Opinion
24521/08
04-02-2015
Deutsche Bank National Trust Company AS TRUSTEE UNDER POOLING AND SERVICING AGREEMENT DATED AS OF JUNE 1, 2007 SECURITIZED ASSET BACKED RECEIVABLES LLC TRUST 2007-BR5 MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-BR5, Plaintiff, v. Albert Husband, HAZEL HUSBAND A/K/A HAZEL CLARE; NEW YORK CITY ENVIRONMENTAL CONTROL BOARD; NEW YORK CITY TRANSIT ADJUDICATION BOARD; NEW YORK CITY PARKING VIOLATIONS BUREAU; UNITED STATES OF AMERICA- INTERNAL REVENUE SERVICE; NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE; "JOHN DOES" and "JANE DOES," said names being fictitious, parties intended to be possible tenants or occupants of the premises, et al., Defendants.
Defendant Albert Husband (Husband) previously moved, pursuant to 22 NYCRR § 202.44, for an order confirming the report of Special Referee Deborah L. Goldstein, Esq. (Referee Goldstein) herein. Referee Goldstein, after multiple CPLR 3408 mandatory settlement conferences, issued her findings and recommendations in writing, dated August 23, 2012, finding, inter alia "bad faith" pursuant to CPLR 3408 (f) against plaintiff, Deutsche Bank National Trust Company as Trustee (Deutsche Bank or plaintiff ). Deutsche Bank, by its attorneys, opposed the requested relief.
On June 27, 2014, the court granted defendant's motion to the extent that the lengthy written report of Special Referee Deborah L. Goldstein, Esq., which concluded, inter alia, that plaintiff did not act in good faith pursuant to CPLR 3408 (f) during the settlement conferences, was confirmed.
The court was then required to hold a hearing before imposing any penalty or sanction against plaintiff. See, Wells Fargo v Meyers,108 AD3d 9, 22 [2nd Dept 2013].
A hearing addressing the appropriate sanction for plaintiff's lack of good faith during the CPLR 3408 conferences was held on November 14, 2014. Plaintiff was, as provided in this court's June 27, 2014 decision and order, directed to produce at the hearing a complete itemized breakdown of all amounts claimed to be due and owing pursuant to the note and mortgage since the date of default, including its entire file(s) created by both HOMEQ and Ocwen Servicing concerning defendant's multiple loan modification requests, including but not limited to submitted documents, internal notes and memoranda, guidelines, correspondence to and from plaintiff and its counsel, and to produce a person or persons who could testify with actual knowledge of the circumstances concerning the underwriting review of defendant's modification applications, along with the original promissory note and any endorsements or allonges thereon for the court's inspection. Plaintiff did not completely comply with this request. The parties' written summations were submitted on January 7, 2015. When the date was set for summations, plaintiff was again asked to submit a copy of the note with an attorney Certification so the issue of standing could be addressed. Plaintiff did not do so.
Background Facts and Procedural History Mr. Husband has owned and resided at the premises, a two-family home, located at 568 Bristol Street in Brooklyn, since 1963. He owned it with his mother Hazel, as joint tenants. Hazel Husband passed away prior to the issuance of the subject mortgage. He refinanced the existing mortgage with Wall Street Mortgage Bankers on January 9, 2007 by borrowing $235,000.00. Mr. Husband, at the time, was approximately 66 years of age and on a fixed income which consisted of Social Security, rental income from a unit on the second floor and a Veterans Administration (VA) pension. He was given a 30-year mortgage with a balloon payment at the end of the thirty years. The monthly payments were $1,338.33 plus escrow for taxes and insurance, for a total of $1,540. The interest rate is 6.275% fixed. He is now 75 years of age. He made the monthly mortgage payments until May 1, 2008, when he fell behind due to the unexpected and abrupt discontinuance of his VA pension and a vacancy of the rental premises by the tenant.
Plaintiff commenced this action in September 2008. It is not known why Hazel Husband was named as a defendant, as she had passed away before the mortgage was issued. Sometime thereafter, Mr. Husband unsuccessfully sought a Home Affordable Mortgage Program (HAMP) loan modification with the assistance of the Cypress Hills Local Development Corporation. The application was denied in 2009 for insufficient documentation. Defendant Husband did not otherwise respond to the summons and complaint and plaintiff's counsel, Rosicki, Rosicki & Associates (Rosicki ), subsequently submitted a proposed Order of Reference ex parte on January 16, 2009. Such submission, along with the requisite Request for Judicial Intervention (RJI), triggered notification to the parties of the then-mandatory CPLR 3408 settlement conference. See, 22 NYCRR § 202.12-a ( c ) (1). The plaintiff's application for an Order of Reference was subsequently abandoned. Defendant answered the complaint and while the answer was late, plaintiff did not reject it and instead filed a response to defendant's counterclaims.
