A “GOOD FAITH” NOTICE BEFORE MOVING FOR DEFAULT
WELLS FARGO BANK, N.A. v. BUTLER: A MISAPPREHENSION AND UNFOUNDED JUDICIAL TRANSFORMATION OF THE LIMITED SCOPE AND OBJECTIVES OF THE SIMPLE SETTLEMENT CONFERENCE PROCEDURES LEGISLATIVELY IMPOSED BY CPLR §3408
A recent Supreme Court decision in the second department, Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) (N.Y. Sup. Ct. 2013), appears to shut the door on a new breed of “defense-to-default” being offered by mortgagors who fail to interpose an answer or make a pre-answer motion. The decision appears to resolve prior New York Supreme Court decisions that were based upon misapprehension of CPLR 3408’s intended purpose.
In a foreclosure case, much like any other litigated matter, the defendant (borrower) is served with a Summons and Complaint. Once the borrower is served, the time period to appear/answer the complaint and assert any affirmative defenses begins to run (typically 30-days after proof of service is filed with the county clerk). If the borrower fails to appear/answer the complaint or make a pre-answer motion during the aforementioned period then without question the borrower is considered in default.
Within different legal disciplines (i.e. Personal Injury), a defendant in default of answering the complaint will receive a good faith notice indicating that his/her/its time to answer the complaint has expired and if an answer is not received within seven days of the date of “good faith letter” then the Plaintiff shall proceed towards obtaining a default judgment, and eventually setting the matter down for an inquest.
In foreclosure litigation, CPLR §3408 throws a metaphoric wrench in the “simplicity” of receiving a default judgment and proceeding toward final judgment. In New York, CPLR 3408 requires that a Mandatorysettlement conference be held for any residential foreclosure action involving a home loan, as such term is defined in section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure. While litigants are in the Foreclosure Settlement Conference Part (FSCP), the pending foreclosure action is stayed until the case is either discontinued following settlement or the case is released from the FSCP without settlement.
In a situation where the borrower has sufficient income to support a modification and a modification is offered and accepted, the issue of default is inconsequential. Conversely, in situations where the borrower cannot support a modification or does not negotiate in good faith (i.e. failing to provide a modification package), which prompts a Court Attorney Referee or Judge to release the case from the FSCP, borrowers are now more regularly attempting to hang their hats on participation in settlement discussions as reasonable excuse for failing to answer the complaint.
In Wells Fargo Bank v. Butler, 41 Misc. 3d 547N.Y.S.2d 41 (Sup. Ct. 2013), Justice Battaglia writes:
“…that there is authority that at least suggests that, under some circumstances, an “informal appearance”after the expiration of the time to answer or move specified in CPLR 320(a) will preclude entry of judgment by default.”
In the aforementioned Butler case, because of the extraordinary degree of participation, which is rarely repeated to the degree of the borrower, Butler, Judge Battaglia seems to have fashioned a decision which suggested that a default in answering was not a default in answering.
According to the court’s case management database, defendant Butler appeared 25 times in the FSCP, appeared twice before the IAS part after the action was released from the FSCP, and served opposition to plaintiff’s motion requesting default.
Based on the above factors, Judge Battaglia decided that “public policy in favor of disposition on the merits is at its strongest in residential foreclosure actions.” See Butler, 41 Misc. 3d 547N.Y.S.2d 41 supra.
Inarguably settling a matter on the merits is the preferred method of resolution in any litigated setting, however, the Butler decision is flawed in that it seems to suggest that mere appearance in the FSCP should allow for a default to be excused.
NOTHING should be further from the truth with respect to a party in default. As shown in CPLR 5015, such section affords a party relief for failing to answer the complaint or making a pre-answer motion if he can demonstrate 1) excusable default and a 2) meritorious defense.
The question of what constitutes a reasonable excuse is dealt with unequivocally with respect to settlement conference participation in Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) (N.Y. Sup. Ct. 2013).
In Navarro, the court found that “participation in statutorily mandated settlement conferences, which are scheduled by court personnel after the time in which an answer is due, may not, in itself, serve as a de facto extension of the time to answer and/or a reasonable excuse for a default.” See Bank of New York Mellon v Izmirligil, 2010 WL 8412713 (Sup Ct. Suffolk County 2010); See also Deutsche Bank Natl. Trust Co. v Young, 2012 WL 6019543 Sup Ct. Suffolk County 2012).
To hold otherwise would effect an unfounded judicial transformation of the limited scope and objectives of the simple settlement conference procedures legislatively imposed by CPLR 3408 into a revocation of longstanding rules and laws governing defaults which the legislature chose not to alter (see e.g., CPLR 320; cf., L.2008, c. 472, § 3, eff. Aug. 5, 2008; Amended L.2009, c. 507, § 9, eff. Feb. 13, 2010; L.2013, c. 306, § 2, eff. Aug. 30, 2013).
Further, Navarro states that:
“…the mere fact that parties to a foreclosure action engage in pre-action and/or post-action loan modification discussions is alone insufficient to constitute a reasonable excuse for a default in answering, especially where the default in answering remains unchallenged by the party in default for a lengthy period of time.” Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) supra.
In reviewing the relevant caselaw, statutes as well as common practice of other legal practice areas, I believe that a single step of Plaintiff’s in the foreclosure process can resolve this issue: Providing the aforementioned “good faith letter” via regular/certified mail to the borrower after the statutory period to answer/make a pre-answer motion elapses.
As previously mentioned, the current foreclosure legal landscape is seeing a paradigm shift where a number of borrowers are failing to interpose an answer to Plaintiff’s Summons and Complaint and are then relying on making a plea for an IAS Judge to permit them an opportunity to interpose a late answer because of their participation in the FSCP. This in turn drives up litigation costs and clogs the court’s calendar because:
1) The lender must oppose the instant motion to interpose a late answer
2) Then, once the Motion to Interpose a Late Answer is granted (because of the aforementioned and more often used equity argument),
3) An additional motion must be prepared for Summary Judgment against the litany of boilerplate defenses of (standing, failure to provide RPAPL 1304/1306 notices, and estoppel, laches, and fraud).
It is my position that should an IAS Judge review the opposition papers to the defendant’s first motion requesting the opportunity to interpose a late answer and find annexed to the instant papers a NOTICE that:
- Is clear and direct with respect to the consequences of not submitting an answer;
- Provides additional time beyond what is statutorily permitted for a defendant to answer and
- Is provided using the same exact measures required for pre-suit notices (by Certified and Regular Mail)
an IAS would be hard pressed to look passed the borrowers blatant disregard to protect its interest in offering a responsive pleading and would far less regularly afford the borrower the opportunity to vacate a default and interpose a late answer.
In sum I ask: Would it make a difference in the prevailing jurisprudential attitudes of Supreme Court IAS Judges if this additional step of providing a “Good Faith” Notice of Default was adopted by the Plaintiff’s Bar?
Written by Michael Derosa, Esq.