If you are a struggling homeowner and have sought relief via
a loan modification, there may be new pressure on lenders to negotiate a
modification. Last week, New York’s Appellate Division, Second Department,
ruled in US Bank N.A. v Sarmiento that Wells Fargo, a well-known lender, could
not collect interest or fees on a loan that had accrued while a borrower,
Sarmiento, pursued a loan modification. Sarmiento attended 18 settlement
conferences and remained persistent in obtaining a loan modification yet the
decision indicates that Wells “delayed and prevented any possible resolution of
the action.” Wells is cited for various delays and miscommunications which when
considered wholly, led to the determination by the court that Wells failed to
negotiate in good faith. This court decision yielded a long-awaited definition
of “good faith” with regards to negotiations in foreclosure conferences. The court concluded that Wells’ conduct
indicates a “disregard for the settlement negotiation process” which increased
the balance on Sarmiento’s loan.
This decision gives hope to borrowers frustrated with the
often drawn-out process of obtaining a loan modification. If a lender loses
documents, repeatedly requests the same information, fails to review the
application in a timely manner, denies an application without adequate grounds
or deliberately or recklessly delays the process in any way, a borrower now has
the option to demonstrate the lender’s failure to negotiate in good faith. This
could translate to thousands of dollars lost in interest and legal fees for
lenders.
Hopefully, this will put pressure on lenders to remain
timely and organized in their evaluation of a borrower’s loan modification
application for if they don’t comply with good faith guidelines, they could be
at risk to lose a great deal of money. But remember, “good faith” is a double
edged sword, as borrowers must also negotiate in good faith by putting forth a
purposeful and honest effort at a settlement conference to reach a resolution.
