In the case of Federal National Mortgage Association v. Singer, Index No. 850039/2011, Justice Moulton sitting in a Supreme Court Foreclosure Part in New York County, ruled the two banks involved should forfeit more than $100,000 in interest on loans to Mr. & Mrs. Singer. This was a sanction for the failure of the banks to act in good faith with regard to negotiating a mortgage modification with the Singers.

History of the Case

In 2004, the Singers bought two apartments in Manhattan which were next to each other. They gutted and renovated the apartments. When they purchased each of the apartments they took out a separate mortgage on each of the two apartments. After the apartments were renovated, New York taxed the two apartments as a single residence. In 2008, the Singers had a downturn in their income. They used all of their savings to try to keep up with the mortgage payments, taxes, common charges, and expenses which totaled in excess of $5,000 per month. The mortgages totaled more than $500,000 and had interest rates of 7.4% and 6.75%.

Mortgage Consolidation

Mrs. Singer, on numerous occasions, tried to consolidate the two mortgages at a lower interest rate. Initially, she applied to Countrywide, the original lender on the mortgages. Countrywide refused to extend the term or lower the interest rates on the mortgage. Countrywide took the position the Singers did not qualify as distressed borrowers. Their monthly payment on each loan did not exceed 31% of their combined monthly income. In response to this argument Judge Moulton said the bank’s analysis “resulted in an absurd result.” He said this was 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 (Fannie Mae). Approximately a year and a half later a foreclosure lawsuit was initiated. The Singers again applied for a loan modification. Five months later their modification request was denied. The Singers also offered to pay $18,000 in accumulated interest as part of the loan modification.

Counsel for the Singers had on various occasions suggested balloon mortgages. These mortgages enable residents to make their mortgage payments and help the banks to receive the total amount due and owing to them. This is especially true in light of the fact the apartments owned by the Singers were worth substantially more than the $500,000 in combined mortgages.

Settlement Court Conference

The Singers had attended 5 court settlement conferences. At each of these conferences both Bank of America and Fannie Mae refused to meaningfully negotiate mortgage modifications.

Conclusion

Banks who do not cooperate in negotiating mortgage modifications in good faith can be punished by the courts.