Did Bank Complaints Result in Transfer of Foreclosure Referee?

I have come into possession of a copy of an internal e-mail from a court attorney to a top official at the Office of Court Administration that paints an unsettling picture of bank influence in the handling of foreclosure cases in Brooklyn. The e-mail was from Deborah Goldstein, a court attorney at the Supreme Court in Brooklyn, who for four years had been supervising conferences required by state law between banks and homeowners facing foreclosure.

In her-email, Goldstein asked Judge Lawrence K. Marks, the number two official in charge of court administration throughout New York, to stop an imminent plan to move her to a pool of lawyers whose job is to help judges draft opinions. In her e-mail, Goldstein advised Marks that Lawrence S. Knipel, the administrative judge in charge of civil cases at the Brooklyn court, was moving her out of her mini-courtroom after having received complaints “verbally made at a private meeting” with lawyers who represent banks at the settlement conferences, without providing her “any [of those] complaint(s) in writing or an opportunity to respond.”

Goldstein’s appeal was unavailing, and she was re-assigned to desk duties five days later on April 22, 2013.

I obtained a copy of Goldstein’s email to Marks from a confidential source, not Goldstein. When I advised Goldstein that I was in possession of the email, she asked me not to write about it and declined to be interviewed for this story.

Goldstein’s account of her removal finds support in a number of circumstances that surrounded her reassignment. Some of the most telling were: During his first four months as administrative judge, Knipel unilaterally revised the rules for handling the settlement conferences to the dismay of many judges who were actually in charge of the cases. The revised rules seemed aimed at Goldstein and designed to curb some of her practices that drew criticism from the bank bar. And homeowners’ lawyers, and even some judges, were unaware of the rule changes amid signs that bank lawyers knew about them in advance.

Additionally, during the last two years, 14 judges have agreed with Goldstein’s recommendations that the banks failed to negotiate in good faith—sometimes in highly critical opinions. Also, Goldstein’s findings served as the predicate for two important decisions issued by the appeals court in Brooklyn last year.

Knipel: Goldstein’s had “nothing to do” with any meeting

Knipel in an interview said that Goldstein’s transfer had “nothing to do with a meeting with bank lawyers. We don’t allow litigants to request the assignment of law clerks. Absolutely, unequivocally not.”

Knipel recalled that shortly after becoming administrative judge for civil cases in January 2013, he met with both sides of the bar in many different types of civil cases handled in his court, including foreclosures. He took issue with my characterization of the meetings as “meet and greet sessions,” and amplified that he heard a number of complaints at the meetings. “That’s a large part of my job,” he said, “when litigants are unhappy, we are the complaint department.”

He attributed Goldstein’s transfer to the needs of the court system. “During the last four years we have lost 108 positions,” and “are constantly shifting people to put them where it makes the most sense.” Goldstein “followed the rules and did a good job before and she is doing a good job now,” he added. “She is very strong—one of our best writers.”

Goldstein was tough and exacting

Under New York’s statute,[1] which was enacted in 2008, and expanded a year later to require “good-faith” negotiations, Goldstein was one of a cadre of court attorneys and retired judges responsible for making recommendations to the judges in charge of foreclosure cases as to whether the good-faith obligation had been met. The statute explicitly requires banks to negotiate in good faith to help homeowners “avoid losing” their homes. (I am using the word “banks” to include banks, which may have originated a loan, as well as any organization, including investment pools, which subsequently acquired a mortgage.)

The New York statute dovetails with the federal Home Affordable Mortgage Program (HAMP), which was developed as a part of the bank bailout to provide assistance to homeowners. The federal government developed a complex, and detailed, set of protocols that banks were required to use in determining whether a homeowner’s payment could be lowered. The HAMP rules were only mandatory if a bank agreed to participate in the program, and many did.

Homeowner lawyers and some judges describe Goldstein, who is in her early 40s, as deft at cutting through bank denials of modifications that didn’t add up, well-versed in the HAMP rules and exacting in requiring banks’ compliance with them. Bruce A. Richardson, a homeowner’s lawyer put it this way: “You’d have to wake up pretty early in the morning to put one over on her.” For 12 years before joining the court system, Goldstein had handled complex commercial cases at a top-notch law firm, Stroock & Stroock & Lavan.