The court notes that since plaintiff made the initial motion, plaintiff has retained the firm of Houser and Allison as additional counsel. Additionally, plaintiff's initial firm, Rosicki, was substituted by Leopold & Associates, P.C. in 2014.
Mr. Husband appeared for the initial settlement conference on March 26, 2010. Successive settlement conferences, pursuant to 22 NYCRR § 202.12-a (c) (6) were scheduled and held before the assigned referee on eighteen dates over the two-year period from March through June 2012. Defendant Husband by his counsel, Bedford-Stuyvesant Community Legal Services Corp., would, in between these conferences, send updated financial information to plaintiff's counsel, as requested, to substantiate and update defendant's income. Referee Goldstein declared an impasse at the last conference date of June 28, 2012, and provided the parties an opportunity to brief their respective positions before submitting her report to this court.
It must be noted that Mr. Husband submitted a complete HAMP application to Rosicki's offices before the second conference on July 15, 2010, when he was pro se. He prepared the HAMP application with the assistance of the Ridgewood Bushwick Senior Citizens Council. The servicer at the time, HOMEQ, acknowledged receipt of the application, but Rosicki requested from the court, on behalf of HOMEQ, more time to conduct a review.
Because plaintiff was changing its servicer, Rosicki repeatedly requested adjournments until Ocwen had become the new servicer. In the meantime Mr. Husband retained Bedford-Stuyvesant Community Legal Services as his counsel. On June 18, 2011, Mr. Husband, though Catherine Isobe of Bedford-Stuyvesant Community Legal Services, submitted a complete HAMP application to the designated contact at Rosicki's offices. Due to an increase in the rental income received by Mr. Husband, Ms. Isobe faxed another new HAMP application of 22 pages reflecting Mr. Husband's increased income to Rosicki on June 28, 2011, ten days later.
At the next settlement conference in this matter, on July 19, 2011, plaintiff's counsel, (Jessica Bookstaver) appeared without knowledge of the case and stated only a general denial of Mr. Husband's HAMP application, initially submitted over a year before, based on "insufficient income." Rosicki produced no particulars of the review allegedly conducted, nor the declination letter, to Referee Goldstein.
Ms. Bookstaver denied receiving all pages of the most recent HAMP application, but the facsimile machine receipt for the application received at the offices of plaintiff's counsel indicated that all 22 pages were received, despite some of the numbered pages being absent from Ms. Bookstaver's file.
Referee Goldstein then contacted Mr. Edward Best, a "home retention consultant" directly employed by Ocwen. Mr. Best, during this call on a speaker phone at the courthouse, clarified that an HAMP modification review in accordance with the applicable Federal guidelines had not been conducted. Instead, Ocwen reviewed Mr. Husband's application for a "traditional in-house" modification under their own internal guidelines. Further, Mr. Best claimed that Ocwen was not required to conduct an HAMP review since HOMEQ had previously denied Mr. Husband an HAMP modification back in 2009 for lack of sufficient documentation.
Referee Goldstein requested that Ocwen conduct a new HAMP review based on the Federal guidelines then in effect, which permitted a new HAMP review based on a borrower's changed financial circumstances, here that Mr. Husband had obtained a new tenant for the rental apartment and was now receiving rental income. Mr. Best then refused the request "unless ordered to comply by the court." Referee Goldstein then issued a directive dated July 19, 2011, requiring Ocwen to conduct a new HAMP review based on Mr. Husband's increased income. She adjourned the matter to September 22, 2011 and directed Mr. Best to appear.
The Rosicki firm appeared at the conference on December 21, 2011, after adjournments of the September 22 date and a later date, and reported that the loan reconsideration was denied based on "insufficient income." A denial letter stating this, with the requisite calculations, was not provided to Mr. Husband, his counsel, or Referee Goldstein.
