Delaying The Settlement Conference – Severe Penalty to Lender


15 August, 2014


Mortgage Lender and Servicer Alerts

New York’s settlement conference mandate for home loan foreclosures visits much time and expense upon the action, as well as peril if there are assertions that the mortgage holder was not negotiating in good faith – the latter a thorny subject reviewed at some length in prior alerts.  A new case advises of yet further danger: elimination of interest otherwise due upon the mortgage for a lender’s delay in pursuing the settlement conference.  [US Bank Nat’l Association v. Gioia, 42 Misc.3d 947, 982 N.Y.S.2d 699 (Sup. Ct. 2013).]

The case seemed to be benign.  A foreclosure was begun on November 9, 2011 and the borrower answered on November 21st.  However, the foreclosing plaintiff took no steps to proceed with the conference until April 2013.  Plaintiff’s methodology during the conference process was a lesson in how not to do it – including ignoring a loan modification request – resulting ultimately in plaintiff moving on August 8, 2013 to discontinue the action.  That is the portion that seems innocuous; presumably a borrower would be pleased that the foreclosure action was about to evaporate.

But the borrower was troubled by all this and cross-moved for an order compelling tolling of interest on the obligation from commencement of the action and further halting interest accrual until a diligent review of borrower’s eligibility for a permanent loan modification was completed – as well as an injunction against plaintiff collecting legal fees from the beginning of the case.

Moreover, the borrower argued,  were there to be a discontinuance, he would have to wait for a new action before the court could become involved anew in the settlement process.  In addition, during discontinuance and initiating of a new action, mortgage arrears, and interest, and other costs mount thereby decreasing the chance for a loan modification to come to fruition.  In sum, a discontinuance would be prejudicial.

While plaintiff’s counsel had some thoughtful responsive arguments, the court ruled that discontinuing the action would be prejudicial to the borrower and that the borrower was entitled to a conclusion of settlement negotiations before the action could be authorized for discontinuance.

Now to the penalty aspect: Based upon plaintiff’s delay, tolling of interest was declared retrospective to the beginning of the action until the case would be settled or removed from the settlement part.  It would not be fair, the court found, to charge interest and penalties to the defendant during the period of the lender’s unreasonable and unexcused delay.

While new procedures in New York to some extent remove the ability of a foreclosing plaintiff to impede the settlement process, there is still room for delay.  If that might be attributable to wilful acts on the part of the plaintiff, this case is confirmation that meaningful monetary penalties can be imposed.

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.