Category Archives: Foreclosure

Public Advocate James, Fired Up, To Seek Meeting with Brooklyn Administrative Judge

Corrected and Revised*

New York City Public Advocate Letitia James cast a harsh spotlight on Justice Lawrence S. Knipel, the administrative judge in charge of civil cases in Brooklyn Supreme Court, at a meeting convened Friday, under the leadership of Brooklyn Congresswoman Yvette Clarke, to examine the impact of foreclosures upon communities of color.

During the course of the meeting at Brooklyn Law School, James rose on several occasions to express dismay over the way foreclosure cases are being handled in Brooklyn and angrily  vowed to seek a meeting with him.

About 70 public officials, homeowners’ lawyers and their clients attended the session. The session was presented in conjunction with the New York State Foreclosure Defense Bar.

The message from about a dozen lawyers and their clients, who were designated as presenters, was clear: the foreclosure crisis of the Great Recession is not over. To the contrary, the crisis is greater than ever because government-related entities, such as Fannie Mae, have been selling off huge amounts of troubled mortgages at bargain prices to investors, who, in Brooklyn, are pressing hard for foreclosures so they can take advantage of rising prices as gentrification in some of its poorer neighborhoods speeds ahead.

Continue reading

4 Comments

Filed under Foreclosure

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. Continue reading

Comments Off on Did Bank Complaints Result in Transfer of Foreclosure Referee?

Filed under Foreclosure

News Flash: Tolling Upheld for ‘Good Faith’ Violations

On Wednesday, Oct. 29, the Appellate Division in Brooklyn, for the first time, ruled that the forfeiture of interest and attorney fees is an appropriate sanction for banks that fail to honor their statutory obligation to negotiate in good faith with homeowners facing foreclosure.

The Second Department’s unsigned unanimous decision in U.S. Bank N.A. v. Williams, 2014 NY Slip Op 07349, is the first from any appeals court in the state to approve a penalty for a bank’s failure to negotiate in good faith at mandatory settlement conferences. The conferences were first required in 2008 in the wake of the nation’s economic meltdown. Civil Practice Law and Rules Section 3408 was amended a year later to require banks to conduct their negotiations in good faith. The new section added in 2009—3408(f)— did not specify a remedy for a bank’s failure to negotiate in good faith.

Undeterred by a clear-cut remedy, the banks’ handling of the settlement conferences has been problematic. In the last two years, 30 judges throughout the state have found banks to have failed to negotiate in good faith, often finding that the negotiations have stretched out for a year or longer or that loan reductions were approved only to later be withdrawn or that banks often either lost homeowners’ documents or required that they be resubmitted because they had grown outdated as the negotiations had dragged on.

Another measure of the depth of problems New York homeowners have encountered is found in a motion the New York State Attorney General’s Office has pending to force Wells Fargo Bank to comply with processing deadlines for mortgage-relief applications set in a 2010 nationwide settlement. The Attorney General’s motion in U.S.A. v. Bank of America, 12-cv-361 (District of Columbia) cited 200 instances in which Wells Fargo had failed to meet the settlement’s processing deadlines in cases involving 97 New York families.

The facts in the Second Department’s case were quite typical of those cited in prior “bad faith” findings and the Attorney General’s motion. Homeowner Fay Williams attended 10 conference sessions that had stretched out for more than year before Referee Deborah Goldstein, who supervised the conference process. Ultimately, Goldstein recommended that U.S. Bank N.A. be found not to have negotiated in good faith and that sanctions be imposed.

Williams’ case was also typical in that her mortgage is now owned by a syndicate, which has formed a mortgage pool as security for bonds it had issued to raise capital. In the 30 bad faith cases surveyed,[1] often the holder of the mortgage was a syndicate like U.S. Bank. As was typical in those rulings, U.S. Bank waited until negotiations had sputtered for 13 months before advising either the homeowner or the referee that the legal documents forming the pool precluded it from altering either the interest or duration of the mortgages it owns.

In their ruling, the four Second Department judges dryly stated that, under those circumstances— which were reflected in many of the “bad faith” rulings—Brooklyn Justice Richard Velasquez “providently exercised” his discretion in requiring the syndicate to forfeit interest and attorney fees, which it would otherwise have been entitled to.

