiff did not negotiate in good faith.
"Good
Faith" Negotiation/CPLR 3408(f)
In her Report and Recommendation,
Special Referee Goldstein concluded:
"During more than thirteen
(13) settlement conferences, the Presumed Foreclosing Parties have failed to
offer a reasonable explanation for their failure to accept the short sale offers
and proceed with a reasonable alternative to foreclosure for all parties
involved. In addition, the Presumed Foreclosing Parties' utter disregard for
the Legislature's clear directive that in mandatory foreclosure settlement
conferences [b]oth the plaintiff and defendant shall negotiate in good faith to
reach a mutually agreeable resolution . . . if possible' should not be
condoned. N.Y.C.P.L.R. §3408 (f)."
As Special Referee Goldstein
explained elsewhere, the designation "Presumed Foreclosing Parties"
reflects her uncertainty as to the real party in interest and the authority of
[*902] the persons who appeared for
Plaintiff during settlement conference proceedings. For present [***32] purposes, however, there is no
contention that Plaintiff is not fully bound by the conduct of those who
appeared on its behalf.
Special Referee Goldstein's
determination that Plaintiff did not negotiate in good faith, as required by CPLR
3408 (f), has both substantive and process aspects. The Special Referee
charges that Plaintiff refused to approve short-sale contracts [**759]
reflecting "objectively-priced, market-driven, all cash
offers for the property that were well within [Plaintiff's] own appraised value
in a declining market"; and that Plaintiff "prolonged and ultimately
frustrated the workout process, inflated Defendant's original loan, . . . [and]
caused the defense to unnecessarily incur attorney's fees . . . for attending
successive conferences during which [Plaintiff] conducted a protracted short
sale review." (Report and
Recommendation at 2.) Further, that Plaintiff's refusal to approve two proposed
short-sale contracts was "without any reasonable explanation," and
accompanied by delaying requests for documents, and Plaintiff's insistence on
"unnecessar[y] . . . additional appraisals over the course of
months." (See id. at 3.)
It appears that, from the
beginning of the settlement [***33]
conference proceedings, the only resolution seriously contemplated by the
parties was a short sale. Defendant McKenna listed the property in the summer of
2009, with an asking price of $499,000. As stated by the Special Referee, in
July Mr. McKenna accepted an all cash offer of $325,000, which was the best
offer received. In September, Plaintiff obtained an appraisal of the property,
which showed a "quick sale" value of the property at $315,000 and an
"as is" market value of $350,000. The appraisal report noted that the
real estate market in the area of Brooklyn in which the Decatur Street property
is located was "oversaturrated and prices [were] falling sharply."
Plaintiff rejected the $325,000 contract and counter-offered at $340,000.
In December 2009, defendant
McKenna presented Plaintiff with a second short-sale contract, this one from a
different prospective buyer, at the $340,000 price demanded by Plaintiff. In
the interim, Mr. McKenna had made repairs to the property, including a new
boiler, totaling $15,000. The review process that followed included a further
appraisal of the property in June 2010, six months later, that appraised the
property at $412,000.
In an August 19, 2010 [***34] "directive," Special
Referee Goldstein states that in June 2010 Plaintiff approved the short sale at
[*903] $340,000, but that Plaintiff
"has failed to allow short sale to proceed." It appears from the Report
and Recommendation that the $340,000 short-sale contract was in effect rejected
at the conference in August 2010. Special Referee Goldstein considered that
Plaintiff had not followed through on commitments made at prior conferences,
and scheduled further proceedings. Plaintiff obtained yet another appraisal in
October 2010, showing market value at $520,000, and advised at a November
conference that it would only accept a short sale that would "net
$468,000" (see Report and Recommendation at 10.)
Special Referee Goldstein's
Report and Recommendation includes as exhibits copies of the September 2009,
June 2010, and October 2010 appraisal reports. Other than the
"directive" dated August 19, 2010, the appraisals are the only
exhibits.
At a scheduled hearing before
this Court, the parties were invited to respond to the findings and
determinations of Special Referee Goldstein, and both parties did so. As will
appear, however, to the extent that the parties' respective submissions include
factual [***35] assertions or documents
that are not included or addressed in the Report and Recommendation, the
evidentiary significance is suspect.
Defendant McKenna responded with
a letter from his counsel, John E. Petiton, Esq., that contains factual
assertions that are not affirmed to be true (see CPLR 2106.) Of
some note, Mr. Petiton states that in May 2011 a fourth appraisal of the
subject property, obtained by Mr. McKenna,
valued the property at $355,000.
[**760] Plaintiff's counsel
acknowledges having received a copy of that appraisal at a May 25, 2011
conference. Neither party submits a copy of the appraisal, which is not
referred to in Special Referee Goldstein's Report and Recommendation. As noted
above, the Special Referee's findings and determinations as to Plaintiff's lack
of good faith are based upon conduct through December 2010.
