Justice Kenneth Sherman sitting in the Supreme Court Foreclosure Part in Kings County recently had a case before him involving what he felt was the bank’s failure to negotiate in good faith at the mandatory foreclosure settlement conferences. A special referee had written a report requesting all interest be tolled on a loan provided by American Home Mortgage Servicing (hereinafter referred to as “AHMS”) and they be further barred from collecting attorney’s fees related to their initiating a foreclosure legal action. Judge Sherman acknowledged receipt of the report and scheduled the matter for a hearing to decide if American Home Mortgage Servicing had engaged in bad faith negotiations at the mandatory foreclosure settlement conferences.

Statute Requires Good Faith Negotiations

Judge Sherman noted mandatory settlement conferences were required with regard to all foreclosure lawsuits brought concerning residential mortgages. In this case, the defendant was a resident of the property that was being foreclosed on. The enabling statutes creating the mandatory residential foreclosure conference parts mandated all parties negotiate in good faith at these foreclosure settlement conferences. Judge Sherman stated in his decision American Home Mortgage Servicing was represented by an attorney at the settlement conferences. However, the attorney for American Home Mortgage Servicing did not have the appropriate contractual authority to negotiate a loan modification in good faith which would resolve this foreclosure proceeding. The court specifically stated in its decision that on April 23, 2009, and on October 5, 2010, the attorneys for American Home Mortgage Servicing failed to appear by an attorney who had actual knowledge, ability and authority to negotiate a mortgage modification in a meaningful manner. Therefore the Judge ruled AMHS did not comply with New York Civil Practice Law and Rules Section 3408(c). This statute requires all parties to foreclosure court conferences negotiate in good faith. The court therefore barred AHMS from collecting any claimed interest, penalties and attorneys’ fees or costs incurred from the loan from April 23, 2009 to October 5, 2010.

Conclusion

Financial institutions are legally obligated under New York law to negotiate in good faith for the purpose of working out mortgage modifications at the mandatory foreclosure court conferences. Financial institutions who are represented by attorneys who have no real authority to work out reasonable loan modifications can be considered to have acted in bad faith, and in violation of New York State law.

Elliot Schlissel is one of the leading foreclosure defense attorneys in the Metropolitan New York area. For more than 45 years he has helped his clients fight foreclosure proceedings, obtain mortgage modifications and continue to live in their homes. He offers free consultations to all prospective clients.