John Lucido, who had been a mortgage broker, had taken out a mortgage loan, in March of 2007, of approximately $500,000 with regard to his Rocky Point, Long Island New York home. He was unable to make his mortgage payments and in 2009, Bank of America brought a foreclosure lawsuit in Suffolk County, New York.
Foreclosure Court Conferences
There were numerous foreclosure mediation conferences. However, Lucido had been ill and his wife had died during the course of the litigation. This complicated the issues that were dealt with at the foreclosure conferences. At the time of the foreclosure mediation conferences, Lucido represented himself. The conferences were held pursuant to New York Civil Practice Law and Rules Section 3408, which states “both the plaintiff and the defendant shall negotiate in good faith to reach a mutually agreeable resolution with regard to residential foreclosure lawsuits.”
Judge Spinner’s Ruling
The case was heard before Judge Spinner sitting in a Foreclosure Court Part in Suffolk County. Judge Spinner, in April 2012, ruled Bank of America had “deliberately acted in bad faith.” He had made this ruling because they had delayed six months in producing a pooling and servicing agreement. Judge Spinner also stated Bank of America gave “material misstatements of fact” which had been calculated to deceive the court and also cause delay of the court proceedings. Judge Spinner went on and held the bank had misinformed the court that the pooling and servicing agreement which controlled Mr. Lucido’s mortgage specifically forbade principal reductions. Later the bank acknowledged there was no bar to principal reductions in the pooling and servicing agreement.
Judge Spinner in his decision forever restrained Bank of America from “demanding, collecting or attempting to collect, directly or indirectly” sums related to the $493,209 mortgage that were either “interest, attorneys’ fees, legal fees, costs and disbursements.” He had held the bank could only collect principal and any funds advanced by the bank related to property taxes or insurance on the property. In addition, Judge Spinner imposed $200,000 exemplary in damages against the bank. This cut the bank’s principal to $293,219.
The Appellate Division Overrules
The Appellate Division of the Second Department, an appeals court, overruled Judge Spinner’s decision in its entirety. The Appellate Division held he did not have the authority to impose that level of penalties against Bank of America. The Appellate Division held the bank’s conduct did not justify the sanctions imposed by Judge Spinner and sent the case back to Judge Spinner for further proceedings. The appellate court took into consideration Lucido’s “unfortunate situation.” However, they held the record on appeal “reveals the conduct of the plaintiff in this case was not so egregious as to merit the imposition of sanctions against it.” The fact Bank of America refused to give Lucido a principal reduction and they had delayed in producing documents did not, in and of itself, amount to a failure to act in good faith.
Conclusion
Judge Spinner’s remedy was unusual, but there have been other cases that have upheld the tolling of interest when banks do not negotiate in good faith. I believe Judge Spinner was looking to send a message to financial institutions to be more cooperative at the foreclosure mediation conferences. Unfortunately, the Appellate Division did not agree.