Instead, Ocwen apparently mailed Mr. Husband a "blind" in-house loan modification dated December 21, 2011 that was not based upon defendant's well-documented income. This modification capitalized all arrears, costs and expenses and re-amortized the new principal balance over the remaining life of the loan. The monthly payment, including real estate taxes and insurance escrows, was $1,574 and constituted approximately 60% of Husband's monthly gross income, whereas an HAMP modification permitted the monthly payment to be no more than 31% of his gross monthly income. The offered interest rate of 3.99% was higher than the HAMP rate of 2%, and Mr. Husband was only allowed nine days to accept or reject this offer. Thus, Ocwen inconsistently claimed at the December 21, 2011 conference that defendant had insufficient income for an HAMP modification, yet mailed out, on the same day, a less favorable "blind" modification with a higher interest rate than an HAMP modification, which would have been based upon affordability. Moreover, this "offer" had a short deadline of December 30, 2011, contradicting plaintiff's claim that it was being made in good faith. Mr. Husband, through counsel, rejected this offer.
Referee Goldstein, over the next six months, sought proof from Ocwen that the HAMP reconsideration was conducted correctly and as directed. Specifically, Referee Goldstein sought verification of the numbers utilized in calculating the target monthly payment, compliance by Ocwen with the "waterfall" requirements of rate reduction and term extension and the net present value (NPV) results. Ocwen, although directed on several occasions to provide this information, did not comply with Referee Goldstein's requests.
As a result, Referee Goldstein referred the matter to the undersigned (Part 9) for a "bad faith" hearing, accompanied by a written report with her recommendations dated August 23, 2012.
Referee Goldstein noted "Although HAMP guidelines required HOMEQ and OCWEN to actively solicit and review Defendant for HAMP eligibility where two or more payments are due and unpaid' . . . they failed to do so from 2009 through 2012. During this three-year period, interest continued to accrue at the original annual percentage rate of 6.275%, which increased the payoff of the loan substantially. Although servicers HOMEQ and Ocwen admit that they failed to conduct an HAMP modification review, and consequently inflated the payoff in this case, they now claim that the borrower just cannot afford this house.'"
A series of conferences, commencing on September 20, 2012, were held in Part 9, first in person and then by conference call with both parties' attorneys. Mr. Husband and his counsel, Bedford-Stuyvesant Community Legal Services Corp., during that time, were exploring the possibility of obtaining a reverse mortgage to pay off plaintiff.
Most crucially, a reverse mortgage lender, after several months, provided a written commitment to defendant Husband, but could not offer defendant a sufficient amount to satisfy plaintiff's mortgage principal as well as all of the arrears which had accrued since the action had commenced in 2008. He received a commitment in February of 2013 for $233,500, which plaintiff rejected, although it was more than the principal balance due without accrued interest. The lender had appraised the property at $355,000. The court notes that plaintiff's point person at the time of these events did not seem to understand that Mr. Husband's inability to obtain more money from a reverse mortgage was due, in large measure, to his relative youth. The court further notes that plaintiff continued to refuse Mr. Husband's request that he be permitted to pay down the mortgage with the reverse mortgage he was offered, even after Mr. Husband offered to provide plaintiff with a second mortgage for the balance which was by then due as a result of accrued interest. As the reverse mortgage doesn't require monthly payments, this arrangement would have been affordable for Mr. Husband.
It is expressly noted here that the HAMP guidelines also permit the lender to offer a reverse mortgage, but plaintiff herein didn't offer one, even though Mr. Husband was a perfect candidate, as he has no spouse or children. See Bank of America v Lucic, 2014 NY Slip Op 24207 Ct NY Co.
After many delays, most of which were for various reasons unrelated to the merits , and after many conference calls with the court in an effort to settle the matter, Husband's attorney made the instant motion to confirm Referee Goldstein's report and recommendations, which included, inter alia, that plaintiff had not negotiated in good faith, citing Ocwen's (as Deutsche Bank's agent) dilatory conduct of refusing to follow the special referee's multiple directives, coupled with its refusal to conduct an HAMP review and/or reconsideration and failure to provide proof to substantiate its claimed denial for "insufficient income," all of which were alleged to be indicia of Deutsche Bank's bad faith. In addition, Referee Goldstein found plaintiff's papers for an ex parte Order of Reference deficient in several respects and unlikely to result in a judgment of foreclosure.
Plaintiff's attorneys' phones were out of order for a time after Superstorm Sandy, plaintiff's counsel was ill for a time, and defendant's attorneys were involved in a union strike for a time.
In its June 2014 decision, this court found that the actions and inactions by Deutsche Bank clearly indicated an absence of good faith as was contemplated by the statute. The court did not make any rulings with regard to the sufficiency of plaintiff's motion papers for an order of reference, as the ex parte motion was deemed abandoned after defendant answered the complaint and plaintiff answered defendant's counterclaims. In addition, while the court did not expressly state that it found that Mr. Husband had proceeded in good faith throughout this unpleasant and time-consuming process, it states it now, should there be any question.
