Demanding too much in a loan modification agreement constitutes bad faith on the lender’s part warranting sanctions

A state court judge in Suffolk County New York ruled in favor of the mortgagors in a mortgage foreclosure action, arguing that the mortgagee did not act in good faith and deliberately tried to ruin the couple’s chance of keeping their home. In Emigrant Mortgage Co. Inc. v. Corcione, No. 2009-28917 (April 16, 2010) the borrowers defaulted on their $302,500 loan leading the mortgagee to commence foreclosure proceedings. The borrowers charged the mortgagee with being unresponsive and unwilling to work with them. Because it waited 14 months before starting a foreclosure case, the court believed the mortgagee was trying to stick the borrowers with hefty penalty fees, making it impossible for them to recover financially. Before filing the foreclosure case, however, the mortgagee reportedly offered the couple a loan modification plan. It was the terms of this plan that really incensed the court. The proposal included terms, such as a waiver, that the court felt would make it impossible for the borrowers to take measures to try and save their home if they defaulted on payments in the future. The court referred to the waiver as, ”highly questionable, unconscionable, unreasonable and overreaching.” Quoth the Judge Jeffrey Spinner: Upon reviewing the totality of the circumstances herein, this Court is driven to the inescapable conclusion that Plaintiff has, by way of calculation and pre-meditation (as evidenced by the terms of its carefully crafted Agreement), created a scenario whereby it is a virtual certainty that Defendants will ultimately be irreparably damaged and further, by way of the Agreement, has gone to extraordinary lengths in an attempt to insulate itself from liability while at the same time ensuring that it will not sustain any pecuniary loss and that all cost will be borne by Defendants. Believing it was authorized by the state mandatory settlement conference rules that require the parties to negotiate in good faith, the judge awarded the borrowers $1000 in damages, wiped out the late charges and refused to pay the legal fees for the plaintiff.

Download Related Document