Prior to 2008, a New York foreclosure would be completed in a year or less. While Loss Mitigation existed, it was not a formal process as it is today, it's something that Servicers did throughout the foreclosure process. This process, known as “Dual Tracking,” was intended to avoid delays in the foreclosure process should the Loss Mitigation efforts fail, but is now prohibited by the Dodd–Frank Wall Street Reform and Consumer Protection Act. Read about it by clicking into our previous article.
Today, New York’s CPLR 3408 requires mandatory settlement conferences to be held as a formal Loss Mitigation process for all residential foreclosure actions of owner-occupied homes.
CPLR section 3408(c) requires that a duly authorized representative of the Plaintiff, fully authorized to dispose of the case, appear at each mandatory Loss Mitigation Settlement Conference (appearance by telephone or video conference is permitted).
CPLR section 3408(e) requires Plaintiff to bring to the conference specific documents and information, including, but not limited to, payment history, itemizations of the amounts due to cure the default and to satisfy the loan in full, as well as copies of the Note and Mortgage.
CPLR 3408(f ) requires both parties to negotiate in good faith to reach a resolution, however, “good faith” does not mean that Plaintiff must consent to any of Borrower’s specific requests or to modify the terms of a mortgage, as the Court cannot force an agreement or rewrite the mortgage contract.
Servicers should make every effort to fully comply with these requirements and to properly review and consider Borrower’s Loss Mitigation requests, as failure to do so may result in:
dismissing the foreclosure proceeding;
indefinitely staying the proceeding;
exemplary damages; and
denying and/or canceling interest, legal fees and costs, and/or late charges.
Not only will failure to comply with the requirements of CPLR 3408 put the Servicer at risk with regard to the above mentioned sanctions, the foreclosures will be severely delayed by the multiple adjournments that will result. To avoid this, I offer the following recommendations:
- Obtain the payment history as well as the payoff and reinstatement letters well in advance of the conference.
- Promptly acknowledge Borrower’s request for a Loan Modification, and provide the forms required to be completed as well as the contact information of the Loss Mitigation Department.
- Promptly review Borrower’s Loss Mitigation “package” upon receipt, and immediately advise, in writing, what other information or documentation is required.
- Aggressively pursue requested information and documentation from Borrower, to complete the Loss Mitigation package received, before any of the documentation submitted becomes “stale”.
- Promptly notify Borrower if their application is denied and set forth the reason for the denial.
- If Loan Modifications are prohibited, request a “variance” from the investor (and follow up for a decision) prior to the conference.
- When applications for “Retention” options (Loan Modifications and Forbearance Agreements) are denied, Servicers should offer “Non-Retention” options (Deed-in-Lieu and Short Sale) to show “good faith.”
Our next article will discuss Loss Mitigation procedures that occur in the Bankruptcy Court.