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New York: Delaying the Settlement Conference – Severe Penalty to Lender

Posted By USFN, Friday, August 29, 2014
Updated: Tuesday, October 13, 2015

August 29, 2014


by Bruce J. Bergman
Berkman, Henoch, Peterson & Peddy, P.C. – USFN Member (New York)

New York’s settlement conference mandate for home loan foreclosures visits much time and expense upon the action, as well as peril if there are assertions that the mortgage holder was not negotiating in good faith. A new case advises of yet further danger: elimination of interest otherwise due upon the mortgage for a lender’s delay in pursuing the settlement conference. [US Bank Nat’l Association v. Gioia, 42 Misc.3d 947, 982 N.Y.S.2d 699 (Sup. Ct. 2013)].

The case seemed to be benign. A foreclosure was begun on November 9, 2011, and the borrower answered on November 21st. However, the foreclosing plaintiff took no steps to proceed with the conference until April 2013. The plaintiff’s methodology during the conference process was a lesson in how not to do it — including not responding to a loan modification request — resulting ultimately in the plaintiff moving on August 8, 2013, to discontinue the action. That is the portion that seems innocuous; presumably a borrower would be pleased that the foreclosure action was about to evaporate.

In this case, however, the borrower cross-moved for an order compelling the tolling of interest on the obligation from commencement of the action and, further, halting interest accrual until a diligent review of the borrower’s eligibility for a permanent loan modification was completed. The borrower also sought an injunction against the plaintiff collecting legal fees from the beginning of the case.

Moreover, the borrower contended, were there to be a discontinuance, he would have to wait for a new action before the court could become involved anew in the settlement process. In addition, during discontinuance and the initiation of a new action, mortgage arrears, interest, and other costs mount, thereby decreasing the chance for a loan modification to come to fruition. In sum, a discontinuance would be prejudicial.

While the plaintiff’s counsel had some thoughtful responsive arguments, the court ruled that discontinuing the action would be prejudicial to the borrower and that the borrower was entitled to a conclusion of settlement negotiations before the action could be authorized for discontinuance.

Turning to the penalty aspect: Based upon the plaintiff’s delay, tolling of interest was declared retroactive to the beginning of the action until the case would be settled or removed from the settlement part. It would not be fair, the court found, to charge interest and penalties to the defendant during the period of the lender’s “unreasonable and unexcused delay.”

While new procedures in New York to some extent remove the ability of a foreclosing plaintiff to impede the settlement process, there is still room for delay. If that might be attributable to willful acts on the part of the plaintiff, this case is confirmation that meaningful monetary penalties can be imposed.

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