As noted, Deutsche Bank, through its original servicer (HOMEQ), allegedly reviewed and denied Mr. Husband's application for an HAMP modification sometime in 2009, and according to HOMEQ, the denial was for "insufficient documentation." However, before a servicer can deny an HAMP application on these grounds, "a missing document" letter, in accordance with the HAMP guidelines issued by the U. S. Department of the Treasury, must be sent to the mortgagor detailing what documents were allegedly missing from the submission. Deutsche Bank failed to produce a copy of such a letter during the settlement conferences with Referee Goldstein.
Further, Deutsche Bank changed its servicer shortly after conferencing commenced, and Referee Goldstein found that there was an approximately ten-month delay with regard to addressing Mr. Husband's modification application, evidenced by plaintiff's numerous adjournment requests. The adjournments were ostensibly so the change of servicers could take place and the borrower's files could be "transferred" and assigned to new personnel for review. Referee Goldstein found these delays to be dilatory within the meaning of 22 NYCRR 202.12-a (c)(4).
Third, despite the fact that Deutsche Bank was notified that Mr. Husband's income had substantially changed due to his reletting of the rental unit, a modification was not offered. Deutsche Bank alleges that its new servicer, Ocwen, conducted either a new HAMP review or a reconsideration of the previous HOMEQ denial and that Mr. Husband did not qualify for an HAMP modification as the Ocwen review indicated "insufficient income." Deutsche Bank, by counsel, also claims that it could not verify Husband's actual income as it "fluctuated" in the four separate applications he submitted. While Ocwen and HOMEQ were within their rights to deny defendant reconsideration, the failure of Deutsche Bank to provide the specifics of the outcome any such review at the conferences makes Ocwen's decision to deny, and the manner in which they denied, a review, an "unreasonable, arbitrary" refusal to consider [an] alternative to foreclosure, which was inconsistent with any "meaningful effort" to reach a mutually agreeable resolution.
The court notes that withholding the required detailed information during CPLR 3408 conferencing, and then providing (as counsel herein did) a detailed affirmation with the information that was withheld during the conferences in its opposition papers to defendant's motion years later, prevents both judges and borrowers at the settlement table from understanding the rationale of lenders and servicers for denying a loan modification.
Further, from July 2011 until May 2012, Referee Goldstein issued two directives requesting Deutsche Bank to review and/or reconsider Mr. Husband for an HAMP loan modification. A review which, following the HAMP guidelines, should have been concluded within thirty (30) days, took five months. Additionally, Referee Goldstein issued further requests over the next six months requesting proof that the HAMP review was correctly calculated, but no such proof was provided, nor any explanation given for failing to comply with the Referee's multiple requests.
At this juncture, in light of the third consent order entered into between Ocwen and the New York State Department of Financial Services in December of 2014, which appoints a second compliance monitor for Ocwen after the two-year appointment provided for in the second decree in 2012 expired, it can only be assumed that Ocwen's lack of compliance was a common practice. For example, in said 2014 consent order, paragraph 28 requires Ocwen to "provide every New York borrower who is denied a modification, short sale or deed in lieu of foreclosure a detailed explanation of the reasons for denial."
Plaintiff admitted two Proposed Modification Agreements into evidence, one dated 12/21/11 which offered a monthly payment of $1,284.07 without escrows for taxes and insurance, and one dated August 3, 2012, which offered a monthly payment of $1,641.34. Then, there was an e-mail from Mitra Singh, Esq., counsel for plaintiff, dated 11/13/12, which proposed a monthly payment of $1,053.29. All of these "offers" were rejected by defendant as not affordable. None of them complied with the HAMP guidelines. The last one included a balloon payment, $129,227, which reflected the interest that had accrued while the foreclosure limped along.