The panel—which consisted of Peter B. Skelos, Sheri S. Roman, Sylvia O. Hinds-Radix and Hector D. LaSalle—also refined Velasquez’ order and directed that fees and interest be tolled from the date of the initial conference in June, 2010 until the conferences resume under the panel’s mandate. That reflects a period, which has already extended for more than four years.

Prior to the posting of this article, Pamela Ann-Marie Walker, the attorney  who handled Williams’ case at the conference and trial levels through the Brooklyn Bar Association’s Volunteer Lawyers Project, was unable to provide an estimate of how much interest is currently at stake under the panel’s tolling order.

In the last two years, the Second Department has been edging toward the approval of a remedy for good faith violations. In 2013, a panel in the case of Wells Fargo Bank v. Meyers, 108 A.D.3d 9, approved the notion that judges have the authority to approve a remedy, just not the one ordered by the trial judge in that case (the trial judge’s order had required specific performance of a trial modification which the bank had subsequently withdrawn). The Court in Meyers held off endorsing any specific remedy but it listed a number of possibilities.

In July of this year, another panel in U.S. Bank v. Sarmiento, 2014 NY Slip Op 05533, let a order tolling interest and fees stand even though it expressly stated that a legal technicality prohibited it from deciding whether judges have the power to order tolling.

The length of the delay attributable to the bank’s bad faith and the amount of the mortgage debt in Sarmiento is roughly analogous to that in the Williams case. A. David Fuster, who represented the homeowner in Sarmiento, was quoted in the New York Law Journal (Aug. 4, 2014) as estimating that the tolled interest for his client amounted to approximately $300,000.

DanielJWise©

[1] [1] See Wise, “Panel Shifts Toward Remedy in Sarmiento, ”New York Law Journal, Aug. 29, 2014, page 6, footnote 1. Since Aug. 29, I have added six more rulings finding that banks failed to negotiate in good faith: MERS v. Lieberman, 29970/09, decided 9/12/14, (Battaglia, J. Brooklyn); US Bank NA v. Garcia, 32313/2009, decided 9/22/14, Kurtz, J. Brooklyn; and U.S. Bank v. Smith, 34/2010, decided July 5, 2013, Solomon, J. Brooklyn; U.S. Bank v. Williams, 3685/10, Velasquez, J. Brooklyn, decided Nov. 18, 2013; Wells Fargo v. Ayala, 19783/12, decided Aug. 20, 2014, Pineda-Kirwan, J., Queens; and LaSalle Bank v. Dono, 2014 NY Slip Op 24224, decided Aug. 12, 2014, Spinner J., Suffolk).

Comments Off on News Flash: Tolling Upheld for ‘Good Faith’ Violations

Filed under Foreclosure

Dan Wise’s Article in New York Law Journal on Import of Sarmiento

 

To: Readers of WiseLawNY

From: Dan Wise

Date: Sept. 3, 2014

 

On Friday Aug. 29, the New York Law Journal published my analysis that the Appellate Division, Second Department’s ruling in U.S Bank N.A. v. Sarmiento, 2014 NY Slip Op 05533, heralds an era of greater protection for homeowners facing foreclosure.

The outcome in Sarmiento was somewhat muddy. The Court did not disturb a Brooklyn judge’s order requiring a lender topossibly forfeit as much as $300,000 in interest and attorneys fees for failing to bargain in good faith with a homeowner at a mandatory, court-supervised settlement conference. Nor, however, did the Court affirm the judge’s order.

Nonetheless, the ruling reflects a significant shift in the Court’s approach to enforcement of a 2009 state law requiring lenders to negotiate in good faith over a reduction in a homeowner’s mortgage payments before moving forward with a foreclosure case.

That conclusion is supported by the tone, content and context of the Sarmiento ruling. The good-faith statute is silent on the question of remedies for violations, and a year ago the Second Department had issued a full-throated plea for guidance from the Legislature and the Judiciary. Nothing has changed in the last year.

During the five years since enactment, the Court had issued several rulings knocking down possible remedies but never put its imprimatur on a remedy. The Sarmiento case presented the first test of a remedy that was commensurate with bank misconduct—the forfeiture of interest and fees during periods in which lenders had failed to act in good faith.

