Thursday, July 30, 2015

Court Cites Mortgage Lenders' Failure to Act in Good Faith

Two mortgage banks will forfeit more than $100,000 of interest on loans to a Manhattan couple, a judge ruled Wednesday, as a sanction for not acting in good faith in responding to requests for a mortgage modification.
Manhattan Supreme Court Justice Peter Moulton said Bonnie and Lawrence Singer were "thwarted by unresponsive loan servicers, unprepared lawyers, boilerplate form letters, and the banks' or servicers' often-changing and repetitive demands for financial information," in their four-year quest to "climb out of default."
The Singers bought two contiguous apartments in the Washington Heights neighborhood in 2004 in two separate transactions. They combined and renovated the apartments into an 1,800-square foot unit, which New York City taxed as a single apartment.

The 2008 recession caused the Singers' household income to drop to $106,000 a year, according to the ruling. That forced the couple—self-employed owners of an acting studio—to exhaust their savings to keep up with the mortgage, taxes and common charges totalling $5,000 per month on the three-bedroom apartment.

Bonnie Singer had not worked since August 2009 and her husband's business as a drama coach "was suffering due to the economic downturn," Moulton said in Federal National Mortgage Assoc. v. Singer, 850039/2011.

The mortgages had an outstanding principal balance of about $500,000 and carried interest rates of 6.75 percent and 7.4 percent, which Moulton said "were nearly usurious in the current market."

Despite Bonnie Singer's efforts to consolidate and modify the loans beginning in early 2009, Countrywide, the lender who held both loans at the time, said it would not extend the term or lower the interest rate. The lender said the Singers did not qualify as distressed borrowers because their monthly payment on each loan, standing alone, did not exceed 31 percent of their combined gross income.

Moulton called the bank's stance "an absurd result" symptomatic of "many of the faults that plague the current system of refinancing residential property that is in default and/or in foreclosure. "

The loans were eventually sold to Bank of America and the Federal National Mortgage Association, know as Fannie Mae. In January 2010, the Singers stopped making payments on both loans.

Fannie Mae delayed filing for foreclosure for nearly 18 months after the date of default and "did not offer the Singers a new loan modification agreement until the very end of October 2013—a whopping nine-month delay," Moulton said. "Finally, it took Fannie Mae's counsel another five months to reject the Singers' Jan. 1, 2014 counteroffer to pay $18,000 of the accrued interest."

Bank of America filed for foreclosure in July 2013. After that, the case "appears to have fallen into a black hole, despite the fact that my court attorney inquired about the status of BOA's foreclosure filing at nearly every conference," Moulton said.

Citing two prior rulings by courts in Suffolk and Kings counties, Emigrant Mortg. Co. v. Corcione, 28 Misc 3d 161 (2010), and HSBC Bank USA v. McKenna, 37 Misc 3d 885 (2012), holding that tolling of interest back to the date of a borrower's default was a proper sanction for the banks' bad faith, Mouton granted the Singer's motion to the extent of eliminating interest above 2 percent that accrued on the loans from the 2010 default.

Bonnie Singer, who represented the couple pro se for two years, said the banks had "completely ignored her" before they defaulted on the loans.

"We tried to be proactive about the situation, but no one was willing to talk to us," she said. "We were completely left to plummet into a situation where we could not help ourselves. My husband and I practically ceased to function normally, were constantly anxious and depressed by the situation."
Singer said she had offered to make payments of $2,000 a month on the loans, with a balloon payment of the outstanding balance if they should sell the unit.

Paul Kerson, who was retained by the Singers in 2013, said he had proposed balloon mortgages in this and other foreclosures he has handled because "it's a win-win for everybody."
"The banks have an infinite life," said Kerson, a founding partner at the five-lawyer firm of Leavitt & Kerson. "People have a finite life."

"At some point, the Singers and others like them will retire to Florida or die," he continued. "In either event, the apartment gets sold and the bank gets paid. People like the Singers typically have homes that are way more valuable than the mortgage balances. Until then, you fix the monthly payment at what they can afford."
Kerson said there had been five settlement conferences in the Singer case, "and BOA and Fannie Mae refused to meaningfully participate in settlement discussions at any of them."