Then oddly, Mr. Singh submitted an affirmation in opposition to the motion to confirm the Referee's finding of bad faith dated December 5, 2013, in which he states, in essence, that there was no point conveying their HAMP calculations to the borrower or his attorney as was requested by the referee and by the borrower's attorney in letters admitted into evidence, as all of them exceeded 31% of his income and thus didn't meet the HAMP guidelines. One of the examples he gives is (paragraph 35) "June 2010 application . . . reducing the interest rate to the 2% floor and extending the term to 40 years would require monthly payments of $827.06 . . . the target monthly payment is 31% or $599.23." Plaintiff's counsel proceeds to analyze each of Mr. Husband's four applications for a modification using HAMP guidelines and argues that they made offers for all four applications, which were rejected. This is clearly not true, as the actual offers admitted into evidence by Mr. Mansoor, counsel for plaintiff (Mr. Singh did not attend the hearing and thus could not be asked about the inconsistency between his affirmation and the evidence) were not HAMP offers, and in no way are similar to the numbers in Mr. Singh's affirmation
In his affirmation, Mr. Singh alleges (paragraph 24) that after the reverse mortgage was rejected by plaintiff, Mr. Husband was offered a modification with monthly payments of "$892.00, however this offer was not acceptable and defendant followed with this motion." As the court was on regular conference calls with the attorneys for the parties, the court can confirm the statement of defendant's counsel that this offer was never made. The e-mails admitted by plaintiff which cover the period of time in question propose a short sale with $295,000 paid to plaintiff or a deed in lieu, whereby plaintiff would give defendant $7,000 to move and turn over the house to plaintiff, or, as a third option, a modification with monthly payments of $1,354 not including taxes or insurance. Thus, this alleged offer of a modification with monthly payments of $892 was clearly never made. If the Pooling and Servicing Agreement applicable herein provides that interest rate reductions are prohibited below a certain rate, that information was never provided as is required by the HAMP guidelines. See US Bank v Smith, 123 AD3d 914 [2d Dept 2014]; US Bank v Williams, 121 AD3d 1098 [2d Dept 2014].
Most amazingly, Mr. Singh states in paragraph 37 of his affirmation "even if forebearance is taken into account . . . at 2% over 40 years, the monthly payment for principal and interest alone is $578.94, which after adding taxes and insurance would be greater than the $599.23 Husband could afford pursuant to the HAMP calculations." It must be pointed out that plaintiff never offered a forebearance of principal, and never offered Mr. Husband a monthly payment that was lower than $1,053.00, and that was only in an e-mail from plaintiff's counsel and not put into an actual offer.
The Hearing
In addition to legal argument by counsel, the following witnesses testified for Mr. Husband. Plaintiff did not put on any witnesses, despite the language in the Court's June 2014 order that plaintiff produce a witness for the hearing with actual knowledge of defendant's file. Plaintiff admitted several documents into evidence, documenting its proposed loan modifications and email communications with defendant's counsel. It is noted that plaintiff retained new main counsel in April of 2014 who kept the co-counsel Houser & Allison on the case. The documentation submitted does not completely comply with the requests in the court's June 27, 2014 order.
Defendant Albert Husband
Mr. Husband testified he has lived at the subject premises for 50 years. He took out the loan at issue in 2007.
In 2008, when he was approximately 67 years of age, the Veteran's Administration found that they had overpaid him, as he had begun collecting Social Security benefits and he had not told them right away. They stopped his monthly payments and told Mr. Husband he owed the VA approximately $24,000 for the overpayments. When he finishes repaying the VA, he will resume receiving benefits, but they will be considerably lower than those he was receiving before he started collecting Social Security.
He has set aside $30,000 while this litigation has been going on. He was made aware of two modification offers, but not of the third, the one described in plaintiff's affirmation of counsel.
Defendant's Witness Catherine Isobe
Ms. Isobe is defendant's attorney at Bedford-Stuyvesant Legal Services. She testified as to the procedural history of this matter.
She stated that she never got the HAMP denial or any indication that the HAMP review was done or any reports of the HAMP inputs as directed by Referee Goldstein. She never saw the last offer allegedly sent to defendant from Ocwen with the third offer. She said that the affirmation of plaintiff's counsel was the first time she had learned of it. She said that, at some point after being offered a modification dated August 3, 2012 which required payment of 75% of plaintiff's income, he applied for a reverse mortgage. When he obtained the commitment letter, plaintiff's attorney said he was not authorized to settle the matter for the amount of the commitment. She confirmed that plaintiff was offered a second mortgage by Mr. Husband for the additional charges and interest, which plaintiff also rejected. Copies of the defendant's numerous modification applications were admitted into evidence.