Yolande I. Nicholson, the president of the New York Foreclosure Defense Bar, described Goldstein as “working very hard” to bring the two sides together to realize the statutory goal of according relief to homeowners facing foreclosure. “She held everyone’s feet to the fire but it became painfully obvious in many cases that banks did not want to participate meaningfully.”

Some homeowner’s lawyers acknowledge that Goldstein was quick to raise her voice and upbraid lawyers on either side. One judge called Goldstein, who wears her wavy brown hair several inches below her shoulders, “a spitfire.”

The banks, on the other hand, viewed Goldstein as exacting but in one direction—toward them. An example of the banks’ dim view of Goldstein’s handling of the conferences had a clear exposition in a “position statement” submitted by Hogan Lovells, a multinational firm that has handled many key appeals arising from foreclosure conferences.

The position statement was submitted in the case of EMC Mortgage Corp. v. Green,[2] which like many of the cases where Goldstein recommended finding the banks at fault, involved multiple adjournments and spanned lengthy time periods. There were 23 conference sessions over three years in EMC Mortgage. The position statement was submitted about a month after Goldstein had been transferred.

The position statement faulted both the homeowner’s repeated failure to submit financial information required by HAMP rules to process a modification application and Goldstein’s willingness to give them additional time to supply the needed documents. The extensive delays, the statement maintained, were the result of the homeowner’s production of “only piecemeal financial information over the course of three years of conferences, ignoring both the Referee’s instructions and [the bank’s] requirements.”

Moreover, the position statement faulted Goldstein for ordering “review after review.” Those repeated reviews led to lengthy delays, which resulted in the case being held “hostage” because of a court rule prohibiting banks from moving forward with foreclosures until the negotiation process is completed. As result, the statement maintained, “the [homeowners] have not [made] any loan payments while the [bank] has been paying taxes and insurance on behalf of the [homeowner] to protect its security interest in the property.”

The statement also praised Knipel for removing Goldstein, stating: “This case is a prime example of why the Administrative Judge wisely capped the number of settlement conferences at four, and why Referee Goldstein is no longer a referee.” The EMC case, according to court records, was subsequently settled with the homeowners agreeing to leave their home in return for a cash payment in a “specified amount.”

Different picture of who is responsible for delays

A different picture of who bore responsibility for lengthy delays, however, is found in two key important decisions issued by the Appellate Division in Brooklyn and some of the trial opinions endorsing Goldstein’s recommendations.

In U.S. Bank N.A. v. Sarmiento,[3] decided last July, the Second Department was also dealing with a case that stretched out over many (18) negotiating sessions and spanned many (16) months. But, in upholding the Sarmiento trial judge’s ruling, which had embraced Goldstein’s bad faith recommendation, the appeals court was working with a record that showed the bank’s review process had been slipshod.

Specifically, the record showed that the bank wrongly claimed that the homeowner did not live in his home. Then, another application was rejected because the homeowner had assets of $25,000, even though the homeowner had put the funds aside at Goldstein’s direction to make sure he would have funds available to pay a lower amount should mortgage relief be approved.

Similarly, in U.S. Bank N.A. v. Williams,[4] decided a few months later, the Second Department found “the record demonstrates that the foreclosing parties repeatedly represented to [Goldstein] and [the homeowner] that they were considering [the homeowner] for a HAMP loan modification and repeatedly demanded that [the homeowner] submit additional documentation in support of the application” even though the terms of the mortgage pool, which owned the mortgage, barred it from agreeing to any modification. The negotiations had continued for 13 months before the syndicate disclosed the legal restriction, the decision stated.

Likewise, two of the trial court opinions faulted the banks in stinging opinions. In U.S. Bank v. Young,[5] Justice Laura L. Jacobson specifically praised Goldstein’s work and described the roadblocks that the bank’s lawyers placed in her way. “It is very clear to the Court,” Jacobson wrote last July, “that despite the directions and instructions communicated by the Special Referee [Goldstein],” the bank and/or its attorneys “did everything possible to evade and avoid those directions.”

In a similar vein, Brooklyn Justice Yvonne Lewis wrote in Wells Fargo Bank v. Ruggerio,[6] “it is painfully obvious to the court that the plaintiff has acted willfully and with express intent to subvert a statutory scheme established for the beneficial purpose of helping [homeowners] avoid the loss of their homes.”

Several judges and quite a few homeowners’ lawyers told me that through body language and dismissive comments, some bank lawyers telegraphed a lack of respect for Goldstein. An instance of such disrespect surfaced at a conference Goldstein handled on April 9, 2013 in the case of Aurora Loan v. Diakite.[7]

Bank lawyer Vikram Singh Vilkhu advised Goldstein that he was recording the negotiating session and then insulted her when she advised him that the recording was against court rules. Vilkhu proceeded to tell her “your notes of conferences are so woefully deficient that I wonder how you can write directives and reports” and that “you’re wasting my clients’ time with this nonsense,” according to the report Goldstein filed in the case. Vilkhu, who is with the firm Fein, Such & Crane, did not return messages seeking comment.

Context of Goldstein’s removal

Knipel removed Goldstein four months after becoming Administrative Judge. Even prior to that action, Knipel had moved quickly to revamp the rules that control the processing of settlement conferences. Several of the new rules Knipel issued in February 2013 seemed aimed directly at Goldstein.

One of the new rules specifically instructed referees to provide “a brief explanation” (emphasis in the original) whenever recommending that a judge enter a “bad faith” finding. Other new rules set a ceiling on the number of adjournments at four and opened a path for banks to bypass the referee “upon request.”

The new rules generated controversy among the homeowners’ bar and some judges. The leaders of the New York State Foreclosure Defense Bar sent a letter to Knipel on Feb. 19, protesting that they had been blindsided by the issuance of the new rules. The letter recounted that, during the prior week, bank lawyers had “openly insisted upon application of the new procedural rules.” In an apparent reference to the new rule giving banks a carte blanche to remove a case from a referee “upon request,” the letter stated that there had been instances in which bank lawyers had “requested premature referrals to [trial judges] last week.”

In response to the homeowner bar’s letter, Knipel agreed to meet with a group of organizations representing homeowners on Feb. 21, and the next day, for the first time, provided the bar association with a set of the new rules, according to Nicholson, its president. On their face, the rules stated that they were effective as of Feb. 4, nearly three weeks earlier. On a related note, a judge handling foreclosures in Brooklyn reported being unaware of Knipel’s rules until learning of the homeowner bar’s protest letter.

A second letter, written by a coalition of 17 groups that represent homeowners, took specific issue with the emphasis in the new rule, limiting referees to a “brief explanation” of their reasons for recommending that a bank be sanctioned for failing to negotiate in good faith. In objecting to that restriction, the letter, dated May 16, 2013, stated that Goldstein was “known for issuing thorough reports and recommendations.”

On the other hand, Goldstein became aware of a meeting between the bank bar and Knipel when a bank lawyer mentioned it during a conference the day after the meeting took place. During the course of a conference on March 19, 2013, bank attorney Elizabeth Meyer-Aquino said that the day before “she attended a [banks’] bar meeting with AJ Knipel” in objecting to an aspect of the way Goldstein was handling the hearing. Goldstein recounted Meyer-Aquino’s remarks in the report she submitted in the case. Meyer-Aquino at the time was working at Stein, Weiner & Roth but is no longer there. Howard H. Stein, a senior foreclosure partner at the firm, declined to comment on Goldstein’s account of Meyer’s remarks in US Bank v. Gonzalez.[8]

Judges Upset

Many members of an eight-judge group that had been involved in the running of the settlement conferences were upset with the new rules. Two judges described members as being “dismayed” that the group had “no awareness or involvement” in Knipel’s development of the new rules

. One judge told me that, in view of the extensive evidence of bank stalling, “the limiting of the conference process to four adjournments is effectively the same thing as having no conferences.” Another criticized the rule allowing the removal of a case from a referee “upon request” as “empowering the banks to bypass the entire negotiating process set up in the 2009 law.”

The depth of the group members’ displeasure is reflected in the lengths to which they went to try to revise the new rules. According to one judge, the group twice put a discussion of the issue on the agenda of monthly meetings of the Brooklyn branch of the Supreme Court justices’ association. Knipel attended both meetings and also once met separately with the members of the foreclosure group, the judge said. At the monthly justices’ association meeting for June 2013, Knipel parried requests for reform but agreed to meet separately with the foreclosure group in July.

At that meeting, Justice Carolyn E. Demarest, the group’s spokeswoman, presented Knipel with a form she had devised for referees to use in the writing of their reports, and Knipel agreed to use the new form. But several months later, Knipel again attended the monthly meeting of the Brooklyn justices’ association, a judge present reported. When the question came up of what had happened with Demarest’s new form, Knipel said he had no recollection of agreeing to use it. Demarest then challenged Knipel’s recollection, and expressed her dismay, the judge said. Demarest, through her secretary, declined to comment.

