37 Misc. 3d 312
N.Y. Sup. Ct.2012Background
- CPLR 3408 mandates mandatory settlement conferences to discuss resolutions to help homeowners avoid foreclosure and for good faith negotiation (CPLR 3408(a),(f)).
- HAMP is a government program for mortgage modification; lenders participating in TARP must follow HAMP guidelines; eligibility criteria include original loan date and occupancy limits.
- Plaintiff lender alleges default by Sevan Walker and Pamella Walker on a mortgage originally held by MERS, later assigned to Flagstar Bank; note and mortgage ownership contested.
- Conferences were held (Oct 25, 2011; Jan 3 and Feb 29, 2012) and the matter was referred for a hearing on “bad faith” during settlement negotiations.
- Judge differentiates FHA/HUD impact, arguing FHA insurance requires loss mitigation actions and may interact with HAMP; preemption arguments considered.
- Court stayed proceedings to reevaluate under HAMP principles and directed further conference processing; discussion of waterfall and other HAMP mechanics appears in ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the CPLR 3408 good faith standard? | Plaintiff argues good faith follows HAMP mechanisms. | Defendant challenges state-federal alignment and argues preemption limits apply. | Good faith anchored in HAMP guidelines; stay issued pending reevaluation under HAMP. |
| Does HAMP govern foreclosure good faith over FHA constraints? | HAMP compliance ensures good faith while addressing underwater loans. | FHA constraints should limit modification options. | HAMP framework used to reconcile state and federal requirements. |
| Is there preemption of state CPLR 3408 duties by federal FHA regulations? | State duties persist alongside federal protections; displacement unnecessary. | Federal FHA may preempt conflicting state requirements. | No direct conflict; HAMP-based approach avoids displacement and furthers public policy. |
| Should the court require original note production and assess ‘bad faith’ conduct? | Original note production is necessary to proceed; bad faith actions affect outcome. | Photocopy of note insufficient; credibility of witnesses important. | Conduct considerations align with good faith, including misrepresentations and delay. |
Key Cases Cited
- Southern Indus. v. Jeremias, 66 AD2d 178 (N.Y. App. Div. 1978) (discusses lack of good faith in equity actions)