Conclusions of Law
A foreclosure action is equitable in nature and triggers the equitable powers of the court. See, Notey v Darien Constr. Corp., 41 NY2d 1055 [1977]; Mortgage Elec. Registration Sys., Inc. v Horkan, 68 AD3d 948 [2nd Dept 2009]; Norwest Bank Minn., NA v E.M.V. Realty Corp., 94 AD3d 835 [2nd Dept 2012], leave to appeal dismissed, 19 NY3d 1085 [2012]. A wrongdoer should not be permitted to profit from his or her own wrongdoing. See, Kirschner v KPMG LLP, 15 NY3d 446, 464 [2010]; Campbell v Thomas, 73 AD3d 103, 116-117 [2nd Dept 2010]; Beaumont v American Can Co., 215 AD2d 249 [1st Dept 1995]; Norwest Bank Minn., NA v E.M.V. Realty Corp., 94 AD3d 835.
CPLR 3408 (a) requires a mandatory settlement conference in every residential foreclosure action concerning an owner-occupied property, during which the plaintiff, through its servicer, and the defendant, are required to negotiate in good faith in an effort to reach a mutually agreeable resolution, such as a loan modification, if possible. See CPLR 3408 [a], [f]. Moreover, the main purpose of the settlement conference is for the parties to try to resolve the matter without litigation and to try to keep the homeowner in his or her home. U.S. Bank National Association, as Trustee for CMLTI 2007-WFHE3 v Alejandra Padilla, et al., 31 Misc 3d 1208[A] [Sup Ct Dutchess Co 2011]. Toward that end, CPLR 3408 (f) requires that the parties negotiate in good faith. Bank of Am., N.A. v Rausher, 43 Misc 3d 488 [Sup Ct Ulster Co. 2014].
Additionally, the court has an affirmative obligation to ensure that the primary statutory goal of keeping homeowners in their homes, and the concomitant obligation of ensuring that the parties act in good faith, are met. See CPLR 3408 [a]; 22 NYCRR 202.12-a [c][4]; Bank of Am., N.A. v Rausher, 43 Misc 3d 488.
However, it must be pointed out that the duty to negotiate in good faith does not guarantee that the negotiations will be fruitful. Nor does the duty to negotiate in good faith compel either party to consent to the other's position. Thus, the mere fact that the parties fail to reach a loan modification agreement does not necessarily mean that the duty to negotiate in good faith was breached. Any determination of good faith must be based on the totality of the circumstances. U.S. Bank, N.A. v Rodriguez, 41 Misc 3d 656 [Sup Ct Bronx Co 2013].
Generally, good faith as described in New York case decisions is an interpretative concept, "necesitat[ing] examination of a state of mind." Credit Suisse First Boston v Utrecht-America Fin. Co., 80 AD3d 485, 487 [1st Dept 2011], quoting Coan v Estate of Chapin, 156 AD2d 318, 319 [1st Dept 1989]. "Conduct such as providing conflicting information, refusal to honor agreements, unexcused delay, unexplained charges, and misrepresentations have been held to constitute bad faith." Flagstar Bank, FSB v Walker, 37 Misc 3d 312, 317 [Sup Ct Kings County 2012] [internal citations omitted]; see also, One West Bank, FSB v Greenhut, 36 Misc 3d 1205[A] [Sup Ct Westchester Co 2012].
The analysis applied in Flagstar is tethered to the HAMP guidelines. Using the HAMP provisions as a benchmark of good faith in negotiations, as stated in Flagstar, enables the bank to abide by both state and federal regulations. Flagstar Bank, FSB v Walker. 36 Misc 3d at 317-318. Another line of cases extended this concept to ascribe a lack of good faith to a plaintiff-mortgagee which had engaged in dilatory tactics and "failed to provide a proper review and to extend to defendant an affordable loan modification." See, Deutsche Bank Trust Co. of America v Davis, 32 Misc 3d 1210[A][Sup Ct, Kings County 2011]. The test applied in a third line of cases is the failure to "work out a loan modification, as required by statute, with a homeowner who is gainfully employed" and "earns income [sufficient] to sustain a modified payment." See, BAC Home Loans Servicing v Westervelt, 29 Misc 3d 1224[A] [Sup Ct, Dutchess County 2010].
With respect to the mandatory settlement conference in a residential foreclosure action, the court has an affirmative duty to ensure that each party fulfills its obligations to negotiate in good faith and to oversee that the conferences are not unduly delayed or subject to willful dilatory tactics so that the rights of both parties may be adjudicated in a timely manner. Uniform Rules for Trial Courts, 22 NYCRR § 202.12-a(c)(4).
Where it is shown, for example, that a foreclosure plaintiff failed to follow the Home Affordable Modification Program (HAMP) guidelines, such failure violates the plaintiff's CPLR 3408(f) duty to proceed in good faith. U.S. Bank, N.A. v Rodriguez, 41 Misc 3d 656.
