Panel
Addresses 'Bad Faith' in Foreclosure Negotiations
Andrew Keshner, New York Law
Journal
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....
