By Michael L. Moskowitz and Michele Jaspan

Lenders’ Best Practices in Foreclosure Cases Revisited: Mortgagees’ Lack of Good Faith May Lead to Assessment of Sanctions by Courts by Michael L. MoskowitzWe previously reported on cases where lenders are forced to forfeit accrued mortgage interest as a result of a court’s finding of “bad faith,” regarding borrower requests for mortgage modifications. The foreclosure courts are continuing to find new ways to sanction lenders as evidenced below.

In the matter of Wells Fargo v. Ronci, pending in the Supreme Court, Kings County, the lender was in an unusual position. The occupant of the premises was the original owner. At some point, she transferred her ownership interest to her father in order to obtain a mortgage to buy out her ex-husband’s interest. In so doing, the daughter became the occupant, and the property was no longer “owner-occupied.” As a result of her lack of ownership, the lender denied the daughter’s HAMP (Home Affordable Modification Program) and traditional loan modification request. The daughter/occupant was always the intended obligor on the mortgage, despite the paperwork to the contrary. In order to facilitate the loan modification, the daughter was added to the deed. Issues with the daughter’s credit created an obstacle to modifying the loan to add her as an obligor. This created a catch-22 situation. The mortgage could not be assumed unless modified, but could not be modified if not borrower occupied.

Upon the referee’s review of the defendants’ combined financial documents (the borrower and her father), it appeared to him they qualified for a modification, and he reported that there seemed to be no clear prohibition preventing the loan modification. After more than 12 conferences over more than one calendar year, the referee ultimately found that the lender failed to abide by its duty to act in good faith by not approving the modification. Lender claimed it did not have a duty to act in good faith, claiming the requirement pursuant to CPLR §3408(f) was only applicable to actions filed after the instant case was commenced. The court upheld the referee’s report recommending cancellation of the lender’s accrued interest and attorney’s fees and costs incurred from the first conference date through the entry date of said order. Of significance was the finding that the lender had delayed the matter and failed in its duty to negotiate in good faith.

The follow-up lesson is clear: New York mortgage lenders should routinely review all the evidence, negotiate with delinquent borrowers in good faith, and promptly review and respond to applications for loan modifications, no matter how unusual. Once again, New York courts have been expected to go to extremes to protect home ownership, often at the lender’s expense.

It is important to engage experienced New York foreclosure attorneys, like Weltman & Moskowitz, who can counsel lenders in best practices leading up to commencement of a foreclosure action and navigating through the courts during the foreclosure process. Call Weltman & Moskowitz today, or reach out directly to Richard E. Weltman or Michael L. Moskowitz, to discuss your New York or New Jersey foreclosure questions and challenges.

Richard Weltman & Michael Moskowitz |

About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a partner with the firm, focuses his practice on business and bankruptcy litigation, as well as creditors’ rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201)794-7500 or Michele Jaspan is a senior associate of the firm.