This has been an elusive and troublesome subject for mortgage servicers in New York and so a new case which illuminates the definition is welcome. [Wells Fargo Bank, N.A. v. Van Dyke, 101 A.D.3d 638, 958 N.Y.S.2d 331 (1st Dept. 2012)]
A settlement conference has been required for all home loan cases since 2010. While servicers are hardly opposed to finding a reasonable settlement path, these conferences are often delayed and add too many months to the already protracted foreclosure process. To be sure, borrowers’ defenders blame servicers for not being ready for conferences; on the other side, servicers can attest to borrowers being unprepared, or requesting numerous adjournments or suddenly needing counsel, or new counsel, among a host of mishaps and other contributors to delay. In the meanwhile, the foreclosure simply cannot proceed to the next stage.
Compounding the delay aspect is the requirement [of CPLR §3408(f)] that the parties conduct negotiations in good faith. But what precisely is that standard? Servicers are aware that those supervising the conferences are sometimes vociferous in demanding that servicers reduce the interest rate or forgive principal or extend the mortgage – or all of those aspects. Faced with possible penalties should lack of good faith be found, servicers have sometimes been placed in an untenable position.
In the new case, no less than ten legal services groups submitted friend of the court briefs assaulting a servicer’s conduct at the settlement conference as a sham, supporting the borrower’s motion to dismiss the foreclosure for the asserted lack of good faith. Both the trial court and the appeals court disagreed however – the motion to dismiss was denied.
One significant part of the ruling is that a foreclosing plaintiff is not required by the statute (CPLR §3408) to offer a settlement.
While a mutually agreeable resolution to avoid the home being lost is a goal, the only requirement to meet that end is good faith, but sometimes the goal just is not feasible financially for either party. This is a very significant observation and verbalizes what foreclosing plaintiffs know to be true.
As to the facts in this particular case, the borrower claimed that two thirds of her income came from rental property. But she produced no lease, no tenant affidavits nor bank statements supporting the allegation that rentals were collected for some years. Rather, bank statements were for a mere three months.
Therefore, the court held, it was not unreasonable for the servicer to decline to use the claimed rental income in a mortgage modification calculation. In any event, even were the rental income includable, the borrower was still not eligible for the available modification.
Further as to defining “good faith”, the court ruled that contrary to the borrower’s contention, merely because the servicer declined to entertain a reduction in principal or the interest rate does not establish lack of good faith – the statute does not oblige the foreclosing plaintiff to make the exact offer the borrower wants. Failure to make that offer is not lack of good faith.
Somewhat on the other side of the equation, the court also opined that compliance with the good faith mandate is not established simply by demonstrating the absence of fraud or malice on the lender’s part. Instead, good faith must be founded on the totality of the circumstances.
So, in the end, each case will remain fact intensive. But, we finally have some standards as guidance. The points of this case are well worthy of preservation.
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.