Plaintiff responded with an
Affidavit of Jessica Jones, described as "Vice President of Loan
Doscumentation [sic] for Wells Fargo Bank N.A. . . . , which is the
master servicer of the loan at issue"; and an Affirmation of Michael
Jablonski, Esq. in Support of Plaintiff HSBC Bank USA's Opposition to the
Recommendation of Deborah L. Goldstein, described as an associate [***36] with a law firm that is co-counsel
for Plaintiff. Both Ms. Jones and Mr. Jablonski attach as exhibits to their respective
statements documents that are not included as exhibits to the Report and
Recommendation. Moreover, Ms. Jones's Affidavit was executed [*904] in Maryland, and is not in admissible form (see
CPLR 2309 [c].)
Neither Ms. Jones nor Mr.
Jablonski asserts that she or he, respectively, either attended any of the
settlement conferences or otherwise participated in Plaintiff's consideration
of defendant McKenna's proposed short-sale contracts, nor does either otherwise
establish personal knowledge of the matters asserted. Neither Ms. Jones nor Mr.
Jablonski is named in the Report and Recommendation as participating in any way
in settlement conference proceedings; neither name appears in any of the
documents attached to Ms. Jones's affidavit or Mr. Jablonski's affirmation; and
neither Ms. Jones or Mr. Jablonski renders any of these documents admissible as
evidence (see CPLR 4518 [a].)
Under these circumstances, the
Court will consider such documents only if they are addressed expressly or by
implication by Special Referee Goldstein's Report and Recommendation, or they
undermine Plaintiff's [***37] position
on any issue. Having submitted the documents for this Court's consideration in
its favor, Plaintiff vouches for their authenticity, and must be bound by their
significance. (See Wenger v DMR Realty Mgt., Inc., 90 AD3d 647, 648-49, 934
N.Y.S.2d 221 [2d Dept 2011]; Ocampo v Pagan, 68 AD3d 1077, 1078, 892
N.Y.S.2d 452 [2d Dept 2009]; Liberto v Liberto, 123 AD2d 669, 670, 507
N.Y.S.2d 39 [2d Dept 1986] ["an exception to the hearsay rule for
informal judicial admissions has been recognized in this State"].)
There appears to be no published
decision that defines "good faith" for purposes of CPLR 3408 (f).
A trial court has recently said that "the best uniform standard for good
faith' is compliance with the Federal HAMP regulations." (Flagstar
Bank, FSB v Walker, 37 Misc 3d 312, 946 N.Y.S.2d 850, 2012 NY Slip Op 22148,
*** 1 [Sup Ct, Kings County 2012].) The reference is to the federal Home
Affordable Modification Program "that arose out of the Emergency Economic
Stabilization Act . . . of 2008 and the Helping Families Save Their Homes Act .
. . of May of 2009." (See JPMorgan Chase Bank, National Association v
Ilardo, 36 Misc 3d 359, 366, 940 N.Y.S.2d 829 [Sup Ct, Suffolk County 2012].)
Requiring "good faith"
participation in court-connected settlement conferences is [***38] not
unique to mortgage foreclosure, and its complexity has been addressed by
federal courts (see e.g. Negron v Woodhull Hosp., 173 Fed Appx 77 [2d Cir
2006]; In re A.T. Reynolds & Sons, Inc., 452 BR 374 [SDNY 2011];
Francis v Women's Obstetreis & Gynecology Group, P.C., 144 FRD 646 [WDNY
1992]); and legal commentators based upon federal and [*905] state law (see e.g. Thompson, 2010
Symposium: [**761] Codifying Mediation 2.0: Good Faith Mediation
in the Federal Courts, 26 Ohio St J on Disp Resol [2011]; Lande, Using Dispute
System Design Methods to Promote Good Faith Participation in Court-Connected
Mediation Programs, 50 UCLA L Rev 69 [2002]; Alfini and McCabe,
Mediating in the Shadow of the Courts: A Survey of the Emerging Case Law, 54
Ark L Rev 171 [2001].)
The Federal Rules of Civil
Procedure require that parties and their counsel "participate in good
faith" in court-ordered mediation (see Federal Rules of Civil
Procedure, Rule 16 [f].) "Participation" for purposes of a
consideration of "good faith" includes "the degree to which a
party discusses the issues, listens to opposing viewpoints, analyzes its risk
of liability, and generally participates in the process' of mediation" (see
In re A.T. Reynolds & Sons, Inc., 452 BR at 381-82), [***39] and "is distinct from such
objective criteria as attendance, exchange of pre-mediation memoranda, and
settlement authority" (see id. at 382 n2.) "[A] party is not
required to change its settlement parameters by reasons of a court order to
attend a settlement conference." (Negron v Woodhull Hosp., 173 Fed Appx
at 79.)
Generally, "good faith"
under New York law is a subjective concept, "necessitat[ing] examination
of a state of mind." (See Credit Suisse First Boston v Utrecht-America
Finance Co., 80 AD3d 485, 487, 915 N.Y.S.2d 531 [1st Dept 2011] [quoting Coan
v Estate of Chapin, 156 AD2d 318, 319, 549 N.Y.S.2d 16 (1st Dept 1989)].)
