Get Ready for NY’s New And Improved Settlement Conferences

September 20, 2016 at 9:52 am Leave a comment

Readers of this blog know that many credit unions dodged a bullet when the New York State legislature imposed requirements on larger financial institutions to maintain abandoned property.  It is important to understand, however that it still imposed new, and I would argue, onerous and untimely counterproductive requirements on all institutions dealing with delinquent residential property. These changes take effect on December 20, 2016. Merry Christmas.

For instance, right now you don’t have to send out a 90 day pre-foreclosure notice to a borrower more than once over a 12-month period. Starting in December you will have to send out this increasingly nettlesome tripwire anytime a borrower cures a delinquency only to go delinquent again.

Then there is New York’s pre-foreclosure settlement conference framework mandated by Section 3408 of the Civil Practice Law and Rules.  It currently requires lenders and borrowers to attend pre-foreclosure settlement conferences where they must make a judicially overseen “good faith effort” to reach settlements short of  a foreclosure.  The new and improved 3408 provides examples of potential resolutions including, but not limited to, a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option.  Does the legislature really believe that these options were not being considered?

Furthermore, while existing law already requires the parties to come to settlement conferences authorized to make deals, the amendment describes in much more detail, precisely what documents need to be brought to the table, including, but by no means limited to a summary of the status of the lenders or servicing agents evaluating eligibility for home loan modification programs or other loss mitigation options. This actually makes some sense, but we will have to see how it is used.

But wait there’s more. There has always been an obligation to negotiate in good faith but the courts have struggled to explain precisely what that means. The new and improved statute explains that this determination should be based on a totality of the circumstances review of the negotiations , taking into account compliance with the requirements of this rule; compliance with applicable servicing rules and regulations  and consideration of  loss mitigation standards or options as well as “conduct  consistent with efforts to reach a mutually agreeable resolution.”  Where a lender acts in bad faith a must  “at a minimum” freeze the accumulation and collection of interest, costs, and fees during any undue delay caused by the lender.

The good news is that the failure of either party to make or accept an offer is not sufficient to establish a failure to negotiate in good faith. But, by specifically listing out some of the options lenders  are expected to consider  and giving  judges greater power to  make bad faith Determinations,  the statue is clearly designed to bring about more settlements.

So why do I think that all this is ultimately going to do more harm than good? For one thing, encouraging parties not to turn to foreclosure sounds nice but in a lot of instances it is often the equivalent of negotiating a travel itinerary for the Titanic. Keeping people in homes that they can no longer afford to live in doesn’t help anyone in the long run.  Furthermore, New York already has one of the longest foreclosure processes in the country and the existing settlement conferences are in part to blame; imposing more legal requirements into this framework will not make them more orderly and efficient it will simply make them more litigious and time-consuming.

See you tomorrow.

 

Entry filed under: Compliance, New York State. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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