Overview of Requirements for "Good Faith" Negotiations in NY Foreclosure Settlement Conferences

Since 2008, courts have wrestled with what the requirement of good faith negotiations in NY foreclosure settlement conferences required.  Recently, the appellate division took the first big step in clarifying the standard in U.S. Bank National Association v. Sarmiento:

In summary, the court concluded:

"[L]egislative history did not indicate what lawmakers thought would be a good faith standard; likewise . . . there were no published decisions that defined good faith in the context of settlement conferences.

[The court] surveyed trial-level decisions and found that some had not required demonstrations of intentional misconduct or gross negligence when deciding there was a lack of good faith.  Other courts considered lenders' lost documents, confusing communications, inexcusable delays and baseless HAMP denials as a lack of good faith, he noted.

[The court] acknowledged the common-law bad faith standard had been used in other contexts, such as an insurance carrier's refusal to accept a settlement offer.

But if the court adopted the proposed standard on questions of good faith settlement conference negotiations, [it concluded] ,'we would undermine the remedial purpose of CPLR 3408.'"

* * *

Events such as a lender's failure to expeditiously review financial information or deny modification without sufficient grounds could constitute a failure to negotiate in good faith, as could a borrower's failure to turn over requested information." (link)

While this is an important clarification of the standard for proving a bank operated in bad faith actually showing this failure takes some substantial legwork.  The homeowner will need to collect extensive documentation of papers submitted to and received from the bank. 

As a result, homeowners wishing to advance their right to good faith negotiations should contact an attorney as soon as possible after they learn they are in foreclosure.

Mandatory Foreclosure Conference Extension Bill Passes NY Legislature

The New York legislature has passed legislation extending important protections for New York homeowners in foreclosure for an additional five years past their February 2015 expiration date.  Many advocates (as covered here) had argued stridently for passage of this bill, which now awaits the signature or veto of Governor Cuomo.

As explained in an email blast from the the Empire Justice Center:

Dear Friends,

Empire Justice Center is thrilled to share the news that the  State Legislature has passed critical legislation that will ensure that New York homeowners have access to settlement conferences for another five years.  The conferences have been invaluable and have prevented thousands of New Yorkers from losing their homes once a foreclosure case is filed against them, as had previously been happening prior to the institution of the settlement conferences.

Since 2010, lenders and homeowners in all residential home loan cases have been required to meet to see if the parties can reach a mutually agreeable resolution, such as a loan modification or other workout, to avoid loss of the home.  Unfortunately, the numbers project record high foreclosures still to come in New York.  The continuation of the settlement conferences, as well as continuation of an early warning notice to homeowners in default and a notice to tenants in buildings being foreclosed upon, are vital consumer protections that will remain in place.  We especially want to thank Senator Jeff Klein and Assemblymember Helene Weinstein, for sponsoring and championing these vital consumer protections five years ago and ensuring their continuation this year.

Kudos to them, to the NYS legislature, and to the many consumer advocacy groups that worked to support the passage of this bill.

In solidarity,

Kirsten E. Keefe, Senior Attorney

Additional coverage by the Daily News here:

"Senate Co-Leader Jeffrey Klein (D-Bronx/Westchester) announced Wednesday that the State Senate voted 56 - 1 in favor of his legislation that would extend vital foreclosure prevention measures and homeowner protections for an additional five years beyond the February 2015 expiration date. These protections include extending the requirement for lenders to provide 90 notice of foreclosure and mandatory settlement conferences for all home loans. An expiration of these protections would have meant that tens of thousands of New York homeowners in pre-foreclosure were in serious danger of losing their homes. The State Assembly passed the legislation on June 2nd. The legislation now awaits New York Governor Andrew Cuomo’s signature to become law."

Report: Stalled New York Foreclosure Settlement Conferences

Anybody who has ever represented a homeowner in a New York foreclosure settlement conference knows all to well the contents of a report about bank misconduct in these conferences.

MFY Legal Services has, however, compiled the information in a convenient report available to all - advocate and non-advocate alike:

"New York has coped with the foreclosure crisis by implementing a pioneering settlement conference process administered by the court system, designed to promote negotiation of affordable home-saving solutions. These conferences present a remarkable opportunity for lenders and borrowers to meet face- to-face in a court supervised settlement conference at which creative solutions can be forged, and have allowed thousands of New Yorkers to avert foreclosure. But banks routinely flout the law by appearing without required information or settlement authority, causing delays that cost borrowers money and can make home-saving settlements impossible.  The process can be far more effective, and less prone to delay, if the courts rigorously enforce the requirements of the settlement conference law, as this report recommends." (link)

To make the point:

"Non-profit legal services attorneys representing low-income New York City homeowners in New York State Supreme Courts recently concluded a survey to monitor compliance with New York State’s law requiring that lenders and the law firms representing them appear at foreclosure settlement conferences with full authority to settle and resolve such cases

. . .

The survey confirmed what homeowners’ advocates in the settlement conference have long-known:

• The banks routinely violate the settlement conference law requiring them to appear at conferences with full authority to negotiate settlements and with required information needed for meaningful settlement conferences— they violated the law in 80% of the observed settlement conferences.

• The banks’ systemic violation of clear law frustrates New York’s policy to foster the early settlement of foreclosure actions as a means of preserving homeownership.

• The delay caused when the banks violate the settlement conference law harms homeowners, because interest and fees add up with each month that banks delay the process.

• Courts should rigorously enforce the settlement conference law and deter banks from violating it by penalizing parties who appear in court without the authority and information needed to negotiate in good faith" (link)

Time for a more aggressive revised foreclosure settlement conference law in New York?

Sounds like it.