MORTGAGE FORECLOSURE - NO GOOD FAITH UNDER CPLR 3408

Although the mortgage and note is not extinguished, and the property may still be subject to a foreclosure sale, the sanctions imposed under CPLR 3408 may reduce the amount of monies due and owing.

MTGLQ INVS., LP v. BEERSINGH, 2022 NY Slip Op 31456 - Queens Co. Supreme Court 2022:

"II. Plaintiff's Duty to Negotiate in Good Faith

Pursuant to CPLR 3408(f), the parties at a mandatory foreclosure settlement conference are required to negotiate in good faith to reach a mutually agreeable resolution (see Wells Fargo Bank, N.A. v Meyers, 108 AD3d 9, 11, 966 NYS2d 108 [2013]). "The purpose of the good faith requirement ... is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution" (US Bank N.A. v Sarmiento, 121 AD3d 187, 200, 991 NYS2d 68 [2d Dept. 2014] [internal quotation marks omitted]). Compliance with the good faith requirement is measured by the totality of the circumstances and whether the party's conduct demonstrates a meaningful effort at reaching a resolution (see id at 203; CPLR 3408[f]); Aurora Loan Servs., LLC v Diakite, 148 A.D.3d 662, 663-664, 48 N.Y.S.3d 490, 492, 2017 N.Y. App. Div. LEXIS 1511, *4-5, 2017 NY Slip Op 01528, 2, 2017 WL 776993 [2d Dept. 2017]).

CPLR Rule 3408 controls mandatory settlement conference(s) in residential foreclosure actions and sets the statutory requirements of foreclosure scheduling (McKinney's CPLR 3408). CPLR 3408(f) requires that the parties "... must negotiate in good faith to reach a mutually agreeable resolution..."

The concept of "good faith" sounds in equity and is a requirement of negotiation is a residential foreclosure case. Good faith is examined and determined through a totality of the circumstances standard, (U.S. Bank National Association v. Sarmiento, supra at 991 NYS2d 68 [2d Dept 2014]; see PNC Bank National Association v. Campbell, 142 AD3d 1147, 38 NYS3d 234 [2d Dept 2016]; One W. Bank v Coffey, 2018 N.Y. Misc. LEXIS 3572, *3-4, 2018 NY Slip Op 32012(U) 2-3 [Sup. Ct. Suff. Co. 2018]). In Sarmiento, the Court Attorney Referee reported that over a three (3) year period of time the Plaintiff/Mortgagee had engaged in three (3) unsuccessful settlement conferences. The Referee contended that Plaintiff had failed to negotiate in good faith. (Id. at 195, 73). The Court determined that plaintiff's communication with defendant "had sown confusion, distress, and doubt, by including, among other things, confusing and vague rejection notices and requests for duplicative documents." (Id. at 197, 75).

Dilatory conduct by making piecemeal document requests, providing contradictory information, and repeatedly requesting documents that had already been provided will not constitute good faith (see LaSalle Bank, N.A. v Dono, 135 AD3d 827, 829, 24 NYS3d 144 [2d Dept. 2016]; Onewest Bank, FSB v Colace, 130 AD3d 994, 996, 15 NYS3d 109 [2d. Dept. 2015]; US Bank N.A. v Sarmiento, supra at 204).

III. Cases Dealing With the Failure to Negotiate in Good Faith

Notwithstanding the failure of Plaintiff's counsel to provide even a single case on the specific issue of his client's duty to negotiate in good faith, as requested by this Court, there are many cases, holding in different directions, which are germane to the issue. The following cases demonstrate the situations in which the duty to negotiate in good faith has been breached.

For example in Aurora Loan Servs., LLC v Diakite, 148 A.D.3d 662, 663-664, 48 N.Y.S.3d 490, 492, 2017 N.Y. App. Div. LEXIS 1511, *4, 2017 NY Slip Op 01528, 2, 2017 WL 776993 [2d Dept. 2017], cited by counsel for the defendant-borrower, the Second Department held:

Pursuant to CPLR 3408(f), the parties at a mandatory foreclosure settlement conference are required to negotiate in good faith to reach a mutually agreeable resolution (see Wells Fargo Bank, N.A. v Meyers, 108 AD3d 9, 11, 966 NYS2d 108 [2013]). "The purpose of the good faith requirement ... is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution" (US Bank N.A. v Sarmiento, 121 AD3d 187, 200, 991 NYS2d 68 [2014] [internal quotation marks omitted]). Compliance with the good faith requirement is measured by the totality of the circumstances and whether the party's conduct demonstrates a meaningful effort at reaching a resolution (see id. at 203; CPLR 3408[f]).