Singer said she brought a "foot-thick stack of documents, wheeled in on rollers" to each of the conferences. "The lesson to other people in this kind of Kafkaesque nightmare is don't give up, and be able to document everything you did to negotiate in good faith."
Edward Rugino, an associate at Rosicki, Rosicki & Associates, represented Fannie Mae. He did not respond to emails requesting comment.

Nancy Burlingame, a senior associate at Frankel, Lambert, Weiss, Weisman & Gordon, represented Bank of America. She could not be reached for comment Monday.

Related Decisions:
·         Federal National Mortgage Assoc. v. Singer, 850039/2011

Firm Sanctioned for Actions in Foreclosure Case

A bank's law firm has been sanctioned for failing to mention it was negotiating a mortgage modification with a borrower while pressing a foreclosure action against the borrower in the courts.Bronx Supreme Court Justice Norma Ruiz, acting sua sponte, hit Fein, Such & Crane of Rochester with a $1,000 fine, saying the "omission of the fact that the parties were actively negotiating a loan modification during the time this [order of reference] motion was on the court's motion calendar is a material misrepresentation that constitutes frivolous conduct."

Wells Fargo Bank began a foreclosure against Kwaku Boffour in September 2011. When the bank initiated the action, however, no Request for Judicial Intervention was filed.

As a result, the case joined what court administrators call the "shadow inventory" of residential foreclosure cases where a summons and complaint had been filed, but no referee or judge could be assigned.

According to an Office of Court Administration report, New York City courts, beginning in 2012, identified more than 7,500 cases in such a posture.

Almost two years after the foreclosure action against Boffour was filed, it was conferenced in a court part established for the "shadow inventory"; there, the sides can discuss modifications or other loss mitigation options.

The borough's foreclosure settlement part was overseen at the time by Bronx Supreme Court Justice Robert Torres, though court-attorney referees and judicial hearing officers manage the day-to-day court appearances.

Between appearances from September 2013 to December 2013, Torres stayed all proceedings while the sides worked on the documentation and preparations needed for a modification.

Meanwhile, before the foreclosure action was filed, Boffour changed his name to Ernest Abrokwa, according to his attorney, Vincent Cuocci of Sayville, who said the name change may have complicated the matter.

In any event, Abrokwa was told to provide all outstanding documentation by Dec. 31, 2013.Ruiz said because there was "something inherently wrong with negotiating a loan modification while simultaneously trying to foreclose on the subject property, the court equitably stays all further proceeding until the settlement conferences have concluded." In addition, Ruiz said it was "an unsupportable waste of the court's time and resources" to review motions and documents and then be notified by a plaintiff about a discontinuance.

On Dec. 24, 2013—"in clear contradiction of the stay," Ruiz said—the bank moved for an order of reference, and the motion was randomly assigned to Ruiz.

The motion was also served on Abrokwa's home address instead of on Cuocci, who already had made three court appearances by the time of the motion.

When Ruiz reviewed the record in Wells Fargo Bank, N.A. v. Boffour, 381155-2011, to determine the case's status, something she did routinely before granting an order of reference, she said she learned the parties were trying to negotiate a loan modification.

An affirmation from Miranda Sharlette, an associate at Fein, Such & Crane, said Abrokwa did not live on the premises. Cuocci said his client did live on the premises.

Sharlette's affirmation did not mention the modification negotiations. "By omitting this fact, plaintiff misrepresented the actual status of this case to the court," Ruiz said.

The judge ordered a hearing to determine if the conduct was sanctionable. Cuocci said he did not attend the hearing and had submitted a letter saying his client was not seeking sanctions.

Ruiz said she asked Sharlette how it was possible for the motion to be filed under the circumstances. She said Sharlette told her it was her understanding that the matter was in the shadow inventory conferences, which she contended were different from mandatory settlement conferences.

Ruiz said the "plaintiff thought it could nevertheless circumvent the stay" imposed under administrative rules for residential foreclosure actions and settlement conferences and seek an order of reference because the stay "only applies to mandatory conferences for defendants that reside in the subject property.

"This flawed rationale ignores the fact that Justice Torres expressly stayed all proceedings in this action," she continued.

Ruiz ordered the sanction be made payable to the Lawyers' Fund for Client Protection. Sharlette could not be reached for comment.

Cuocci, who achieved a modification for Abrokwa in the summer of 2014, said he viewed the sanction as a message, set at a "nominal enough amount," to tell lenders they could not engage in negotiations and motion practice simultaneously.

"I do see this happen from time to time," he said.