NY Courts Begin to Grapple with Dodd-Frank
One of the primary goals of Dodd-Frank was to prevent so called “dual track” foreclosures, during which delinquent homeowners facing foreclosures were told that their loans would be modified only to find out too late that their servicer had never stopped the foreclosure process. As a result, lenders must go through an elaborate protocol of sometimes nuanced “loss mitigation” procedures before they can foreclose on property. Since these requirements are in addition to state-level pre-foreclosure requirements, we have all the pieces in place for drawn out foreclosure litigation that bears very little relationship to the question of whether the homeowner is making her mortgage payments.
Recently, a New York Court addressed an issue of first impression. It ruled that a mortgagor’s failure to properly serve her notice of appeal following a servicer’s rejection of her loss mitigation plan amounted to a waiver of her appeal rights. Emigrant Sav. Bank-Long Island v. Berkowitz, No. 27142/2012, 2016 WL 686918 (N.Y. Sup. Ct. Feb. 19, 2016). http://law.justia.com/cases/new-york/other-courts/2016/2016-ny-slip-op-26047.html. The ruling underscores just how careful parties wishing to both foreclose and defend against foreclosures will have to be to adhere to the loss mitigation regulations.
First, a bit of a refresher. If a servicer with 5,000 or more mortgages receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days it must evaluate loss mitigation options that may be available to the borrower and provide the borrower with a written explanation of which loss mitigation options, if any, it will offer to the borrower. When a borrower’s loss mitigation is rejected, she has the right to “appeal“ this determination. I put appeal in quotes because we are not talking about anything fancy. An independent review is all that is required. For example, the official interpretation explains that supervisory personnel can review the loss mitigation determination so long as the loss mitigation application is evaluated by supervisory personnel that are responsible for oversight of the personnel that conducted the initial evaluation if the supervisory personnel were not directly involved in the initial evaluation of the borrower’s complete loss mitigation application. When an appeal is pending, a final foreclosure sale must be delayed. 12 CFR 1024.41. https://www.law.cornell.edu/cfr/text/12/1024.41
In Emigrant Sav. Bank-Long Island, the homeowner’s loss mitigation application was rejected on August 12, 2015. She was informed in writing of her right to appeal and further told that she must submit an appeal in writing or via email. Her attorney did that, or so she thought, and, in the meantime, she continued to discuss a possible resolution with the bank.
So when she found out that the foreclosure was not on hold and was in fact scheduled to go forward she sought to block it by arguing that her application for loss mitigation had not been responded to. Furthermore, she argued that the fact that the bank was still trying to work with her made it logical for her to assume that the foreclosure process had been placed on hold. In this case the judge ruled that the loss mitigation regulations would be strictly adhered to for both borrowers and lenders. “Although it appears that negotiations continued despite the failure of Ms. Berkowitz to properly notify Plaintiff of her appeal, there is no indication that Plaintiff made an unambiguous promise that it intended to refrain from enforcing its rights to proceed to foreclosure.”
The good news is that for credit unions that don’t meet the 5,000 mortgage threshold the only loss mitigation rules that apply are fairly straight forward. Most importantly, you can’t make the first notice or filing required to foreclose unless a consumer’s mortgage loan obligation is more than 120 days delinquent, and you can’t move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, if a consumer is performing pursuant to the terms of a loss mitigation agreement.
Still, for those of you wondering if regulators and Congressmen have created a system so heavy on procedural due process that we have lost sight of the fact that the home owner won’t or can’t pay for her mortgage, you are not alone.