US Bank National Ass'n v. Sarmiento
991 N.Y.S.2d 68
N.Y. App. Div.2014Background
- US Bank (successor trustee) sued Jose Sarmiento in 2009 to foreclose a residential mortgage after defaults beginning October 2008.
- Sarmiento applied for a HAMP modification (first submitted Oct. 29, 2009) and provided updated financials; 18 CPLR 3408 settlement conferences occurred from Sept. 2009 to Jan. 2011.
- Servicer/agent (ASC/Wells) issued multiple denials and requests (some erroneous or inconsistent), repeatedly delayed NPV/HAMP processing, and at times lost or mischaracterized borrower documents.
- Court Attorney Referee found servicer/plaintiff mishandled the file, omitted NPV inputs despite borrower requests, and recommended a hearing on sanctions for lack of good faith.
- Supreme Court found plaintiff failed to negotiate in good faith under CPLR 3408(f), granted Sarmiento’s motion for sanctions (barred collection of interest/fees and costs from Dec. 1, 2009, and ordered reevaluation for HAMP without accrued interest/fees), and plaintiff appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Proper standard for "good faith" under CPLR 3408(f) | Good faith requires common-law "bad faith" (gross disregard/intentional misconduct). | Good faith should be judged by totality of circumstances and whether parties made a meaningful effort to resolve the case. | Court: Rejects common-law bad-faith standard; uses totality-of-circumstances—whether conduct prevented a meaningful settlement effort. |
| 2. Did plaintiff fail to negotiate in good faith? | Plaintiff contends its actions did not amount to egregious misconduct and thus satisfied good faith. | Sarmiento points to repeated delays, inconsistent denials, lost/misstated documents, and failure to produce NPV inputs. | Court: Plaintiff failed to negotiate in good faith based on cumulative delays, miscommunications, incorrect denials, and failure to provide NPV inputs. |
| 3. Authority to impose sanctions for CPLR 3408(f) violations | Court lacks express statutory/regulatory power to impose sanctions under CPLR 3408(f). | Courts have authority to fashion appropriate remedies where good-faith duty is violated; plaintiff had notice of requested sanctions. | Court: Trial court has authority to impose appropriate, tailored sanctions despite CPLR 3408 silence; affirmed sanctions here. |
| 4. Scope/appropriateness of sanction imposed | (Not meaningfully argued on appeal) | (Sarmiento sought specific relief: bar interest/fees from Dec. 1, 2009, bar plaintiff’s costs/attorneys’ fees, re-evaluate HAMP without accrued charges.) | Court: Did not address excessiveness of chosen sanction (plaintiff did not properly preserve challenge); affirmed order as to issues presented. |
Key Cases Cited
- Wells Fargo Bank, N.A. v. Meyers, 108 A.D.3d 9 (App. Div. 2013) (discusses CPLR 3408 good-faith violations and available remedies; courts must tailor sanctions and not rewrite contracts)
- Wells Fargo Bank, N.A. v. Van Dyke, 101 A.D.3d 638 (App. Div. 2012) (good-faith determination requires totality of circumstances)
- Bank of Am. v. Lucido, 114 A.D.3d 714 (App. Div. 2014) (trial court may impose sanctions for failure to negotiate in good faith under CPLR 3408)
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) (explains HAMP servicer obligations and incentives to modify loans)
- Edwards v. Aurora Loan Servs., LLC, 791 F. Supp. 2d 144 (D. D.C. 2011) (describes HAMP NPV test and waterfall modification steps)
- Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445 (N.Y. 1993) (defines bad-faith standard in insurance context)
- Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (N.Y. 1983) (discusses limits of enforcing contractual clauses where willful or gross negligence is alleged)