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New York’s Appellate Division upholds bad faith $300K sanction on Wells Fargo

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In a ruling that has fire a shot across the bow of foreclosing plaintiff’s across the State, New York’s Appellate Division in the Second Department issued a ruling this week in a case of first impression.

In an exclusive interview on Sunday August 3rd – 2014 I had the opportunity to interview and discuss this decision with Nicholas Harris an attorney at Brian McCaffrey attorney at Law P.C.

The decision resulted from the appeal by Wells Fargo of an order issued by Judge Leon Ruchelsman on December 19, 2011 where the Judge found that Wells Fargo had acted in ‘bad faith’ by delaying foreclosure settlement conferences for more than 18 months, issuing numerous denials for a loan modification based on ever changing reasons. In his decision then Judge Ruchelsman tolled the interest on the loan back to 2009, costing Wells Fargo more than $300,000.00.

“Prior to this decision there was no clear description regarding “bad faith’ as it pertained to CPLR 3408” said Harris. “Foreclosing plaintiff’s should take notice that this decision could open the flood gates on bad faith motions against them when homeowners are dragged through countless settlement conferences.”

In defining what ‘bad faith’ was the Court stated: “Were this Court to adopt the plaintiff's proposed standard for determining whether a party failed to act in good faith, we would undermine the remedial purpose of CPLR 3408.”, and “The purpose of the statute is "to address the problem of mortgage foreclosures" by "help[ing] struggling homeowners without harming all consumers by inadvertently driving up the cost of credit or limiting the availability of legitimate credit" (Letter of Sen Farley, Bill Jacket, L 2008, ch 472, at 5), and [*9]"providing additional protections and foreclosure prevention opportunities for homeowners at risk of losing their homes" (Senate Introducer's Mem in Support, Bill Jacket, L 2008, ch 472, at 7). To reiterate, "[t]he purpose of the good faith requirement [in CPLR 3408] is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution" (2009 Mem of Governor's Program Bill, Bill Jacket, L 2009, ch 507, at 11).”

Harris stated that his firm has made numerous bad faith motions and dealt with intransigent lenders on “far too many cases”, and it is about time we had some definitive case law to guide the Courts and referees in settlement conferences.

Under the current system, court appointed referees oversee settlement conferences where the homeowners submits documents and the plaintiff – bank, reviews those documents to determine if a modification can be granted.

“Unfortunately, different referees take their responsibilities differently… some of the referees are ready to dump the case immediately simply upon the word of the plaintiff, while others seem to take their responsibility seriously and hold the plaintiff bank’s feet to the fire.”, said Harris.

After this decision, one thing is for sure, even in the face of court appointed referees who do not want to do their job – foreclosing plaintiff’s would be well advised to improve the quality of the current crew of misfits evaluating loan modification applications lest they be put in a situation as in this case where Wells Fargo has been forced to set aside more than $300,000.00 in interest because of its bad faith.

The case is: US Bank N.A. v Sarmiento 2014 NY Slip Op 05533 Decided on July 30, 2014

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