Toward that end, the court has the power, upon a finding of bad faith, to impose an equitable remedy commensurate with the plaintiff's conduct regarding the foreclosure loan modification. Bank of Am., N.A. v Rausher, 43 Misc 3d 488. In an appropriate case, the published decisions inform us, equity permits the cancellation of interest awarded to the mortgagee on the unpaid principal balance of a mortgage. Citibank, N.A. v Van Brunt Props, LLC, 95 AD3d 1158, 1159 [2nd Dept 2012]; Norwest Bank Minn., N.A. v E.M.V. Realty Corp., 94 AD3d 835, 837 [2nd Dept 2010].
Courts are authorized to impose sanctions for violations of CPLR 3408(f); see, U.S. Bank N.A. v Smith, 123 AD3d 914 [2nd Dept 2014]; US Bank N.A. v Sarmiento, 121 AD3d 187 [2nd Dept 2014]. However, CPLR 3408(f) does not set forth any specific remedy for a party's failure to negotiate in good faith. U.S. Bank N.A. v Smith, 123 AD3d 914; Wells Fargo Bank, N.A. v Meyers, 108 AD3d 9, 19 [2d Dept 2013]. The courts have resorted to a variety of remedies in an effort to enforce the statutory mandate to negotiate in good faith. U.S. Bank N.A. v Smith, 123 AD3d 914; Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 9, 19. The standard is that a court must find an appropriate, permissible and authorized remedy.
In U.S. Bank N.A. v Smith, 123 AD3d 914, the defendant executed a note secured by a mortgage against her residential property. She defaulted in payment on the note in September 2009. On December 16, 2009, defendant entered into a forbearance agreement with the loan servicer whereby it was agreed that she would make four reduced payments and the note would thereafter "be reviewed for a loan modification." She tendered the first payment under this agreement. Nevertheless, on January 4, 2010, less than one month after the forbearance agreement was executed, the plaintiff commenced an action to foreclose on defendant's property.
By order dated July 5, 2013, the Supreme Court granted that branch of defendant's motion which was to impose a sanction upon the plaintiff pursuant to CPLR 3408(f). Specifically, the court determined that the plaintiff had failed to comply with the requirement to negotiate in good faith set forth in CPLR 3408(f), and barred it from collecting interest on the loan for the period between October 5, 2012, and July 5, 2013, October 5, 2012 being the first date the matter was before the trial court after over a year of wasted time in settlement conferences. In that case, the court found that the totality of the circumstances supported the referee's finding that the plaintiff failed to negotiate in good faith. The referee's finding was based, in part, upon the plaintiff's failure to follow guidelines pursuant to HAMP. The applicable guidelines required the plaintiff, as a lender participating in HAMP, to attempt to obtain a waiver of an investor prohibition or restriction in lowering the interest rate and to keep such evidence in the loan file. See, Making Home Affordable Program, Handbook for Servicers of Non-GSE Mortgages, version 4.0, ch 2, § 6.5 at 99 [August 17, 2012]. However, despite repeated requests by the referee to produce evidence that the plaintiff attempted to obtain a waiver of the investor's restrictions contained in the PSA, the plaintiff failed to do so for more than one year. Therefore, the plaintiff failed to demonstrate that it followed HAMP regulations and guidelines, which constituted a failure to negotiate in good faith pursuant to CPLR 3408(f).
The Appellate Division has affirmed decisions of the Supreme Court which have concluded that the plaintiff violated CPLR 3408(f) by failing to negotiate in good faith. US Bank N.A. v Sarmiento, 121 AD3d 187 [2nd Dept 2014]. In that case, the court upheld a sanction which barred the plaintiff from collecting interest on the mortgage loan for 10 months as a provident exercise of the trial court's discretion. See also, US Bank N.A. v Williams, 121 AD3d 1098 [2d Dept 2014]; Norwest Bank Minn., NA v E.M.V. Realty Corp., 94 AD3d 835, 837 [2d Dept 2012]; Deutsche Bank Trust Co., v Stathakis, 90 AD3d 983, 984 [2d Dept 2011]; Preferred Group of Manhattan, Inc. v Fabius Maximus, Inc., 51 AD3d 889, 890 [2nd Dept 2008].
