Unclean Hands Rejected As Borrower Defense – Again

While lenders and servicers may not so often have the opportunity to read answers interposed by borrowers in foreclosures, plaintiffs’ attorneys do.  An oft-used defendants’ approach is to list every imaginable defense shotgun style – just reciting the words: a commonplace example, “unclean hands”.  Upon the now necessary motion for summary judgment, borrowers rarely can offer any support for the supposed defense and so it is stricken.  Of course, plaintiff’s counsel was constrained to respond to every such defense and expose each as baseless.

Sometimes though, a borrower will offer specific allegations about its unclean hands defense.  To succeed, the party against whom the accusation is made must be guilty of immoral or unconscionable conduct.  But there are an abundance of cases denying the defense involving a wide array of fact patterns.  Indeed, as a general proposition, unclean hands is rejected as a genuine defense to foreclosure.

A recent case reminds of the futility of the defense, interestingly in response to foreclosing lender’s aggressive pursuit of its case.  [Wells Fargo Bank, N.A. v. Dara, 180 A.D.3d 844, 119 N.Y.S.3d 229 (2d Dept. 2020)]  Could such diligence on a lender’s part ever legitimize an unclean hand’s defense?  While we think not – it would have to be extraordinarily egregious – one must always be cautious about opining “never”.

But the recent case offers comfort in this regard.  There, the assertion was that the plaintiff had moved prematurely for summary judgment in the face of the borrower’s continued attempts to seek a mortgage modification.  Such conduct by the plaintiff, the court ruled, did not rise to the level of immoral or unconscionable – hence insufficient to support a claim of unclean hands.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.