Here, the totality of the circumstances supports the finding that the plaintiff failed to negotiate in good faith. The hearing evidence demonstrated that the plaintiff, among other things, engaged in dilatory conduct by making piecemeal document requests, providing contradictory information, and repeatedly requesting documents that had already been provided (see LaSalle Bank, N.A. v Dono, 135 AD3d 827, 829, 24 NYS3d 144 [2016]; Onewest Bank, FSB v Colace, 130 AD3d 994, 996, 15 NYS3d 109 [2015]; US Bank N.A. v Sarmiento, 121 AD3d at 204) (emphasis supplied).

Plaintiff's argument is that "[i]t is not negotiating in "bad faith" to request industry standard documents for a loan modification application, and follow-up for over 19 months in an attempt to complete the application for review. If anything, it is "bad faith" to avoid producing the required documentation to the servicer in a timely manner all while living in or renting a house while paying none of the carrying costs." (Memorandum of Christopher M. McKniff, Esq., at page 9).

Here, it is uncontested that the Plaintiff requested and insisted upon receiving only a quitclaim deed from the borrower's former spouse, after the borrower had received a recorded bargain and sale deed from her former spouse assigning to her his interest in the property. The need for a quitclaim deed was obviated because her erstwhile husband, Euron Burns, had already relinquished his interest in the property by bargain and sale deed more than four years prior to the commencement of this foreclosure action. That document was duly recorded and was therefore public notice of her ownership interest in the subject property which could have easily been discovered by the Plaintiff. Characterizing an unnecessary document as "industry standard"^[2] is specious, and tantamount to saying "we always require that" irrespective of whether it is necessary or not. In addition, the borrower was again requested to provide her W-2 statements, which had already been provided. The Court finds as in Aurora, the insistence upon unnecessary documentation constitutes a dilatory tactic on the plaintiff's part, in its failure and derogation of plaintiff's duty to negotiate in good faith.

Similarly, in LaSalle Bank, N.A. v Dono, 135 A.D.3d 827, 829, 24 N.Y.S.3d 144, 147, 2016 N.Y. App. Div. LEXIS 336, *4-5, 2016 NY Slip Op 00340, 2 [2d Dept. 2016]) the Second Department stated:

Here, contrary to the Bank's contention, the totality of the circumstances support the Supreme Court's conclusion that it failed to negotiate in good faith. The homeowner's submissions demonstrated that the Bank, among other things, engaged in dilatory conduct by "making piecemeal document requests, providing contradictory information, and repeatedly requesting documents which had already been provided" (Onewest Bank, FSB v Colace, 130 AD3d 994, 996, 15 NYS3d 109 [2015]; see US Bank N.A. v Sarmiento, 121 AD3d at 204). The Bank failed to offer any evidence in opposition to the homeowner's motion and did not controvert the homeowner's account of the mandatory settlement negotiations. Accordingly, under the circumstances, the Supreme Court properly concluded that the Bank violated CPLR 3408(f) by failing to negotiate in good faith (see U.S. Bank N.A. v Smith, 123 AD3d at 916; US Bank N.A. v Williams, 121 AD3d 1098, 1102, 995 NYS2d 172 [2014]; US Bank N.A. v Sarmiento, 121 AD3d at 204-205; see also Onewest Bank, FSB v Colace, 130 AD3d 994, 996, 15 NYS3d 109 [2015])...

Here, the Supreme Court providently exercised its discretion in imposing a sanction that abated all interest, disbursements, costs, and attorney's fees that had accrued during the period between October 1, 2010, and August 12, 2014, the date of the order, since that period corresponds to the period during which the Supreme Court concluded that the Bank had failed to negotiate in good faith (see U.S. Bank N.A. v Smith, 123 AD3d at 917; US Bank N.A. v Williams, 121 AD3d at 1102) (emphasis supplied).

Presently, there was apparently an approximately 30-month delay during which the unnecessary quitclaim deed along with salary information, which had been provided, was requested again— needlessly. There was a recorded bargain and sale deed which was easily accessible to the plaintiff, which they fail to address in their papers. Under the totality of the circumstances, it can hardly be gainsaid that the plaintiff's conduct demonstrated a lack of good faith.

Likewise, U.S. Bank N.A. v Smith, 123 A.D.3d 914, 916-917, 999 N.Y.S.2d 468, 470, 2014 N.Y. App. Div. LEXIS 8747, *5-6, 2014 NY Slip Op 08832, 2-3 [2d Dept. 2014]), the Second Department found that:

Here, the totality of the circumstances supports 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 the federal Home Affordable Mortgage Program (hereinafter HAMP)...