" Good Faith' is an intangible and abstract quality with no technical
meaning or statutory definition." (Adler v 720 Park Avenue Corp., 87
AD2d 514, 515, 447 N.Y.S.2d 727 [1st Dept 1982] [quoting Doyle v Gordon,
158 NYS2d 248, 259 (Sup Ct, NY County 1954)].) "It encompasses, among
other things, an honest belief, the absence of malice and the absence of a
design to defraud or to seek an unconscionable advantage." (Doyle v
Gordon, 158 NYS2d at 259-60; see also Uniform Commercial Code
§1-201 [19] [" Good Faith' means honesty in fact in the conduct or
transaction concerned."].) "Good faith is . . . lacking when [***40] there is a failure to deal honestly,
fairly, and openly." (CIT Group/Commercial Servs. v 160-09 Jamaica Ave.
L.P., 25 AD3d 301, 303, 808 N.Y.S.2d 187 [1st Dept 2006] [internal
quotation marks and citation omitted]; see also Southern Indus. v Jeremias,
66 AD2d 178, 183, 411 N.Y.S.2d 945 [2d Dept 1978].) "In New York, as
elsewhere, good faith' connotes an actual state of mind --a state of mind
motivated by proper motive." (Polotti v Flemming, 277 F2d 864, 868 [2d
Cir 1960].) In the context of negotiations, the absence of agreement does
not itself establish the lack of good [*906]
faith. (See Brookfield Indus., Inc. v Goldman, 87 AD2d 752, 753, 448
N.Y.S.2d 694 [1st Dept 1982].)
Although no court has articulated
a definition or conception of "good faith" for purposes of CPLR
3408 (f), either as a substantive determination as to the
plaintiff/mortgagee's decision not to reach a resolution or as descriptive of
the plaintiff/mortgagee's conduct during mandated settlement conference
proceedings, a growing number of trial courts have found or suggested a lack of
good faith on the part of the plaintiff/mortgagee. (See Bank of America N.A.
v Lucido, 35 Misc 3d 1211[A], 950
N.Y.S.2d 721, 2012 NY Slip Op 50655[U], *** 7 [Sup Ct, Suffolk County 2012];
HSBC Mtge. Corp. [USA] v Gigante,
Misc 3d [A], 2011 NY Slip Op
33327[U], ** 8-** 9 [Sup Ct, Richmond County 2011] [***41] ; Deutsche
Bank Trust Co. of Am. v Davis, 32 Misc 3d 1210[A], 934 N.Y.S.2d 33, 2011 NY
Slip Op 51238[U], * 2 [Sup Ct, Kings County 2011]; U.S. [**762] Bank Natl. Assn. v Padilla, 31 Misc 3d
1208[A], 929 N.Y.S.2d 203, 2011 NY Slip Op 50535[U], * 4 [Sup Ct, Dutches
County 2011]; BAC Home Loans Servicing v Westerfelt, 29 Misc 3d 1224[A],
920 N.Y.S.2d 239, 2010 NY Slip Op 51992[U] [Sup Ct, Dutches County 2010]; Wells
Fargo Bank, N.A. v Meyers, 30 Misc 3d 697, 700-01, 913 N.Y.S.2d 500 [Sup Ct,
Suffolk County 2010]; Emigrant Mtge. Co. v Corcione, 28 Misc 3d 161,
168-69, 900 N.Y.S.2d 608 [Sup Ct, Suffolk County 2010]; Wells Fargo
Bank, N.A. v Hughes, 27 Misc 3d 628, 634, 897 N.Y.S.2d 605 [Sup Ct, Erie County
2010]; One West Bank, FSB v Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip
Op 51997[U], at *** 6.)
For the most part, findings of
lack of good faith have been based upon descriptions of the
plaintiff/mortgagee's conduct during mandated settlement conference
proceedings. "Conduct such as providing conflicting information, refusal
to honor agreements, unexcused delay, unexplained charges, and
misrepresentations have been held to constitute bad faith'." (Flagstar
Bank, FSB v Walker, 37 Misc. 3d 312, 946 N.Y.S.2d 850, 2012 NY Slip Op 22148,
at *** 4 n6; see [***42]
also One West Bank, FSB v Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op
51997[U], at *** 4-*** 5.)