During the intervening years, there has been a growing body of case law at the trial level in which judges have expressed extreme displeasure with lenders’ handling of the conferences, which have resulted in lengthy delays of two years or more. By my count, since the start of 2013, 21 judges in nine counties have found lenders to have violated the good-faith requirement.

My article appears on page 6 of the Aug. 29 Law Journal. Subscribers to the Law Journal can get direct electronic access to the article by logging in and clicking on this link: http://www.newyorklawjournal.com/id=1202668409276?

When non-Law Journal subscribers click on the above link, they will be asked to “register” for the Law Journal. Once you register, you should be taken directly to the article. Persons registering are allowed access to five Law Journal articles every 30 days before they will hit a paywall.

If you encounter problems, please send me an email, and I will try to straighten it out. There is a more complicated way that non-subscribing registrants can access the article.

 

 

Comments Off on Dan Wise’s Article in New York Law Journal on Import of Sarmiento

Filed under Foreclosure

Stonewalled Foreclosure Conferences: Do Homeowners Have a Remedy at Hand?

 

In 2008-09, with home foreclosures skyrocketing in the wake of the economic meltdown[1], New York led the nation in developing measures to aid struggling homeowners. The state legislature enacted a law requiring that banks negotiate in “good faith” with homeowners at a mandatory court-supervised settlement conference within in sixty days of suing for foreclosure. The new law instructed the court system to issue rules granting the state’s judges “the necessary power and authority … to “ensur [e]” both side negotiate in good faith and that settlement conferences “not be unduly delayed or subject to willful dilatory tactics.”

Despite that sweeping authority, the good-faith law is silent on the question of remedy, and for the last five years, the requirement that banks negotiate in “good faith” with New York homeowners has been an obligation in search of a remedy. In a handful of rulings, the state’s appeals courts have only told the judges and referees responsible for supervising the settlement process what they could not do to compel banks to act in good faith.

With one exception, all of the appellate rulings have come out the Appellate Division, Second Department in Brooklyn, which hears appeals from the four counties with the highest number of pending foreclosures in the state: Nassau, Suffolk, Brooklyn and Queens. The sole other ruling was from the First Department, which sits in Manhattan.

Those rulings have rejected judges’ use of compulsory orders and punishing fines to force banks to reach a reasonable accommodation with homeowners or even to require them to make good on their offers to lower payment terms. Meanwhile, no appellate court has put its imprimatur on the most promising remedy that has been adopted by trial judges: the forfeiture of interest and other lender costs, including attorneys fees, which have mounted during delays caused by the absence of good-faith negotiations.

But, the issue is now coming to a head. At least two cases are pending—one in the First Department and one in the Second—squarely presenting the question of whether forfeiture, commonly referred to by lawyers as “tolling”)  is a viable remedy.

In the interim, the law books have become littered with cases, in which trial judges and referees have found that banks have failed to negotiate in good faith. Numerous opinions cite delays of up to two years and as many as 17 adjournments.

The causes have been manifold: banks had no representative present with authority to negotiate despite a clear statutory mandate to do so; bank representatives were unfamiliar with the cases and did not have critical documents related to homeowners’ loans; banks had backtracked on modification agreements even though homeowners had paid the lower amount for the three months required in many instances by federal guidelines—and often for many months more; and banks, only belatedly after months of negotiations, have advised homeowners and the courts that they were barred from negotiating any payment relief in situations where a mortgage has become part of a pool aggregated by an investment syndicate.

 

Two Pending Appeals

Both of the cases on appeal present those issues, which over and over again, have formed the basis of trial court rulings, finding the banks had not negotiated in good faith.

In the case pending in the Second Department [U.S. Bank National Association v. Green, 9220/09 (Kings County)], Brooklyn Justice Donald Scott Kurtz ordered the tolling of interest and related charges, confirming a referee’s finding that the mortgage holder, after ten months of back and forth, had denied the homeowner a modification even though the owner had successfully paid the lower amounts for three months.

At about the same time the holder, an investment syndicate, raised a new issue: it was forbidden from making any loan modification by the agreement it used to sell mortgage-backed securities.

To speed a resolution, the referee, who oversaw the settlement discussions, ordered syndicate officials, with personal knowledge of the pooling agreement, to attend the conference and produce associated documents. Nonetheless, the settlement process dragged on without resolution for another 19 months (bringing the total delay to more than two years) before the referee recommended to Kurtz that the syndicate be compelled to reinstate the 2010 trial modification. Kurtz in March 2013 ordered tolling but rejected the recommendation that the syndicate be ordered to re-activate its modification.

