Settling The Case When The Borrower Has No Counsel?


1 December, 2013


Mortgage Lender and Servicer Alerts

The compulsion to settle mortgage foreclosure cases in these still troubled times need not be explored here.  But a question does arise, can the matter be settled with confidence if the borrower is not represented by counsel?  The immediate concern would be that the borrower could disavow the settlement on the ground that he or she was not properly represented and therefore had erred in settling the case and want a new path.

The issue arose in a new case in the context of a not uncommon settlement in open court [Liquori v. Liquori, 106 A.D.3d 1249, 966 N.Y.S.2d 543 (3rd Dept. 2013).]

It should be immediately noted that this is less of an issue when settlements are committed to writing. Then, the papers would specifically recite things such as the borrower was advised to obtain counsel and declined, or the borrower has waived the right to counsel and fully understands the terms of this agreement, etc.  But the courtroom is a more daunting arena and in the stead of a written stipulation something will be orally placed on the record.  Thus, there may not be advance preparation of protective provisions.  And that was the issue that arose in the mentioned foreclosure case – with the answer, under the circumstances, that the settlement could not be assailed for want of the borrower having counsel.  A quick look at the facts, though, should be enlightening.

Husband and wife borrowers defaulted on a mortgage which precipitated a foreclosure action and a settlement conference in court.  The husband and wife had squared off in a matrimonial action and although the wife had counsel for that case, she came to court on the foreclosure without an attorney, something she specifically advised the court was her election.

An oral stipulation was entered into on the record whereby both husband and wife agreed to deed the property back to the plaintiff-lender in exchange for a discontinuance of the action and waiver of any personal liability against them, in essence a deed-in-lieu.  Thereafter, though, the wife refused to execute the deed and when the lender moved to enforce the settlement agreement which had been placed on the record, the wife cross-moved to vacate the stipulation.

The court ruled that the stipulation was enforceable, for the usual reason that such stipulations of settlement are favored and binding and are to be strictly enforced, not to be set aside in the absence of fraud, collusion, mistake or accident.  That the party seeking to avoid the settlement had not been represented by counsel at the time of the stipulation, although relevant, is in itself insufficient to void such a stipulation – especially where the party was advised by the court to retain counsel and chose not to do so.

Moreover, at the conference the court asked the wife whether she had talked to an attorney and when she said “no”, inquired as to whether she had had an opportunity to engage counsel.  She said “yes” and the court still suggested that she might need a lawyer to help her.  She said that no, she did not.  Finally, the court clearly explained the settlement terms and asked the wife whether she understood and whether she was prepared to agree to those terms – to which she said “yes”.

Under all these circumstances, there was no doubt that the wife had assented to the settlement and the court was not going to reverse and let her out of the bargain.  Of course, this raises the issue as to whether the settlement would be so sacred if the record were not so clear that she truly understood and also specifically waived the right to counsel.  While that point might be open to question, such procedures where the court inquires about counsel and assures that the unrepresented parties understand the situation are commonplace.  That will therefore generally assure that the settlement remains immune to attack.

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.