The court notes that the judges in the above decisions found different dates to be appropriate, depending upon the facts and circumstances. For instance, among the lower court cases cited in Smith are Bank of Am., N.A. v Rausher, 43 Misc 3d 488 [court's finding that plaintiff failed to negotiate in good faith resulted in an order which cancelled the interest and all other accrued fees or costs back to the date of the first settlement conference that mandated good faith negotiations pursuant to CPLR 3408] and U.S. Bank, N.A. v Rodriguez, 41 Misc 3d 656 [Sup Ct Bronx Co 2013] [court's finding that plaintiff failed to negotiate in good faith resulted in an order barring plaintiff from collecting any interest, unpaid late fees, or attorneys' fees incurred from the date that the defendant received the HAMP denial in court until the date defendant is given a final detailed determination on his loan modification application, after review of all possible HAMP options for which he may be eligible].
As Justice Leventhal explains in U.S. Bank v Sarmiento:
"A review of various trial-level court decisions shows that courts have not required a showing of intentional misconduct, malice, or gross negligence when determining whether a party has failed to negotiate in good faith as required by CPLR 3408(f). For example, one court observed that good faith is a subjective concept, generally meaning honest, fair, and open dealings, and a "state of mind motivated by proper motive" (HSBC Bank USA v McKenna, 37 Misc 3d 885, 905, 952 NYS2d 746 [Sup Ct, Kings County] [internal quotation marks omitted]). Unreasonable, arbitrary, or unconscionable conduct is inconsistent with the statutory purpose of good faith negotiations aimed at achieving a resolution (see id. at 908). Several trial-level courts have found that, where a plaintiff lost financial documents, sent confusing and contradictory communications, inexcusably delayed a modification decision, or denied requests for HAMP loan modifications without setting forth grounds, such conduct constituted a lack of good faith within the meaning of CPLR 3408(f) (see e.g. Wells Fargo Bank, N.A. v Ruggiero, 39 Misc 3d 1233[A], 972 NYS2d 147, 2013 NY Slip Op 50871[U] [Sup Ct, Kings County] [finding it appropriate to sanction the plaintiff for its failure to act in good faith where the plaintiff, inter alia, provided conflicting information, refused to honor agreements, engaged in unexcused delay, imposed unexplained charges, made misrepresentations, and failed to deal honestly, fairly, and openly]."
In this matter, after years, literally six years, of efforts to obtain a loan modification for Mr. Husband so he can remain in his home, it is clear that some re- mediation is appropriate. Referee Goldstein determined that the plaintiff had not negotiated in good faith in the eighteen or so appearances before her in 2012, then this court was able to see for itself that plaintiff was simply not making reasonable efforts to modify Mr. Husband's mortgage. After plaintiff refused the reverse mortgage that Mr. Husband finally was able to obtain, with the accrued interest turned into a second mortgage in plaintiff's favor, it became clear that equity required an adjustment of some sort to make things right, as Mr. Husband and his attorney have been trying to resolve this matter for approximately five years.
The court has concluded that the appropriate sanction to impose herein is to reduce the interest rate to 2% on the balance which has accrued subsequent to August 1, 2010, the date that plaintiff should have approved defendant's HAMP application, instead of delaying until December 11, 2011 and then offering him an in-house modification which verged upon the unconscionable and which was designed to be rejected. The court has thus determined that had the modification been completed timely, the interest rate after August 1, 2010 would have been 2% and the large sum which has accrued at 6.275% was directly caused by plaintiff's bad faith and that plaintiff should not be rewarded for their delays, which went on for almost five more years. See, Norwest Bank Minn., NA v E.M.V. Realty Corp., 94 AD3d 835.In the interests of justice and equity, it is hereby ORDERED that the plaintiff is hereby barred from collecting any interest which has accrued on the mortgage subject to this foreclosure action above the 2% HAMP floor for the period August 1, 2010, to the date a judgment of foreclosure is entered or a refinance or modification or deed in lieu is entered into; and it is further ORDERED that the plaintiff Deutsche Bank, and its loan servicer, Ocwen, are barred from collecting any attorneys' fees from defendant incurred after August 1, 2010 and before the date of this order, and it is further
ORDERED that plaintiff is directed to re-open the defendant's file and re-consider defendant for a modification, taking into consideration the bank's delay; and it is further
ORDERED that the parties appear for a further Settlement Conference in Part 9, Room 524 at 2:15 p.m. on May 21, 2015, and it is further
ORDERED that a bank representative with full authority to settle the matter appear at the conference, and it is further
ORDERED that plaintiff recalculate the amount owed in light of the court's decision, and notify defendant's attorney of that amount by May 7, 2015. This shall constitute the decision and order of the court.
E N T E R,
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Hon. Debra Silber, A.J.S.C.