Some decisions, however, suggest
a lack of good faith in the plaintiff/mortgagee's decision not to reach a
resolution, in that the plaintiff/mortgagee rejected a proposed short sale of
the property (see HSBC Bank USA, N.A. v Cayo, Misc 3d
, 934 N.Y.S.2d 792, 2011 NY Slip Op 21441, *** 3 n7 [Sup Ct, Kings
County 2011]; or "failed to . . . extend to defendant an affordable
loan modification" (see Deutsche Bank Trust Co. of Am. v Davis, 32 Misc
3d 1210[A], 2011 NY Slip Op 51238[U], at *** 2); or failed to "work
out a loan modification, as required by statute, with a homeowner who is
gainfully employed" (see BAC Home Loans Servicing v Westerfelt, 29 Misc
3d 1224[A], 2010 NY Slip Op 51992[U]); or "failed to demonstrate any
good faith basis for refusing [*907] to
honor the terms of the trial modification or offering another similar
proposal" (see Wells Fargo Bank, N.A. v Meyers, 30 Misc 3d at 701;
or "obstinately refusing to revise" the terms of a modification
agreement "in accordance with the stated intention of the
Legislature" (see Wells Fargo Bank, N.A. v Hughes, 27 Misc 3d at 634.)
Another court held, however, that "a determination not to modify a
mortgage loan [***43] by a foreclosing
bank that is under no legal obligation to modify such a loan . . . does not
constitute bad faith." (See JPMorgan Bank, N.A. v Ilardo, 36
Misc 3d at 379-380.)
It is also not clear whether the
plaintiff/mortgagee or the defendant/mortgagor bears the evidentiary burden on
the issue of good faith where it is required by CPLR 3408 (f). (See
One West Bank, FSB v Greenhut, 36 Misc 3d 1205[A], 2012 NY Slip Op 51197[U], at
*** 7] [defendant/mortgagor]; Deutsche Bank Trust Co. of Am. v Davis, 32
Misc 3d 1210[A], 2011 NY Slip Op 51238[U], at * 2 [plaintiff/mortgagee].)
It appears to this Court, however, that, assuming fair access to material
evidence on the issue, the burden should be placed on the party who seeks some
judicial consequence from the determination, which in most cases would likely
be the defendant/mortgagor.
Although not directly on point,
because they do not explicitly address the good faith requirement of CPLR
3408 (f), the opinions in IndyMac Bank, F.S.B. v Yano-Horoski (26 Misc
3d 717, 890 N.Y.S.2d 313 [Sup Ct,
Suffolk County 2009], rev'd as to sanction 78 AD3d 895, 912
N.Y.S.2d 239 [2d Dept 2010]) are informative. The trial court vacated a
judgment of foreclosure and sale, cancelled the note and mortgage, and directed
cancellation [**763] of
[***44] the notice of pendency, based upon conduct of the
plaintiff/mortgagee during settlement conference proceedings that the court
characterized as "inequitable, unconscionable, vexatious and opprobrious .
. . wholly unsupportable in law or in equity, greatly egregious and . . .
completely devoid of good faith . . . [and] harsh, repugnant, shocking and
repulsive." (See 26 Misc 3d at 724.) Among other cited
conduct, the "[p]laintiff flatly rejected an offer by defendant's daughter
to purchase the house for its fair market value (a so-called short sale') with
third-party financing," and "each and every proposal by defendant, no
matter how reasonable, was soundly rebuffed by plaintiff." (See id. at
719.)
On appeal, without discussing the
bases for the trial court's actions, the Second Department reversed as to the
sanction, holding that "the severe sanction . . . of cancelling the
mortgage and note was not authorized by any statute or rule . . . , nor was the
plaintiff given fair warning that such a sanction was even under
consideration." (See 78 AD3d at 896.) [*908]
"The reasoning of the [lower court] that its equitable powers
included the authority to cancel the mortgage and note was erroneous, [***45] since there was no acceptable basis
for relieving the homeowner of her contractual obligations to the bank . . . ,
particularly after a judgment had already been rendered in the plaintiff's
favor." (Id.; see also Citibank, N.A. v Van Brunt Props., LLC, 95 AD3d
1158, 1159, 945 N.Y.S.2d 330 [2d Dept 2012].)
Although judicial modification of
the terms of the loan or mortgage may not be an appropriate remedy for a
plaintiff/mortgagee's lack of good faith or other wrongful conduct, it does not
follow that the plaintiff/mortgagee's refusal to modify such terms during
mandated settlement conference proceedings cannot be considered in assessing
whether the plaintiff/mortgagee discharged the statutorily imposed obligation
to negotiate in good faith (see CPLR 3408 [f].) Similarly,
understandings of good faith in contractual or other transactional contexts
generally, or as required
as part of general court-ordered
mediation programs, do not necessarily apply to limit the meaning of "good
faith" where, as here, imposed to achieve a particular statutory purpose.
"The purpose of the good
faith requirement [in CPLR 3408] is to ensure that both plaintiff and
defendant are prepared to participate in a meaningful effort [***46] at the settlement conference to reach
resolution." (See Governor's Program Bill No. 46 RR, Memorandum, at
6 [2009].) Since an unreasonable, arbitrary, or even unexplained, refusal to
consider alternatives to foreclosure are not consistent with "meaningful
effort" to reach resolution, substantive consideration of the plaintiff/mortgagee's
action or inaction with respect to alternatives is consistent with, if not
required by, the statutory purpose. Subjective good faith, moreover, or the
lack thereof, can rarely be determined without examination of its likely
"external manifestations." (See Adler v 720 Park Ave. Corp., 87
AD2d at 515.)
