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[NYSC] MODIFICATION GONE WILD! BAC Home Loans Servicing v Westervelt

[NYSC] MODIFICATION GONE WILD! BAC Home Loans Servicing v Westervelt

BAC Home Loans Servicing v Westervelt
2010 NY Slip Op 51992(U)
Decided on November 18, 2010
Supreme Court, Dutchess County
Pagones, J.

Attorneys for Plaintiff
20 West Main Street
Bay Shore, New York 11706


Not surprisingly, in the wake of this new legislation, decisions are beginning to emerge in which the courts are finding that the banks have engaged in discriminatory, unconscionable, and onerous lending practices and are now negotiating settlements of these oppressive loans in bad faith. In particular, one court, upon finding that the bank’s conduct “has been and is inequitable, unconscionable, vexatious and opprobrious,” vacated the judgment of foreclosure and canceled [*5]the entire mortgage obligation (see IndyMac Bank v Yano-Horoski, 26 Misc 3d 717 [Sup. Ct, Suffolk County 2009]) and in another case, upon finding that the bank’s conduct was “shockingly inequitable” and in bad faith, the same court forever barred the bank from collecting claimed interest accrued on the loan from the date of default and any claimed legal fees and expenses; fixed the mortgage obligation to be no more than the principal balance, and awarded exemplary damages in the amount of $100,000 (see Emigrant Mtge. Co., Inc. v Corcione, NYLJ, Apr. 21, 2010, at 25 col 3 [Sup. Ct, Suffolk County, Spinner, J.). In another case, the court fashioned an equitable remedy when the parties reach an impasse in settlement negotiations. The bank had agreed to a modification lowering the mortgage payment to $3,000 per month, but the homeowners sought to pay $2,000 per month. The court, concerned with “discriminatory lending practices” and the fact that “the mortgage was granted to a minority buyer for the purchase of property in a minority area” which would eventually call for an interest rate exceeding 9%, found a rebuttable presumption of discriminatory lending practice and froze the interest rate at a maximum of 9%. In addition, the court ordered the homeowners to make a deposit into the court of $10,000 to avoid foreclosure and ordered the parties to split the $1,000 difference in the mortgage payment gap (see Aames, supra).

Accordingly, the court, sua sponte, finds that the Bank has not acted in good faith in negotiating a settlement with this homeowner. Indeed, the homeowner’s representation that plaintiff inexplicably refused to re-examine her income – which the bank must do under HAMP directives – stands uncontradicted. Further, in the face of counsel’s inadequate excuse for defaulting in appearance and failing to follow up with the court attorney referee, counsel still categorically refuses to comply with the spirit of the statute and work towards a modification with this homeowner, even though the homeowner earns income to sustain a modified payment. This court is hard-pressed to comprehend why plaintiff would rather seize the property in foreclosure than work out a loan modification, as required by statute, with a homeowner who is gainfully employed.

The Bank elected to pursue an equitable remedy (see Bieber v Goldberg, 133 App Div 207, 210 [2d Dep’t 1909]; see also IndyMac, supra]), and “the very commencement of this action by Plaintiff invokes the Court’s equity jurisdiction” (IndyMac, supra, 26 Misc 3d at 723). In addition, the court seeks to ensure that the primary statutory goal of keeping homeowners in their homes (see CPLR R3408[a]) and the concomitant obligation of ensuring that the parties act in good faith (see 22 NYCRR 202.12-a(c)(4) are met. Toward that end, this court has the power to impose an equitable remedy commensurate with the Bank’s bad faith regarding this loan modification (see e.g. Aaems Funding Corp., supra; IndyMac, supra; M & T Mtge. Corp. v Foy, 20 Misc 3d 274 [Sup. Ct, Kings County 2008]).

Based on the foregoing, it is hereby

ORDERED that the law firm of Frankel Lambert, Weiss, Weisman & Gordon, LLP shall appear at a hearing to be scheduled to show cause why it should not be sanctioned in an amount to be determined by the court pursuant to 22 NYCRR §130-2.1; and it is further

ORDERED that plaintiff is barred from collecting any arrears incurred from October 8, 2010 (the date the homeowner received the HAMP denial) until the date the homeowner is given a final determination on her loan modification application, after review and determination of all possible modifications for which the homeowner may be eligible and the case is released from [*6]the settlement part;

ORDERED that plaintiff is barred from collecting any interest incurred from October 8, 2010 until the date of a final loan modification determination and the case is released from the settlement part; and it is further

ORDERED that any unpaid late fees are waived from October 8, 2010; and it is further

ORDERED that any loan modification fees are to be either waived or refunded to the homeowner; and it is further;

ORDERED that any attorneys’ fees claimed to have been incurred from the date of the default until the date of this order are not to be included in the calculation of the homeowners’ modified mortgage payment or otherwise imposed on the homeowners, but, rather, any request for attorneys fees is hereby severed and to be submitted to the court for separate, independent review as to their reasonableness; and it is further

ORDERED that the parties appear for a further conference in the Foreclosure Settlement Part of the Dutchess County Supreme Court, 10 Market Street, Poughkeepsie, New York on December 20, 2010 at 12 p.m.; and it is further

ORDERED that a bank representative fully familiar with the file and with full authority to settle the matter appear at the next conference, and it is further

ORDERED that Frankel Lambert, Weiss, Weisman & Gordon, LLP is directed to appear at the next conference by either a member of the firm or an associate of the firm. Local Counsel may not appear at this conference. Appearing counsel must be fully authorized to dispose of the case as required by statute (see CPLR 3408[c]).

Adjournments are only granted with leave of court.

Failure of plaintiff to comply with this order may result in further sanctions, including discharge of the underlying mortgage obligation, exemplary damages and loss of the privilege of appearing by local counsel in all foreclosure settlement conferences conducted in Dutchess County.

This constitutes the decision and order of the court.

BAC Home Loans Servicing v WESTERVELT

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