In a case of first impression, Justice Cohen sitting in the Appellate Division, Second Department (an appeals court) recently wrote a decision that stated a residential foreclosure lawsuit which was caused by a default on a commercial loan is not entitled to participate in the mandatory settlement court conference program. Justice Cohen stated in his decision “while it is unfortunate that here a primary residence may be lost in foreclosure not everyone under every circumstance is entitled to reap the protections afforded to victims of the mortgage crisis by the New York State Legislature.”
History of the Case
Roz Valt Corp. took out a loan from Independence Bank in December 2006. It borrowed $230,000. The purpose of the loan was to provide funds to enable the corporation to acquire various types of equipment, to pay construction costs and to be utilized as funds to set up a “Quiznos” submarine shop in Brooklyn.
The president of Roz Valt Corporation was Roslyn Valentine. She was personally liable for the payment of the loan. In addition, she executed a collateral mortgage to Independence Bank for $230,000. This was a second mortgage on her home in Queens County. Unfortunately, Roz didn’t make the payments under the loan. Independence Bank brought a foreclosure action on the second mortgage on her home. In her pleadings, Ms. Valentine argued she was entitled to the mandatory settlement court conference pursuant to New York Civil Practice and Law Rule Section 3408.
Court of Appeals Ruling
The New York Court of Appeals ruled New York Civil Practice Law and Rule Section 3408 applies to settlement conferences for “any residential foreclosure action involving a home loan.” Judge Cohen agreed with Ms. Valentine’s argument that the settlement court conferences were designed to help homeowners avoid their homes being taken from them in foreclosure. However, he also found, in this case, she was not entitled to a foreclosure settlement court conference. He took this position because this case involved a commercial loan. The loan was made to Roz Valt Corporation which was not a natural person. The money loaned was not utilized for housing purposes. He also found Ms. Valentine was a guarantor of the loan not the borrower.
Conclusion
Unfortunately, Judge Cohen’s decision may cause Ms. Valentine to lose her home.