In this context, "good
faith" might be fairly analogized to the concept of
"unconscionability," which has both procedural and substantive
elements. (See Emigrant Mortgage Co. v Fitzpatrick, 95 AD3d 1169, 1170, 945
N.Y.S.2d 697 [2d Dept 2012].) A determination of
"unconscionability" generally requires a showing as to both elements, although the
elements "operate on a sliding scale." (See Simar Holding Corp. v
GSC, 87 AD3d 688, 690, 928 N.Y.S.2d 592 [2d Dept 2011] [internal quotation
marks and citation omitted].)
[*909]
[**764] Here, is not disputed
that in August 2009 defendant McKenna presented Plaintiff [***47] with the first of two proposed
short-sale contracts. The Court notes that Plaintiff disputes the Special
Referee's statement that the proposed purchase price was $325,000, and that the
Residential Contract of Sale dated July 6, 2009 states a purchase price of
$300,000; but also notes that a rider to that contract refers to a purchase
price of $325,000. In any event, after appropriate deductions from the purchase
price, Plaintiff would have received $249,600 of a $300,000 purchase price,
which Plaintiff "deemed insufficient to yield Plaintiff a reasonable
percentage of fair market value" (see affidavit of Jessica Jones ¶¶
11, 13). The first proposal was promptly rejected.
As noted above, Plaintiff
obtained an appraisal of the property in September 2009 that showed a
"quick sale" value of the property at $315,000 and an "as
is" market value at $350,000. Plaintiff does not explain how it decided at
this point the percentage of fair market value that it would deem
"reasonable" and "sufficient." At a later point, however,
applying the guidelines of the federal Home Affordable Foreclosure Alternative
("HAFA") program, "Plaintiff determined that a minimal
acceptable net proceeds for short
[***48] sale approval is 85% of the fair market value" (see
affidavit of Jessica Jones ¶ 17.) Using the "quick sale" value of
$315,000, which seems appropriate since the short-sale offer was "all
cash," and since the appraisal stated that "the market . . . is
oversaturated and prices are falling sharply," 85% would be $267,750. Even
assuming the $300,000 purchase price, Plaintiff would have received $249,600;
and Plaintiff asserts that in October the offer was increased to $310,000 (see
id. ¶ 12.)
"Plaintiff advised Defendant
that a purchase amount of $340,000 would be needed to approve the sale of the
Property at that time." (See id.) At a settlement conference on
November 16, 2009, "Defendant's counsel advised Plaintiff's counsel that
he had submitted a short sale offer for $340,000.00." (See
affirmation of Michael Jablonski, Esq. ¶ 7.) This second short-sale proposal,
with a different prospective purchaser, is reflected in a Residential Contract
of Sale dated December 1, 2009, and was also an "all cash"
transaction. By the end of 2009, therefore, defendant McKenna had in hand a
contract for sale of the property at the amount demanded by Plaintiff, which
was $25,000 more than the "quick sale" [***49] appraisal value and only $10,000 less
that full appraised market value.
It is important to note at this
point that defendant McKenna's procurement of a contract for purchase of the
mortgaged [*910] property at the price
demanded by Plaintiff obviates consideration of the facts that would otherwise
be assessed and weighed in determining whether Plaintiff lacked good faith in
refusing to approve a short sale. Those factors would include the amount of the
outstanding indebtness, which here, according to Special Referee Goldstein, was
$684,000 at the time of the first settlement conference; the likely movement of
the market, which here, according to the September 2009 appraisal, was sharply
declining; and the likelihood of a greater yield through a private short sale
than through a public foreclosure auction, considering both the expense and
time associated with each. Neither Special Referee Goldstein nor either of
the parties addresses this last factor.
The Court has little difficulty
concluding that, unless there is a good reason for the second proposed
short-sale transaction not to have been formally approved by Plaintiff and
consummated, there is sufficient support in the record to support [***50] Special [**765]
Referee Goldstein's determination that Plaintiff did not "negotiate
in good faith to reach a mutually agreeable resolution" (see CPLR
3408 [f].) Nor, given the circumstances existing at the end of 2009, does
the Court hesitate in placing the burden on Plaintiff to come forward with
evidence of a good reason.
There is no doubt that after
submission on January 13, 2010 of the second proposed short sale contract
"along with a financial package" (see affirmation of Michael
Jablonski, Esq. ¶ 7), the review and approval process sputtered and stalled.
Special Referee Goldstein acknowledges in her Report and Recommendation that
some delay during the first six months of 2010 was attributable to the newly
promulgated HAFA program, with requirements for "the homeowner's
submission of additional paperwork on official Fannie Mae Treasury forms."
Nonetheless, Special Referee
Goldstein describes a "prolonged," and "protracted short sale
review," during which Plaintiff "demanded multiple submissions of documents
from the defense, unnecessarily insisted on two additional appraisals over the
course of months," and was "unable to support the basis for the
delays in the extended review of the short
[***51] sale contracts presented fro [sic] approval . . . and the
basis of the increasing appraisals in the declining market in mid-2010."
