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New York CPLR 3408 – Bad Faith Negotiations

Loan application, judge's gavel, and key
During foreclosure proceedings, loan modifications are governed by New York CPLR 3408, which initially applied only to those foreclosure actions involving high-cost home loans or subprime or nontraditional home loans. New York CPLR 3408(a) imposed the requirement that in residential foreclosure in which the defendant was a resident of the subject property, the court would hold a mandatory conference for settlement discussions to determine whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home.

In November 2009, Legislation amended the statute to broaden its applicability to any residential foreclosure action involving a home loan in which the defendant is a resident of the property subject to foreclosure (CPLR 3408[a]).

The 2009 amendments also added that both plaintiff and defendant “shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible.” Both NY CPLR 3408(f) and 22 NYCRR 202.12–a(c)(4) provide the courts with the authority to take some action where a party fails to satisfy its obligation to negotiate in good faith.

The courts have resorted to a variety of alternatives to enforce the statutory requirement to negotiate in good faith. For example, upon finding that foreclosing plaintiffs have failed to negotiate in good faith, courts have:

  • Barred the lender from collecting interest, legal fees, and expenses (Bank of Am. N.A. v. Lucido; BAC Home Loans Servicing v. Westervelt; Emigrant Mtge. Co. Inc. v. Corcione).

  • Vacated on reargument (Wells Fargo Bank, N.A. v. Hughes).

  • Imposed exemplary damages against the lender (Bank of Am. N.A. v. Lucido; Emigrant Mtge. Co. Inc. v. Corcione).

  • Stayed the foreclosure proceedings (Deutsche Bank Trust Co. of Am. v. Davis).

  • Imposed a monetary sanction against the lender pursuant to 22 NYCRR part 130 (Deutsche Bank Trust Co. of Am. v. Davis; BAC Home Loans Servicing v. Westervel).

  • Dismissed the action (Wells Fargo Bank, N.A. v. Hughes).

  • Vacated the judgment of foreclosure and sale and cancelled the note and mortgage (IndyMac Bank F.S.B. v. Yano–Horoski).

  • Limitations

    Despite the above, the Court of Appeals stated that in the context of foreclosure actions, “stability of contract obligations must not be undermined by judicial sympathy” (Emigrant Mtge. Co., Inc. v. Fisher; First Natl. Stores v. Yellowstone Shopping Ctr.; Graf v. Hope Bldg).

    The courts may not rewrite the contract and force loan modification approvals upon a finding that one of those parties failed to satisfy its obligation to negotiate in good faith pursuant to CPLR 3408 (Maser Consulting, P.A. v. Viola Park Realty).

    CPLR 3408 is silent as to sanctions or the remedy to be employed where a party violates its obligation to negotiate in good faith. Legislation declined to authorize or set forth any particular sanction or penalty to impose upon a party found to have failed to satisfy its good faith obligation in negotiations. Until Legislation does so, the courts will continue to enforce the mandate of CPLR 3408(f) as best they can, guided carefully among available and authorized remedies, tailoring their application to the circumstances of the case.

    Call our office today at 718-819-1674 so we may evaluate the merits of your lender’s bad faith and explore all legal remedies available to defend your home.


    Wells Fargo Bank, N.A. v. Meyers, 108 A.D.3d 9, 966 N.Y.S.2d 108 (2013)