The case pending in the First Department also presents, in stark form, the same recurring problems that have hindered the settlement process.

As was the case in Green, the settlement process in Citibank v. Barclay (Bronx County) dragged on for 11 months without resolution,. During that time, the homeowner attended nine conference sessions, submitted six original applications for a loan modification and was on numerous occasions asked to submit additional documentation even though that information had previously been supplied. Also, similar to Green, the homeowner in Barclay had been engaged in the settlement process for nearly a year before being informed by Citibank that investor restrictions precluded it from modifying the mortgage.

Bronx Justice Robert E. Torres, the trial judge in Barclay, made specific findings related to several of those points. With regard to authority and knowledge, he noted that the bank’s loan adjuster had testified before the referee that she had personal authority to modify mortgages and that she had been personally involved with the homeowner’s loan modification for three years. But on cross-examination, he noted, she admitted that she was assigned to Barclay’s loan file shortly before the hearing and that she had been asked by the bank to “come in and …do a more in-depth detailed investigation of files.”

Torres also wrote that the bank’s “bit by bit requests at each conference only serve to unnecessarily delay the modification application process while racking up interest, fees and penalties to the [Bank’s] benefit and [Barclay’s] detriment.”

 

AG Office Cites Wells Fargo Violations

Lest there be any doubt about the extent of those problems, the New York State Attorney General’s Office has developed evidence that Wells Fargo Bank has committed close to 200 violations of standards developed to speed loan modifications. The standards are contained in a $25 billion settlement reached in 2010 between the nation’s attorneys general and five major banks, including Wells Fargo. The evidence, which consists of sworn declarations by advocates, together with supporting documentation, in cases involving 97 New York homeowners, has been offered by the state Attorney General’s Office in litigation seeking to force Wells Fargo to live up to the 2010 settlement, U.S.A. v. Bank of America, 12-cv-361 (District of Columbia). Read the Attorney General’s brief. The case has been briefed, and a decision is being awaited from U.S. Judge Rosemary M. Collyer.

Similarly, a report prepared by three legal services groups found a widespread failure of banks to have a representative with settlement authority and knowledge of the homeowner’s case present at settlement conferences. The three groups—JASA/Legal Services for the Elderly in Queens, Legal Services NYC and MFY Legal Services—sent observers to 252 settlement conferences conducted in the fall of 2013. The observers reported that in 80 percent of the cases the banks failed to have present representatives with the settlement authority and knowledge required by New York law. In 36 percent of the observed cases, no bank representative was present with the authority to settle as required by CPLR 3408(c) and in 44 percent of the cases the representative lacked sufficient information to permit a conference to proceed.

         Briefing in the Barclay case is nearly complete and is underway in Green. The two arguments have taken on outsized importance. Two months after Kurtz embraced tolling, but rejected mandating reinstatement of a withdrawn modification offer, the Second Department nixed specific performance in Wells Fargo Bank v. Meyers, 108 A.D3d. 9 (May, 2013). In Meyers, however, Justice Thomas A. Dickerson, who wrote for a unanimous panel, underscored the need for guidance from either the legislature or the court system as to what type of remedies should be imposed for violations of the good-faith requirement.

Further, earlier this year, a push by homeowners’ advocates for legislation spelling out remedies fell to the wayside as legislators limited their efforts to extending the mandate for settlement conferences  another five years to 2020.

 

Court System’s Unexercised Power

In Meyers, Dickerson pointedly drew attention to the court system’s failure to develop sanctions for “egregious behavior” by the banks or their counsel despite having been specifically authorized by the legislature to do so.

Dickerson quoted from a provision in legislation adopting the good-faith obligation which “expressly” provided that the rules to be promulgated by the Chief Administrator of the Courts to govern settlement conferences “may include granting additional authority [to the states’ judges] to sanction the egregious behavior of a counsel or party.” Read the statute.The court system’s authority to issue a specific sanction or remedy has not been exercised, he wrote.