Plaintiff disclaims any responsibility for the delay, which it suggests belongs
to defendant McKenna and Special Referee Goldstein.
The Court finds sufficient
support in the record for Special Referee's characterization of Plaintiff's
review and approval [*911] process,
which is not substantially undermined by Plaintiff's own recitation of events,
contained in its submissions in response. For example, whereas Ms. Jones states
in her affidavit that "Plaintiff did not receive another updated packet
for review until March, 2010" (see affidavit of Jessica Jones ¶
14), the affirmation of its counsel states that, after receiving the second
proposed short-sale package on January 13, 2010, it was not until March 12 that
counsel's office "request[ed] updated documents . . . as the previously
submitted documents . . . had expired" (see affirmation of Michael
Jablonski, Esq. ¶¶ 8, 9.)
The June 2010 appraisal assigned
an "As Is Quick Sale" value to the property of $325,000, and an
"As Is Market Value" of $412,000. The proposed "all cash"
short-sale contract price of $340,000,
[***52] therefore, exceeded the "quick sale" value, and was
only $10,200 less than the amount obtained by applying Ms. Jones's 85% yield
requirement to the $412,000 market value, i.e., $350,200. The Court also
notes Special Referee Goldstein's finding that, after the September 2009
appraisal, defendant McKenna spent $15,000 in repairs to the property.
There is a dispute as to the
status in mid-2010 of the second short-sale proposal. Ms. Jones at the least
suggests that "Defendant was denied for a HAFA short sale" in June
2010 (see affidavit of Jessica Jones ¶ 18); but counsel makes no mention
of any denial at the time, and submits correspondence dated in July to
defendant McKenna's counsel "advis[ing] of the documents needed for HAFA
review" (see affirmation of Michael Jablonski, Esq. ¶¶ 18, 19.) In
her August 19, 2010
"directive," Special Referee Goldstein states that Plaintiff
"approved short sale w/ all cash buyer [at] price BPO quoted by bank
representative, Justin Pagel," but Plaintiff "has failed to allow
short sale to proceed since 6/10 approval by bank."
Special Referee Goldstein
directed Plaintiff "to complete short sale review no later than 8/31/10
because it has failed to comply w/
[***53] HAFA guidelines and the time constraints therein." As
Special Referee [**766] Goldstein explained in the Report and
Recommendation, the HAFA program "set certain time constraints and uniform
structure for short sale and deed-in-lieu workouts." Plaintiff did not
comply, because it insisted on yet another appraisal that Plaintiff maintained
was "required . . . to continue HAFA review of this loan" (see
affirmation of Michael Jablonski, Esq. ¶ 23; affidavit of Jessica Jones ¶ 20.)
The October 2010 appraisal
assessed the market value of the property at $520,000. Nothing in the record
explains the more [*912] than 26%
increase in appraised market value during the four months from June 2010, when
the property was said to have an "As Is Market Value" of $412,000,
particularly in light of the statement in the June 2010 appraisal report,
"Property Value Trend, because of higher lending standards, prices has [sic]
declined."
In any event, based upon the
October 2010 appraisal, Plaintiff advised defendant McKenna that "the sale
must net $468,000 to the lender," and when Defendant failed to procure a
short-sale contract that would comply with Plaintiff's demand, "Defendant
was denied for [a short sale] on November
[***54] 18, 2010." (See affidavit of Jessica Jones ¶¶ 20,
21.)
The Court finds no good reason in
the record for Plaintiff's failure to approve the second proposed short-sale
contract, calling for an "all cash" purchase price of $340,000, so as
to result in a transfer of title no later than February 28, 2010. In
consequence, the Court finds sufficient support in the record for Special
Referee Goldstein's determination that Plaintiff failed to "negotiate in
good faith" (see CPLR 3408 [f]) with respect to defendant
McKenna's second proposed short sale in failing to promptly approve the sale,
in unnecessarily prolonging and delaying the review and approval process, and
in obtaining successive appraisals that became the basis for increased demands,
all without any showing that its conduct was likely to yield a higher net
return through a delayed foreclosure sale.
Remedy
for Failure to Negotiate in "Good Faith"
In her Report and Recommendation,
Special Referee Goldstein recommends the following remedies for Plaintiff's
failure to negotiate in good faith during mandated settlement conference
proceedings:
"(a) barring Plaintiff from
collecting from Defendant any attorney's fees or other legal costs incurred [***55] as a result of this action; (b)
awarding Defendant reasonable attorney's fees and other legal costs and
disbursements associated with its participation in foreclosure conferencing;
and (c) barring Plaintiff from collecting from Defendant any interest accrued
on the loan since September 2009."
In the absence of any notice to
Plaintiff that any additional or different remedy might be imposed (see
IndyMac, F.S.B. v Yano-Horoski, 78 AD3d at 896), and the novelty of the
issues raised by the Special Referee's Report and Recommendation, the
[*913] Court will limit its
consideration of remedy to those recommended by the Special Referee.
CPLR 3408 (f) specifies no remedy for a
party's breach of its duty to negotiate in good faith during settlement
conference proceedings. Where a mortgagee has been found to breach the duty,
courts have ordered that no interest be collected on the underlying loan,
either from a date during the proceeding that would appear to correspond to the
mortgagee's breach (see U.S. Bank Natl. Assn. v Padilla, 31 Misc 3d 1208[A],
2011 NY Slip Op 50535 [U], at * 4; BAC Home Loans Servicing v
Westerfelt, 29 Misc 3d 1224[A], 2010 NY Slip Op 51992 [U]); or from the
date of the mortgagor's default on the loan, and [**767]
including [***56] a bar on
attorney fees and costs (see Bank of America, N.A. v Lucido, 2012 NY Slip Op
50655 [U], at *** 8; Emigrant Mgte. Co. v Corcione, 28 Misc 3d at 170.)
Generally, "[a] foreclosure
action is equitable in nature and triggers the equitable powers of the
court." (Norwest Bank Minn., NA v E.M.V. v Realty Corp., 94 AD3d 835,
836, 943 N.Y.S.2d 113 [2d Dept 2010]; see also Notey v Darien Constr.
Corp., 41 NY2d 1055, 1055-56, 364 N.E.2d 833, 396 N.Y.S.2d 169 [1977].)
"In an action of an equitable nature, the recovery of interest is within
the court's discretion," with the "exercise of that discretion . . .
governed by the particular facts in each case, including any wrongful conduct
by either party." (Dayan v York, 51 AD3d 964, 965, 859 N.Y.S.2d 673 [2d
Dept 2008]; see also Norwest Bank Minn., NA v E.M.V. Realty Corp., 94
AD3d at 837; Preferred Group of Manhattan, Inc. v Fabius Maximus, Inc.,
51 AD3d 889, 890, 859 N.Y.S.2d 236 [2d Dept 2008]; Danielowich v PBL
Div., 292 AD2d 414, 415, 739 N.Y.S.2d 408 [2d Dept 2002].) In an
appropriate case, "equity requires the cancellation of any interest
awarded to [the mortgagee] on the unpaid principal balance of the
mortgage." (See Norwest Bank Minn., N.A. v E.M.V. Realty Corp., 94 AD3d
at 837; see also Citibank, N.A. v Van Brunt Props., LLC, 95 AD3d 1158, 1159,
945 N.Y.S.2d 330 [2d Dept 2012]
[***57] ["Supreme Court . . . erred in . . . declaring that the
plaintiff is not entitled to any interest, penalties, or fees on the note from
the date of default"].)
"It is well settled that a
mortgagor is bound by the terms of his [or her] contract . . . and cannot be
relieved from his [or her] default in the absence of waiver by the mortgagee,
or estoppel, or bad faith, fraud, oppressive or unconscionable conduct on the
latter's part'." ( Levine v Infidelity, Inc., 285 AD2d 629, 630, 728
N.Y.S.2d 670 [2d Dept 2002] [quoting Nassau Trust Co. v Montrose
Concrete Prods. Corp., 56 NY2d 175, 183, 436 N.E.2d 1265, 451 N.Y.S.2d 663
(1982)].) But "[t]he equitable remedy of foreclosure may be denied in
order to prevent unconscionable overreaching by a mortgagee." (European
American Bank v Harper, 163 AD2d 458, 461, 558 N.Y.S.2d 155 [2d Dept 1990].)
[*914]
It seems beyond argument that breach of a statutorily-imposed duty -
-here, the duty to negotiate in good faith of CPLR 3408 (f), is wrongful
conduct sufficient to affect the
discretionary award of interest, as well as of a nature to warrant
relieving a mortgagor of some consequence of default, although apparently not
to the extent of cancellation of the loan and mortgage (see IndyMac Bank,
F.S.B. v Yano-Horoski, 78 AD3d at 896.)
[***58] Likewise, it would appear indisputable that discretion and
equity require that the appropriateness of the remedy be determined by the
nature and effect of the breach.
Where, as here, the mortgagee's
lack of good faith consists of the failure to promptly approve and facilitate a
short sale at the price demanded by the mortgagee, with the result that the
sale is lost, a denial of interest from the date of the mortgagor's default
fits the mortgagee's breach. Indeed, since the consummated short sale would
have relieved the mortgagor of any further responsibility for the debt, even a
denial of interest from the date of default does not fully compensate the
mortgagor for the consequences of the mortgagee's breach.
