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
Read more: NEW YORK LAW JOURNAL
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