Addresses 'Bad Faith' in Foreclosure Negotiations
Andrew Keshner, New York Law
A Brooklyn appellate court has ruled that judges must weigh a range of facts when deciding whether parties failed to negotiate in good faith during mandatory foreclosure settlement conferences.
"The issue of whether a party failed to negotiate in 'good faith' within the meaning of CPLR 3408(f) should be determined by considering whether the totality of the circumstances demonstrates that the party's conduct did not constitute a meaningful effort at reaching a resolution," Justice John Leventhal (See Profile) said, writing for the panel in US Bank N.A. v. Sarmiento, 2012-03513.
The ruling upheld a lower court decision that barred the collection of interest or fees that had been accumulating on a loan since December 2009. Justices Reinaldo Rivera (See Profile), Peter Skelos (See Profile) and Plummer Lott (See Profile) joined in the decision.
Bruce Bergman, a partner at Berkman, Henoch, Peterson, Peddy & Fenchel in Garden City and an expert on foreclosure law who is not involved in the case, said the ruling marked the first time the Second Department honed in on a definition of good faith. "Something substantial and reasonable did emerge here," Bergman said.
The case involves a $580,000 mortgage held by Jose Sarmiento on a Brooklyn property. In May 2008, Sarmiento lost much of his monthly income. He contacted the mortgage's servicer, a Wells Fargo subsidiary called America's Servicing Company, and was told he did not qualify for modification because of insufficient income. Though he defaulted soon after, Sarmiento later found an additional tenant and again asked for a modification. The servicer refused.
In September 2009, the foreclosure was referred to a court attorney referee.
CPLR 3408(a)(f) states that "both the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible."
From September 2009 to January 2011, the parties held 18 conferences. The servicer four times denied Sarmiento's attempts to alter his mortgage under the federal Home Affordable Mortgage Program (HAMP). It did propose two non-HAMP modifications, which Sarmiento turned down.
As the referee recounted in her report, the servicer made missteps such as misplacing documents and not offering more specific information when it concluded Sarmiento was ineligible. One denial was based on the erroneous grounds that no modification was needed because Sarmiento was current and not at risk of default.
Sarmiento moved to ban the collection of interest or fees from December 2009 onward.
Brooklyn Supreme Court Justice Leon Ruchelsman (See Profile) granted the motion in December 2011....