Bank Denied Interest on Note Due to Bad Faith Negotiations

Bank Denied Interest on Note Due to Bad Faith Negotiations

In a case recently decided in Kings County, New York, Justice Donald Kurtz, sitting in the Supreme Court Foreclosure Courtroom, ordered that all interest accrued on the note be forfeited because of the bank’s failure to negotiate a mortgage modification in good faith.

History of the Case

Wells Fargo Bank had started a foreclosure lawsuit. The case appeared on the Court’s calendar in Brooklyn before a referee. The referee determined the homeowner had submitted adequate documentation of his income to qualify for a mortgage modification under the Home Affordable Mortgage Program, also known as “HAMP” mortgage modification program guidelines. The bank had all of the necessary documents to review the loan modification application, however, the bank refused to grant a mortgage modification. The referee involved asked the bank to again consider reviewing the homeowner’s HAMP mortgage modification application. The bank again denied the HAMP mortgage modification. They also denied a traditional loan modification claiming the property was not being utilized as the principle place of residence as the owner.

Bank Representative Ordered To Appear In Court

The referee ordered the bank to produce a representative from its servicing organization in court to explain to the judge why they would not grant a mortgage modification. The referee took this action because he felt the homeowners were denied a mortgage modification even though they qualified for one.

The referee wrote a report stating the bank violated his directions which recommended they grant the homeowner a mortgage modification. The bank took the position they were not required to negotiate in good faith. Judge Donald Kurtz disagreed with the bank. He ruled the bank had a duty to negotiate in good faith under New York Civil Practice Law and Rules Section 3408(f). The judge confirmed the referee’s report and stopped all interest which accrued on the mortgage and note from the start of the mandatory foreclosure court conferences going forward.

Conclusion

If you take aggressive action with regard to mortgage modifications in front of judges or referees, you can put pressure on the banks to be cooperative and grant mortgage modifications.

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