Similarly, a denial of attorney
fees to the mortgagee as an element of damages for the mortgagor's default
would be sufficiently tailored to the mortgagee's breach [**768]
of duty in this case, consistent not only with the equitable nature of
foreclosure, but with the court's general supervisory authority over awards of
attorney fees, whether allowed by statute or by contract. (See Matter of
First Natl. Bank of E. Islip v Brower, 42 NY2d 471, 474, 368 N.E.2d 1240, 398
N.Y.S.2d 875 [1977]; Yonkers Rib House, Inc. v 1789 Cent. Park Corp., 63
AD3d 726, 726-27, 880 N.Y.S.2d 148 [2d Dept 2009]; [***59] SO/Bluestar, LLC v Canarsie Hotel
Corp., 39 AD3d 986, 987, 825 N.Y.S.2d 80 [2d Dept 2006]; RAD Ventures
Corp. v Artukmac, 31 AD3d 412, 414, 818 N.Y.S.2d 527 [2d Dept 2006].)
That assumes, of course, that the
mortgagee would be entitled to an award of attorney fees in the first place.
"Since there is no statute in New York authorizing the recovery of an
attorney's fee in a mortgage foreclosure action, such a fee may only be
recovered if contractually authorized." (Neighborhood Hous. Servs. of
NY City, Inc. v Hawkins, 97 AD3d 554, 554, 947 N.Y.S.2d 321 [2d Dept 2012].)
Here, the Mortgage dated March 27, 2007 contains no provision for recovery of
attorney fees in a foreclosure action. A provision that "Lender may charge
[the mortgagor] fees for services performed in connection with [the
mortgagor's] default, for the purpose of protecting Lender's interest in the
Property and rights under this Security Instrument, including but not limited
to attorneys' fees, property inspection and valuation [*915] fees" (Section 14) does not qualify. (See
Jamaica Sav. Bank v Cohan, 38 AD2d 841, 841-42, 330 N.Y.S.2d 119 [2d Dept 1972].)
Nor does the provision in the Adjustable Rate Note that the lender "will
have the right to get paid back by [the borrower] for all of its costs [***60] and expenses in enforcing this Note .
. . includ[ing] . . . reasonable attorneys' fees." (See Vardy Holding
Co. v Metric Resales, 131 AD2d 564, 565, 516 N.Y.S.2d 490 [2d Dept 1987]; Lipton
v Specter, 96 AD2d 549, 465 N.Y.S.2d 59 [2d Dept 1983].)
Special Referee Goldstein's
recommendation that defendant McKenna be awarded attorney fees stands on
different footing, as it calls for affirmative relief to the mortgagor, rather
than an adjustment of the mortgagee's equitable remedy. As Special Referee
Goldstein recognizes with her citation to alternative authority, neither CPLR
3408 itself, nor the law generally applicable to foreclosures, provides for
such an award to a mortgagor. Absent a proven counterclaim by a mortgagor for
which an award of attorney fees may be made as damages, again either by statute or contract, the court can
make such an award only to the extent permitted by statute or rule. ( See
Tewari v Tsoutsouras, 75 NY2d 1, 7, 549 N.E.2d 1143, 550 N.Y.S.2d 572 [1989]
[dismissal of complaint not permissible sanction for failure to comply with CPLR
3406].)
Authority for an award of
attorney fees to the mortgagor might be found in some cases in Part 130 of the
Rules of Chief Administrator (see 22 NYCRR §130-1. 1 et seq.),
cited by the Special Referee. [***61] A
court may award "costs in the form of reimbursement for actual expenses
reasonably incurred and reasonable attorney's fees, resulting from frivolous
conduct as defined in [the] Part." (See 22 NYCRR §130.1.1 [a].)
"Frivolous" conduct is defined to include conduct "undertaken
primarily to delay or prolong the resolution of the litigation." (See
22 NYCRR §130-1. 1 [c] [2].)
Assuming that a reference may
even be made for the purpose of Part 130, no such reference was made here.
Although the Court may sanction frivolous conduct "upon the court's own
initiative, after a reasonable opportunity to be heard" (see [**769]
22 NYCRR §130-1.1 [d]), the Court declines to do so here, where
none of the conduct upon which a sanction order would be based took place
before the Court. If so advised, defendant McKenna may move for the imposition
of a Part 130 sanction.
Finally, in her Report and
Recommendation dated July 8, 2011, Special Referee Goldstein recommended that
Plaintiff make certain disclosures related to its "standing" to
maintain this foreclosure action. Since, in his Answer, defendant McKenna
alleges [*916] as an affirmative defense
Plaintiff's lack of "standing," Plaintiff will be required "to
establish [***62] its standing to be
entitled to relief" ( see Deutsche Bank Natl. Trust Co. v Rivas, 95
AD3d 1061, 1061, 945 N.Y.S.2d 328 [2d Dept 2012].)
In sum, the Court determines that
in mandated settlement conference proceedings (see CPLR 3408 [a])
Plaintiff failed to negotiate "in good faith to reach a mutually agreeable
resolution" (see CPLR 3408 [f]), and as a consequence
Plaintiff may not recover interest on the subject note and mortgage from the
date of the mortgagor's alleged default.
October 3, 2012
Jack M. Battaglia
Justice, Supreme Court