I asked Knipel to comment upon the sequence of events culminating in the Demarest/Knipel exchange. His response was that little of that narrative struck him as being accurate. He did acknowledge, however, that he recalled that Demarest had mentioned at a “term meeting” that she was drafting a new form because there was a wide disparity in the amount of details referees included in their reports. The civil side of the Brooklyn court convenes at a term meeting every month or two, Knipel explained.

That project was put on the back burner, Knipel added, after it was learned that OCA would be coming out with statewide rules for the handling of foreclosure conferences.

Tension between Goldstein’s transfer and Judges’ Rulings

My research into decisions, issued after Jan. 1, 2013 by Brooklyn judges in “good faith” cases, found that the bench there had consistently agreed with Goldstein’s recommendations. I found 16 cases in which 14 judges had agreed with her recommendation that a bank’s performance was subpar.[9] [10] By comparison, I found only five cases in which judges reviewed three other referees’ recommendations that banks had not met their statutory obligation during the same time period.[11] In all 21 cases, judges upheld referees’ recommendations that the banks had fallen short of good faith. The number of referees conferencing cases in Brooklyn usually fluctuated between four and five.

There is a substantial discrepancy between Knipel’s account of his interactions with the judge’s group and the account provided to me. The important point, though, is that two judges described serious discontent within the group over the substance of the rule changes and the manner in which they were issued. Further evidence of a schism within the court comes from the rulings of the fourteen judges approving Goldstein’s recommendations. Those endorsements also undercut any rationale that rule changes were needed to rein her in.

At a minimum, under those circumstances a fair question is raised: Why would Knipel have transferred Goldstein to suit the needs of the court even though, in his words, her skills, particularly her writing skills, are “very strong?”

[1] Civil Practice Law and Rules 3408. The statute also requires homeowners to negotiate in good faith.

[2] Index No. 22862/09

[3] 121 AD3d 187

[4] 121 AD3d 1098

[5] Index No. 28686/09

[6] 39 Misc3d 1233(A) (2013)

[7] Index No. 17949/09

[8] Index No. 6283/11

[9] American Home Mortgage Servicing v. Bobbitt, Index No. 19093/08, Sherman J.; Deutsche Bank v. Hinds, Index No. 500398/12, Demarest J.; Deutsche Bank v. Izraelov, 40 Misc.3d 1238[A], Battaglia J.; JP Morgan Chase v. Butler, 40 Misc3d 1241(A), Schack J;; Wells Fargo Bank v. Ruggerio, 39 Misc.3d 1233[A], Lewis J.; US Bank National Association v. Green, Index. No. 9220/09, Kurtz J.; US Bank v. Thomas, 40 Misc3d 1241(A), Schmidt J.; US Bank v. Young, Index No. 28686/09, Jacobson, J.; Deutsche Bank v. Husband, Index No. 24521/08, Silber J.; OneWestBank v. Gardner, Index No. 26652/09, Graham J.; OneWestBank v. Toom, Index No. 25665/09, Solomon, J.; Mers v. Lieberman, Index No. 29970/09, Battaglia, J.; US Bank v. Garcia, Index No. 32313/09, Kurtz, J.; U.S. Bank v. Williams, Index No. 3685/10, Velasquez, J.; Bank of New York Mellon Trust v. Campbell, Index No. 12012/09, Spodek, JHO (with authority to decide); and Aurora Loan Services v. Diakite, 46 Misc 3d 1202(A), Edwards, J.

[10] In Mers v. Lieberman, see footnote 9 above, the judge found bad faith but on a different ground than Goldstein set forth in her report.

[11] The five judges accepting bad-faith recommendations were as follows: Justice Martin Solomon in U.S. Bank v. Smith, Index No. 34/2010 (Referee Dale Berson); Acting Justice Ann Pfau in U.S. Bank v. Zamor, Index No. 11342/11 (Referee Noreen Soto-Fier); Justice Wayne Saitta in U.S. Bank v. Vavallo, Index No. 31635/09 (Referee Berson); Justice Leon Ruchelsman in Bank of New York Mellon v. Cassarino, Index No. 7763/10 (JHO William Davis); and Justice Larry D. Martin in Citimortgage v. Sultan, Index No.23303/10 (Referee Soto-Fier)



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