SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF …



SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF THE BRONX: PART 29------------------------------------XCITIBANK, N.A.,::Plaintiff,:Index No. 381649-09:-against-:Decision and Order:BERYL M. BARCLAY; CURTIS LEE: HOGGARD; BENEFICIAL HOMEOWNER: SERVICE CORP.; JACOBI MEDICAL CENTER:NEW YORK CITY ENVIRONMENTAL: CONTROL BOARD; NEW YORK CITY PARKING: VIOLATIONS BUREAU; NEW YORK CITY: TRANSIT ADJUDICATION BUREAU; NEW YORK: STATE DEPARTMENT OF TAXATION AND: FINANCE; PALISADES COLLECTION, LLC: A/O PROVIDIAN; THE BANK OF NEW YORK;:US EQUITIES CORP.; DEPARTMENT OF: JUSTICE; US ATTORNEY’S OFFICE;: “JOHN DOES” and “JANE DOES" said:names being fictitious, it being the: intention of Plaintiff to designate :any and all occupants, tenants,: =persons or corporations, if any,: having an interest in or lien upon: the premises being foreclosed herein, ,:Defendants.:------------------------------------XTorres, Robert E., J.:This matter is before the court upon the defendant’s motion to dismiss the current foreclosure action against her because of the plaintiff’s failure to negotiate in “good faith” as required by CPLR 3408 (f).Alternatively, the defendant seeks to stop the plaintiff from collecting any interest, arrears, costs and fees beyond the principal amount due on the mortgage. In the alternative, Beryl Barclay (Barclay or the defendant) seeks a court-ordered modification agreement.11Barclay requested that the court order the use of a particular settlement offer extended to the plaintiff for consideration.On June 14, 1994, the defendant, along with her co-defendant and former husband, Curtis Lee Hoggard (Hoggard), executed and delivered a note and mortgage in the amount of $118,050 to The Money Store/Empire State Inc.The mortgage was for premises located at 810 East 215th Street, Bronx, New York.The note and mortgage were subsequently assigned to the plaintiff Citibank, N.A. (Citibank) as Trustee.The loan servicer is Wells Fargo.The defendants defaulted on the mortgage contract when they did not tender a mortgage payment due on March 1, 2009.As a result of the default, this foreclosure action was commenced on July 31, 2009. The first mandatory settlement conference was scheduled almost a year later, on June 23, 2010. On that day, Barclay appeared pro se. Barclay sought a loan modification from plaintiff either through the federal Home Affordable Modification Program (HAMP) or the bank’sin-house modification program. On July 7, 2011, Special Referee Josephine Bastone referred this matter for a good faith hearing, pursuant to CPLR 3408 (f). On that day, the bank’s representative stated a review had not been completed because documents were missing.However, she could not produce a list of the missing documents.On August 22, 2011, the defendant moved to dismiss the complaint because the plaintiff and its loan servicer had failed to negotiate in “good faith” at the settlement conferences as required under CPLR 3408 (f).The crux of the defendant’s complaint was that the plaintiff had engaged in unfair and deceptive conduct while processing her loan modification application.Barclay maintains that the bank did not negotiate in good faith when (1) it failed to comply with the HAMP federal program guidelines; (2) it disregarded stipulations entered into under the auspices of the court as well as court orders; (3) it made various misleading statements to Barclay about her application which led her to believe that she was on track to receive a loan modification; (4) it unreasonably delayed the processing of her application byrepeated requests for documents previously submitted, requiring her to submit at least six original HAMP applications2, provide additional and redundant financial information and attend more than nine settlement conferences3; (5) it failed to provide her with a timely decision, or to disclose, with specificity, the reason why her application was not considered in the two years that she had been in the settlement conference part; and (6) the bank’s representative who participated in the settlement conferences did not have the authority to accept a mutually acceptable negotiated solution.Barclay requested that the action be dismissed with prejudice, and that the plaintiff be prohibited from charging the defendant arrears, fees, and costs beyond the principal balance at default.In opposition, the plaintiff argued that the defendant did not submit a complete financial package until May 2011.In its affirmation in opposition to the defendant’s motion to dismiss, the plaintiff put in, for the first time, three additional reasons for denying Barclay’s application.Those reasons include: (1) investor restrictions that prohibit any form of modification; (2) negative Net Present Value (NPV) results;4 and (3) an extensive list of purported liens against the property.2011.2Applications were submitted on June 22, 2010, September 15, 2010, January 14, 2011. February 16, 2011. March 14, 2011 and May 29,3On November 17, 2010, Wells Fargo, for example, requested that Barclay submit an updated set of financial documents.SpecialReferee Josephine Bastone refused to allow any document updates, and directed Barclay to sign a statement verifying that all previously submitted financials were current, accurate and had not changed as of the initial submission date (see affirmation of Rugino, exhibit B).4Plaintiff’s counsel attached NPV figures to his affirmation in opposition.This was, in fact, the first time that the defendant had seen theOn March 12, 2012, this court issued a decision which found that the plaintiff had failed to act in good faith.5The court concluded that the bank had failed to make a meaningful effort in moving towards a mutually agreeable resolution.In fact, the plaintiff made it impossible for Barclay to comply with its conflicting, ever changing, never written requests for documentation.Moreover, the plaintiff refused to review applications that were complete, and it never took a clear position on the defendant’s loan modification application.Next, the court ordered a hearing to determine the extent of the plaintiff’s lack of good faith and appropriate sanctions.After thorough review of the record and careful consideration of the evidence presented at the hearing, the court now makes the following findings of fact and conclusions of law.FINDINGS OF FACTTwo witnesses testified at the hearing.The first witness, Karen Gargamelli, Esq. (Gargamelli), testified for the defendant.Gargamelli is an attorney who works at Common Law, a public interest law firm.Plaintiff’s witness, Fran Bickerstaff-Rhodes (Bickerstaff-Rhodes), is a loan adjuster employed by Wells Fargo (also known as the American Servicing Company), at their Charlotte, North Carolina mon Law began its representation of the defendant sometime in February 2011 (Transcript [Tr.], dated June 8, 2012, at 4, lines 4-5).Gargamelli testified that her firm began representing Barclay because she faced such difficulty obtaining a modification.Gargamelli testified that there have been nine settlement conference held in this case.Barclay appeared pro se at four settlement conferences, and has appeared with counsel in five conferences (Tr. at 4, lines 12-15).Gargamelli further testified that she has submitted a total of three HAMP applications to the plaintiff bank (id., lines 21-22). The first application was in February 2011 (see defendant’s exhibit A). Gargamelli stated that the next day she received a response from the plaintiff (id. at 6, lines 13-16) in which it requested a second application that would contain documentary proof for both the HAMP and in-house bank review (id. at 9, lines 7-11).On February 16, 2011, plaintiff’s law firm received another HAMP application from Barclay’s attorney which sought to include the monies received from Barclay’s sister.The application included an RMA, a 4506-T and verification of income. The cover letter states that Barclay had not reported her sister’s income because she did not know that non-borrower financial information was to be submitted.Defense counsel, as well, included a “waterfall” showing that Barclay qualified for a HAMP modification. Additional financial documents, as well, were submitted to the bank, via email, on March 11, 2011 (id., lines 24-25).At the March 16, 2011 settlement conference, Barclay was informed that her application was under review (id. at 9, lines 6-10).Defense counsel testified that she inquired several times as to status of the review, and that the plaintiff’sNPV results. She insists that the figures, including her gross monthly income,contained in the analysis are incorrect.5As of that day, the plaintiff still had not responded to the defendant’s loan application which had been submitted on May 29, 2011.counsel, on March 22, 2012, sent her “a rather confusing [e]-mail response ... Essentially [sic] plaintiff said that it had either not received my application or that it had received it and the documents were outdated” (id. at 9, line 21-10, line 2; see also defendant’s exhibit E, E-mail).Gargamelli further testified that she challenged the bank’s e-mail, insisting that all requested documents were dated well within the 90 days preceding the application, and that the requested documents had been submitted to the bank (Tr., at 10, lines 20-25).More than 30 days later, on March 29, 2011, Wells Fargo advised plaintiff’s counsel that additional documentation was required from Barclay in order to complete its review of her loan modification application, including: (1) Barclay’s most recent personal bank statements; (2) a hardship letter; (3) a financial worksheet showing the breakdown of Barclay’s monthly expenses; (4) documentary proof of Barclay’s receipt of funds contributed to her by her sister; (5) updated proof of her income;(6) most current pay stubs; (7) a recent quarterly profit and loss statement; (8) a dated contribution letter signed by her sister;(9) proof that the award income and child support income will continue for three years; (10) rental agreements; (11) utility bills; and (12) two years of her most recent tax returns.Barclay’s attorney informed the plaintiff’s attorney that she considered Wells Fargo’s request to be unreasonable as these materials were previously provided.At the April 5, 2011 settlement conference, the bank gave her “a completely different reason for the HAMP’s application and in-house application not being reviewed . . . I was told that the applications were not reviewed because Miss Barclay’s sister was ... improperly categorized as a household member” rather than as a contributor, “even though her sister has lived with Miss Barclay for 15 years and shared all their expenses and shared all their income” (id. at 11, lines 3-12).The Special Referee asked the plaintiff’s counsel to create a full list of documents needed. This time, the parties “stipulated to what would be contained in the application, and it would contain all the documents enumerated in the stipulation” (id., lines 13-18). All necessary documents wereto be submitted by May 31, 2012, and the bank was to provide a response within 30 days of receipt.Gargamellitestified that she submitted another HAMP application on May 29, 2011.However, Gargamelli testified that even though she submitted the application two days before the deadline date, the bank once again failed to comply with timely notice as the bank did not respond by June 29, 2011(id. at 12, lines 1-10). Gargamelli, as well, testified that the plaintiff’s attorney never completed a review of any application package submitted by the defendant.Nor did she receive a borrower’s notice or any “response in writing that complies with HAMP” (id., lines 7-9).During cross examination Gargamelli stated that Hoggard was divested of his interest in the subject property in September 2011 (id., at 15, lines 1-2).Bickerstaff-Rhodes testified that as a loan adjuster, shereviews loans for modifications, and is able to modify mortgages (id., at 21, lines 19-23).She further testified that she was personally involved with the defendant’s loan modification request for the past three years (id., at 22, lines 1).On cross examination, however, Bickerstaff-Rhodes admitted that she was assigned to this loan file shortly before the hearing.She was asked by the bank to “come in and ... do a more in-depth detailed investigation of files” (id., at 31, lines 12-15). She also testifiedthat Hoggard’s personal and financial information were missing from the first application.Hoggard had also not signed the application (id., lines 24-25). Thereafter, the bank did receive a copy of the divorce decree, and quit claim deed from the defendant(id., at 23, lines 1-3).Bickerstaff-Rhodes further testified that a letter, dated July 7, 2011, was sent to Barclay, which stated that her income did not support a modification.At the July 7, 2011 settlement conference date, the bank’s attorney stated that a review of the application had not been completed because documents were missing.Nonetheless, the bank’s attorney “could not state at that time what documents were missing” (id., lines 13-16).The court directed the plaintiff to email a list of missingdocuments to the defense attorney by the next day.Four days later, on July 12, 2011, Eventually, Gargamelli received an email from plaintiff’s counsel stating that no documents were actually missing (id., at 13, lines 1-3).On August 30, 2011, the case was conferenced before this court.Plaintiff advised the court that an in-house modification letter was sent out on July 7, 2011.After reading the letter, the court concluded that the letter failed to sufficiently explain the basis for the bank’s denial of the loan modification.The court further directed Barclay to provide defense counsel with a list of alleged liens or judgments against her by September 12, 2011; she was to respond to any judgments by September 16, 2011; and she was to provide a quit claim deed and a new IRS 4506T form.Barclay executed a new IRS 4506T form in court, and the other requested documents were timely submitted.On March 12, 2012, the court made its finding that the plaintiff failed to make a “good faith” effort to reach a reasonable negotiated agreement modifying the loan.CONCLUSIONS OF LAWIn March 2009, the United States Department of the Treasury announced the details of HAMP, a component of the “Making Home Affordable Program.”Under the provisions of HAMP, mortgage loan servicers contract with Fannie Mae, the designated financial agent of the United States, to modify certain mortgage loans in their portfolios in exchange for financial incentives.A Service Participation Agreement signed with the Department of Treasury obligated Citibank and Wells Fargo to follow all HAMP guidelines, procedures, and directives.Among these is the requirement that mortgage servicers “use a uniform loan modification process to provide a borrower with sustainable monthly payments” (HAMP Supplemental Directive 09–01, 4/6/2009, at 1 [HAMP SD]).A homeowner is required to present a host of financial information to the loan servicer or bank.Likewise, a bank’s representative must be prepared to timely act on that information to avoid delays due to the staleness of financial information.The rules for the HAMP program require that loan servicers inform a homeowner of a decision within 30 days of receipt of a completed application.The loan servicer’s notice of decision must include an accurate statement of the reason for a denial.Lastly, the parties are urged to approach settlement conferences willing and able to fully participate and negotiate a meaningful resolution whenever possible.Courts throughout the country have relied on a court’s equity powers and statutory “good faith” requirements in sanctioning the foreclosing party’s bad faith conduct in settlement conferences.In New York, the 2009 amendments to CPLR 3408 added subdivision (f), which provides, “[b]oth the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable conclusion, including a loan modification, if possible.”The procedures and rules for CPLR 3408 settlement conferences put into effect by the Chief Administrator of the Courts are set out in 22 NYCRR 202.12-a.These rules provide,“The parties shall engage in settlement discussions in good faith to reach a mutually agreeable resolution, including a loan modification if possible. The court shall ensure that each party fulfills its obligations to negotiate in good faith and shall see that conferences not be unduly delayed or subject to willful dilatory tactics so that the rights of both parties may be adjudicated in a timely manner.”22 NYCRR 202.12-a[c][4].Importantly, CPLR 3408 (f) does not set forth a specific remedy or remedies for a party’s failure to negotiate in good faith.However, once the court makes the factual determination that a party has failed to act in good faith in violation of CPLR 3408, it must impose an appropriate sanction narrowly tailored to the circumstances of the case.The nature of the sanction is a matter of judicial discretion.New York courts have employed sanctions for a party’s failure to negotiate in ”good faith,” which vary greatly in type and severity depending on the facts of the case.For instance, New York courts have barred banks and loan servicers from collecting interest, legal fees, and expenses (see e.g. BAC Home Loans Servicing v Westervelt, 29 Misc 3d 1224 [A], 2010 NY Slip Op 51992 [U] [Sup Ct, Dutchess County 2010]; Wells Fargo Bank, N.A. v Hughes, 27 Misc 3d 628 [Sup Ct, Erie County 2010]).Other penalties have included exemplary damages (Bank of America, N.A. v Lucido, 35 Misc 3d 1211 [A],2012 NY Slip Op 50655 [U] [Sup Ct, Suffolk County 2012]), and staying the foreclosure proceeding (see Deutsche Bank Trust of Am. v Davis, 32 Misc 3d 1210 [A], 2011 NY Slip Op 51238 [U] [Sup Ct, Kings County 2011]).In this case, Barclay has appeared at every settlement conference, and has provided every document that the plaintiff has requested in a timely manner.Plaintiff'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 plaintiff's benefit and Barclay’s detriment. The court, however, recognizes that the dismissal of the foreclosure action is an inappropriate option (seeIndyMac, F.S.B. v Yano-Horoski, 78 AD3d 895, 896 [2d Dept 2010] [“severe sanction imposed by the Supreme Court of cancelling the mortgage and note was not authorized by statute or rule”]).Nor can the court order a specific judicially imposed loan modification agreement. That a lender has no obligation to forebear its remedies before or after a default by a borrower or to modify the terms of its loan by the extension of a new loan or other refinance arrangement is clear (see Graf v Hope Bldg. Corp., 254 NY 1, 4-5 [1930]; Wells Fargo Bank, N.A. v Van Dyke, 101 AD3d 638, 638 [1st Dept 2012]; JP Morgan Chase Bank, Natl. Assn. v Ilardo, 36 Misc 3d 359, 374 [Sup Ct, Suffolk County 2012]).Instead, the remedy chosen by the court is a bar on the collection of any arrears, including interest, costs and fees, from July 7, 2011 (the date the homeowner received the unsupported HAMP denial).Plaintiff is directed to provide an answer on a permanent loan modification, HAMP or in-house, at the next settlement conference. In the event that Barclay is denied a permanent modification, the plaintiff is to give a full and detailed explanation as to the reason for the denial.Additionally, the loan servicer is ordered to provide documentation of alleged investor restrictions to a HAMP modification, and all reasonable efforts to get a waiver of the restrictions, to the defendant with all reasonable speed (see e.g. Wachovia v Moringiello, Supreme Court of State of New York, County of Richmond, Index No.130075/2009, Order of April 9, 2010).If the bank denies the application, it must be prepared to discuss the reasons why its actions did not contribute to the denial.And, if no answer is given on the next conference date, other sanctions, including exemplary damages will be considered.The court’s bar on collection will continue until the loan servicer gives the homeowner a decision on a final loan modification and, if the modification is denied, until the settlement process had considered all possible modifications for which the homeowner might be eligible.As the court made clear in U.S. Bank Natl. Assn. v Padilla (31 Misc 3d 1208 [A], 2011 NY Slip Op 50535 [U], ***7 [Sup Ct, Dutchess County 2011]): “This court has the affirmative obligation to ensure that the primary statutory goal of keeping homeowners in their home and the concomitant obligation of ensuring that the parties act in good faith are met.”CONCLUSIONBased on the foregoing, it is herebyORDERED that the plaintiff is directed to re-open the homeowner's file and consider her for a modification taking into consideration the bank's delay in reaching a decision; and it is furtherORDERED that the plaintiff is barred from collecting any arrears incurred from July 7, 2011 (the date the homeowner received the unsupported HAMP denial) until the date the homeowner is given a final supported 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 the settlement part;ORDERED that plaintiff is barred from collecting any interest incurred from July 7, 2011 until the date of a final supported loan modification determination and the case is released from the settlement part; and it is furtherORDERED that any unpaid late fees are waived from July 7, 2011 until the date of a final supported loan modification determination; and it is furtherORDERED that any loan modification fees are to be either waived or refunded to the homeowner; and it is furtherORDERED 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 homeowner, 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 furtherORDERED that the parties appear for a further conference in Part 29 of the BronxCounty Supreme Court, 851 Grand Concourse, Room 709, on August 6, 2013 at 10:00 a.m.; and it is furtherORDERED that a bank representative fully familiar with the file and with full authority to settle the matter appear at the next conference, and the loan servicer’s counsel must be fully authorized to dispose of the case as required by statute (see CPLR 3408[c]); and it is furtherdamages.ORDERED that failure of the plaintiff to comply with this order may result in further sanctions, including exemplaryDated: June 21, 2013ENTER:ROBERT E. TORRES J.S.C. ................
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