Meyers, much like the two cases pending on appeal—Green and Barclay—presented issues of the recurring problems experienced by homeowners in the settlement process. In Meyers, the homeowner attended eight court appearances which stretched out over eight months; was offered a modification lowering his monthly mortgage payments by $700 and met those payments for at least seven months; and was advised by the bank—six months after it had proposed a modification—that investor restrictions precluded the changing of the loan’s terms.

Nonetheless, the Second Department rejected the use of specific performance (legal jargon for a compulsory order to reinstate a withdrawn modification) despite sympathetic facts. The homeowner was a New York City police officer, Paul Meyers, who had taken a second job and worked overtime to keep up with his mortgage payments. In 2009, Meyers fell behind in his payments when he lost his second job and the NYPD cut back on overtime. Further his wife, Michela, testified at a good-faith hearing before then-Suffolk Justice Patrick A. Sweeney that Wells Fargo employees told her that a modification could not be offered unless she and her husband defaulted on their payments; and they had followed that advice.

Sweeney, finding bad faith after conducting a three-day hearing, ordered Wells Fargo Bank to reinstate the September, 2009 modification offer and dismissed the foreclosure proceeding. But, the Second Department reversed, concluding that an offer of a trial modification is not a binding contract and to enforce it would violate the Contract Clause of the U.S. Constitution.

Some lawyers for homeowners, who have examined the trend of the Second Department’s post-Meyers decisions, have raised questions whether they will support a ruling upholding tolling as a viable remedy for good-faith violations. But, Karen Gargamelli, the lawyer with Common Cause NY who is handling the Barclay appeal in the First Department, called such an outcome “inconceivable.”

 

Recent Signs of Progress

Since Meyers was handed down, there have been some signs that progress has been made with respect to some of the problems that have bogged down the settlement process. First, the state Attorney General’s network, which consists  of 90 groups the office has funded to provide lay counseling and legal aid to homeowners, has helped one-third of the 28,000 clients it has worked with to obtain modifications or, at least, the possibility of a modification, according to Melissa Grace, a spokeswoman for the office.

Out of that universe, the Attorney General’s network represented 8,000 homeowners during the settlement process. No separate data was provided concerning the success of those clients in obtaining modifications. The network is funded with $60 million the Attorney General’s Office received from the 2010 nationwide settlement with five major banks.

Second, the court system in late June authorized administrative judges in Nassau, Suffolk and Brooklyn to receive direct referrals of cases from referees (bypassing the judge to whom the case has been assigned) to hear legal issues that they do not have the authority to resolve. Court sources suggest that since judges, but not referees, are empowered to order sanctions, that the change will speed rulings on disputes over whether banks are acting in good faith.[2] Read the memo.

Third, homeowner advocates report that Bank of America in April flew into New York about a dozen workout specialists, led by two bank vice presidents, who ended working on two days with close to 100 Nassau County homeowners facing foreclosure. Maria DeGennaro, an attorney with the Empire Justice Center who oversees the work of 13 homeowner advocacy groups on Long Island, stated that the Bank of America had taken initiative in asking the courts to set aside one day with all Bank of America cases on the conference calendar.

“The workout specialists provided something that is sorely missing in most conferences,” DeGennaro added, “real-time information about the status of modification requests, with the result that some cases were resolved on the spot.” The 13 Long Island-based groups are a part of the network of agencies funded by the New York State Attorney General’s Office to provide counseling and representation to homeowners struggling with their mortgages.

Unfortunately, there is little data available to assist the state’s appellate judges as they wrestle with the problem of shaping appropriate remedies when banks fail to act in good faith. The annual report issued by the court system provides little meaningful information other than the number of homeowners who are represented during the settlement process. According to the 2013 report, 54 percent of the families participating in settlement talks during that year had representation.

The Attorney General’s office has not yet compiled data on the number of homeowners who lost their homes during the settlement process, Ms. Grace said, because the conference process is dynamic and yields hundreds of possible outcomes.

 

©DanielJWise

 

 

[1] The number of foreclosures in 2009 jumped by nearly 80 percent for pre-meltdown levels to 47,664. In 2013, there were 33,773 foreclosure filings statewide.

[2] Memorandum written by First Deputy Administrative Judge Lawrence K. Marks, dated June 26, 2014. Trial Justice Martin Schulman will perform the “backup” function in Queens.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 Comments

Filed under Foreclosure