Courts are authorized to impose sanctions for violations of CPLR 3408(f) (see US Bank N.A. v Sarmiento, 121 AD3d 187, 991 NYS2d 68 [2014]). However, "CPLR 3408(f) does not set forth any specific remedy for a party's failure to negotiate in good faith" (Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 19). In such absence, "courts have resorted to a variety of alternatives in an effort to enforce the statutory mandate to negotiate in good faith" (id. at 20). The sanction imposed in this case, to wit, barring the plaintiff from collecting interest on the mortgage loan for the period between October 5, 2012, and July 5, 2013, was a provident exercise of the Supreme Court's discretion (see US Bank N.A. v Williams, 121 AD3d 1098, 995 NYS2d 172 [2014]; see generally Norw est Bank Minn., NA v E.M.V. Realty Corp., 94 AD3d 835, 837, 943 NYS2d 113 [2012]; Deutsche Bank Trust Co., Ams. v Stathakis, 90 AD3d 983, 984, 935 NYS2d 651 [2011]; Preferred Group of Manhattan, Inc. v Fabius Maximus, Inc., 51 AD3d 889, 890, 859 NYS2d 236 [2008]) [emphasis added]).

The same outcomes were reached in US Bank v Gottlieb, 2019 Misc LEXIS 1002 *; 2019 NY Slip Op 30586(U) ** [Sup. Ct. Suffolk Co. 2019]), (the plaintiff failed to act reasonably and make a meaningful effort to reach resolution); One W. Bank v Coffey, 2018 NY Misc LEXIS 3572 *; 2018 NY Slip Op 32012(U) ** [Sup. Ct. Suffolk Co. 2018]) (plaintiff offers only excuses, not reasons for its inordinate delay in processing the aspects of the case which were within its power)]

IV. Cases Cited By Plaintiff's Counsel

Plaintiff's counsel submitted five cases in response to this Court's direction that apposite case law be provided:

(1) Bankers Trust Co. v. Hoovis, 263 A.D.2d 937, 694 N.Y.S.2d 245, 1999 N.Y. App. Div. LEXIS 8452, a 1999 Third Department case, which held "where plaintiff was the assignee of a mortgage at the time of service of the complaint, plaintiff had standing and was entitled to commence a proceeding in its own name. Further, a mortgagee was not required to accept an insufficient tender of payment of arrears and after issuing notification to the mortgagor of acceleration of the entire debt, a mortgagee had the right to reject payment of partial or full arrears, even where a foreclosure action had not been commenced. Denial of defendant's motion for summary judgment was affirmed;"

(2) EMC Mortg. Corp. v. Stewart, 2 A.D.3d 772, 769 N.Y.S.2d 408, 2003 N.Y. App. Div. LEXIS 14187, a 2003 Second Department case holding that the borrower "failed to demonstrate the existence of a triable issue of fact. The appellant's pleadings not only raised no valid defenses, but acknowledged the default and debt owed. It is well settled that once a mortgagor defaults on loan payments, a mortgagee is not required to accept less than the full repayment as demanded;"

(3) Home Say. of Am. v. Isaacson, 240 A.D.2d 633, 659 N.Y.S.2d 94, 1997 N.Y. App. Div. LEXIS 6798 in which the Second Department, in 1997, held that "the appellants did not tender sufficient sums within the relevant time parameters so as to stave off foreclosure. Prior to the effective date of the notice of default and acceleration, they did not tender all arrears plus interest and late charges, and after acceleration they did not tender the entire balance due. Thus, clearly they have no defense of tender as would warrant denial of the plaintiff's summary judgment motion;"

(4) Levine v. Infidelity, Inc., 285 A.D.2d 629, 728 N.Y.S.2d 670, 2001 N.Y. App. Div. LEXIS 7688, a 2001 Second Department decision, in which the court held that "[t]he Supreme Court properly granted the plaintiff's motion for summary judgment upon reargument;"

(5) Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 436 N.E.2d 1265, 451 N.Y.S.2d 663, 1982 N.Y. LEXIS 3327, a 1982 Court of Appeals case that held in principal part that "in a mortgage foreclosure action based upon nonpayment, an alleged oral waiver by the mortgagee of the right to accelerate the principal and foreclose in order to give the delinquent mortgagor a reasonable opportunity to negotiate an unforced sale of the mortgaged premises, constitutes a valid affirmative defense to foreclosure."

In this Court's reading, none of the above decisions discusses the issue of the bank's duty to negotiate in good faith under CPLR 3408(f). Given the rich variety of case law which is on point, disclosed by the Court's research, and the nature of the jointly agreed-upon facts which point to delays on the part of the Plaintiff in seeking unnecessary documents, this Court is surprised at the unwillingness of Plaintiff's counsel to make a yeoman's effort, or at least a minimally sincere effort when requested to negotiate this matter to avoid a punitive outcome to his client. It is with displeasure that this Court is constrained to make findings of a lack of good faith from the time of the original settlement conferences in this matter to present. Moreover, the Court is dismayed at Plaintiff's counsel's failure to follow simple instructions requiring the submission of factually apposite case law.: