By: Marc A. Rapaport
December 29, 2014
The Kings County Supreme Court (Hon. Genine Edwards, J.S.C.) issued a decision, dated December 19, 2014, that has undoubtedly offered some holiday cheer to a Brooklyn family that was trying to save their home from foreclosure. In the case, Aurora Loan Services, LLC v. Amadou Diakite, 17949/2009, Judge Edwards held that the foreclosing plaintiff, Aurora Loan Services, failed to comply with a New York law (CPLR § 3408) that requires financial institutions to negotiate in good faith with homeowners with the goal of reaching a settlement. Typically, the CPLR 3408 process requires that a bank seriously consider whether a homeowner may qualify for a loan modification. This provision of New York law was enacted by the legislature during the height of the foreclosure crisis as a way to ensure that the banks and their assignees do not get foreclosure judgments against homeowners who are ready, willing and able to enter into reasonable loan modifications. One of the underlying goals of the law was to protect urban neighborhoods in New York State against cascading waives of foreclosures that have decimated working class neighborhoods throughout the United States.
In the Aurora Loan Services case, Judge Edwards pointed to several omissions on the part of the plaintiff that evidenced its failure to approach settlement negotiations in good faith. Among other things, the plaintiff repeatedly claimed that it had not received documents, including a signed modification package, which the defendant homeowner had already provided. In addition, during a court hearing, the plaintiff’s witness “had no knowledge of the history of this loan or why a permanent modification was not offered to the defendant.”
Many foreclosure proceedings are brought by assignees rather than the original lenders. At the height of the financial feeding frenzy that nearly brought our nation's economy to its knees, millions of mortgage notes were "flipped" with scant attention to basic recordkeeping requirements. Assignments of mortgages were happening so rapidly, and with so little attention to detail, that original paperwork was irretrievably lost. The original holders of the loans (i.e., the lenders) had little reason for concern, as they had no intention of holding the loans. They intended to transfer the loans within a matter of mere days. As the loans were repeatedly transferred, frequently in bulk, the original documents evidencing millions of individual loans went missing.
As a result of the Aurora’s bad faith, the Judge Edwards stayed all interest, costs, and attorneys’ fees for more than 4 ½ years. This decision underscores the importance and potential value to homeowners of actively defending against foreclosure actions.
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