Court sides with Homeowner in Foreclosure; Homeowner loses

Recently, Courts in New York have been slamming banks who come to foreclosure conferences and aren’t ready or are unwilling to engage in good faith settlement negotiations.  But they’re not doing enough.


Under NY CPLR §3408 (f): the parties must”negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible.”  That seems like a really rational thing to put into the law.  But the problem is the enforcement mechanism of this is really lacking.  The Court can grant sanctions as against banks that don’t play ball in good faith, like they’ve done in innumerable cases.  The problem is that, for banks, this just may be the cost of doing business and it is a cost they can easily internalize.


Over in Brooklyn, Judge Shack has received a well deserved reputation for fighting back against banks that have violated Court Orders and inundated the Court with a variety of frivolous foreclosure lawsuits.  Check out the decision where he most politely hands the (now defunct) law firm of Steven Baum & Associates their hats.  The problem is, Judge Shack, one of the only Judges out there who literally would scare the bejeezus out of banks, had his own proverbial hat handed to him by Appellate Division in New York.  The Court states at one point:

“…we take this opportunity to remind the Justice of his obligation to remain abreast of and be guided [*3]by binding precedent. We also caution the Justice that his independent internet investigation of the plaintiff’s standing that included newspaper articles and other materials that fall short of what may be judicially noticed, and which was conducted without providing notice or an opportunity to be heard by any party (see HSBC Bank USA, N.A. v Taher, 32 Misc 3d 1208[A], 2011 NY Slip Op 51208[U], *4 [2011]), was improper and should not be repeated.”

So the good Judge get’s rebuked for going a little too far, but the problem of how to punish banks still remains.  Recently, the Supreme Court, Kings County, rendered a decision in another case where the banks weren’t playing by the rules.  In American Home Mortgage Servicing v. Bobbitt, 19093/08, Mr. Bobbitt is a homeowner who finds himself at the end of his ropes.  His house is being foreclosed.  So, he fights back.  He walks in to the settlement conference, pro se, and asks the Bank for a modification.  Well, wouldn’t you know the bank’s attorney has all kinds of reasons why they can’t go right ahead and do that.  At one conference, the attorney says they have to review the docs.  At another, he says the modification won’t work but hasn’t provided them with any paperwork to that effect.  At yet another, he essentially says the pool of investors have restrictions on modifications in their agreement.  When the nice Referee overseeing the case asks the bank’s attorney for that paper illustrating the restrictions, wouldn’t you know the bank is unable to produce it.  This goes on and on and on for over a year, and, as I’m sure you can guess, the bank still has problems showing that they actually own the note itself.  Fast forward to the decision (after well over TEN settlement conferences-no one said it was efficient) where the Court essentially states that the bank did some bad things and so they can’t charge any interest or attorneys fees during the year and change when this matter was in settlement conference.  And while that’s nice, how does this help the homeowner?  Oh, sure, the amount he owes will be decreased a bit by the years worth of interest and the hourly rates of an attorney who was likely handling about 3093093490505340345 of these cases at the same time.  But, again, how did this help Mr. Bobbitt?  It really doesn’t


Maybe Judge Shack overstepped his bounds when he get pushed around by the Appellate Division, but he was on to something (and still is).  If we’ve any hope whatsoever of dealing with this crisis (not including HAMP-LOL!), then the banks have to have a point where it becomes too painful for them NOT to play nice.  Right now, the only thing the Courts are doing are imposing small sanctions on these absolutely huge institutions.  That’s not enough.  Today, there are thousands of Mr. Bobbitts in New York alone.  Many of them are clients of mine.  The process, right now, is somewhat laughable, and everyone knows it.  Courts have to be given the power to ensure that the Banks play ball.  Whether that means dismissing the cases outright or canceling Notice of Pendency or reducing principal, there has to be a better way to resolve the ongoing foreclosure crisis than this.