Foreclosing Plaintiff is Deprived of Interest and Fees for Failing to Negotiate in Good Faith
Although the foreclosure crisis may no longer be the subject of daily newspaper headlines, the legal safeguards that the New York legislature implemented at the height of the recession continue to make a difference in the lives of struggling New York homeowners.
In an end-of-year gift to one struggling family, Kings County Supreme Court Justice Genine Edwards deprived a foreclosing mortgagee of more than five years of interest and attorneys’ fees for its repeated refusal to comply with CPLR § 3408, which requires plaintiffs in foreclosure proceedings to consider whether homeowners qualify for loan modifications. This provision of New York law was enacted by the legislature during the height of the foreclosure crisis to ensure that the lending institutions and their assignees do not obtain foreclosure judgments against homeowners who are ready, willing and able to enter into reasonable loan modifications. The law protects struggling homeowners and prevents deterioration of neighborhoods where there are high foreclosure rates. Notably, many such neighborhoods are situated in New York City’s urban core, where residents were disproportionately victimized by predatory lending practices.
In her December 19, 2014 decision (in the case Aurora Services, LLC v. Amadou Diakite, Index No. 17949/2009), Justice Edwards highlighted several omissions which, collectively, suggested that Aurora Services was indifferent, if not hostile, to the possibility that the homeowner qualified for a loan modification pursuant to the guidelines set forth in the U.S. Government’s HAMP Program. The plaintiff repeatedly claimed that it had not received documents, including a signed modification package, despite having already received copies of these documents.
In her decision, Judge Edwards cited the Second Department Appellate Division’s decision of earlier this year in U.S. Nat. Bank Ass’n v. Sarmiento, 121 A.D.3d 187 (2014), in which the appellate court upheld a trial court order by Justice Leon Ruchelsman (also of the Kings County Supreme Court) that sanctioned a foreclosing plaintiff for failing to negotiate in good faith. In its decision upholding Justice Ruchelsman’s decision, the Appellate Division quoted the choice and succinct words that Justice Ruchelsman used to describe the plaintiff’s indifference toward the law:
[The Plaintiff] was happy to do equity when it brought the underlying action for foreclosure, but stubbornly refused to do equity when as a result of the statute (CPLR 3408), it was forced to sit down at the negotiating table with the homeowner and attempt to work out a deal
These decisions by the Brooklyn Supreme Court and the Second Department Appellate Division should give ample warning to lenders: the New York judiciary is ready and willing to impose serious financial penalties on financial institutions that foreclose in bad faith.