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

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