The New York case received widespread national attention last year: A judge cancelled a note and mortgage (and voided the judgment of foreclosure and sale) on the ground that the lender was not negotiating in good faith at a settlement conference. That ruling was just reversed by an appeals court (the Appellate Division) on November 16, 2010 [IndyMac Bank, F.S.B. v. Yano-Horoski] – an obvious source of some comfort for lenders and servicers.
We view the surfeit of new statutes and regulations imposed upon the mortgage foreclosure process to be beyond what is required, serving in any event to delay most foreclosures and expose them to apparent technical defenses. Among the many requirements (at least for home loans) is that a settlement conference be conducted. As we have been wont to say, there never was any evidence that settlement conferences for defaulted mortgages were particularly helpful, and servicers who participate in them can confirm that very few lead to lasting conclusions. Moreover, adjournments are regularly granted so that the conference mandate contributes mightily to the protraction of foreclosure actions.
In the matter at issue, the court at the trial level concluded that the lender was not negotiating in good faith towards a settlement or modification and imposed the draconian punishment of declaring the mortgage void – and this was even after another judge in that court had signed a judgment of foreclosure and sale. The obvious meaning of such a ruling was that an otherwise sacred contract – and a mortgage is a contract – was subject to being just declared invalid if a court thought it was the fair thing to do. Were this to be the law, then no lender could ever be certain that a mortgage was capable of enforcement. Under such circumstances, it is doubtful that many lenders would ever make mortgage loans.
As an ancillary result of the unfortunate decision at the trial court level, judges and judicial hearing officers at conferences sometimes held out the veiled threat that the mortgage could be declared void if the servicer were not more compliant in the negotiations. This was hardly helpful.
While it is not surprising to lawyers that a mortgage cannot simply be declared void as a matter of judicial whim, the reversal by an appeals court here was certainly most welcome. We wonder whether the reversal will receive anywhere near the national publicity the original decision did.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.