New York Foreclosure Settlement Conferences

A Client Success Story

May 14, 2010

Author: Kevin Purcell| Rebecca Case-Grammatico

This article does not offer scientific data on the success rate of the conferences or to offer hard evidence about the way conferences should be structured.  Rather, this article offers the perspectives of two legal advocates who have seen firsthand the positive impact of the conferences on everyday homeowners who would have lost their homes if not for the settlement conference process.

In August of 2008, the New York State legislature passed the Foreclosure Prevention and Responsible Lending Act.1  This law created a mandatory foreclosure settlement conference for some people with subprime or non-traditional mortgages who were facing foreclosure.  For the first time, the state of New York specifically provided a formal process by which homeowners were guaranteed an opportunity to negotiate directly with their mortgage company to determine whether they could work out an arrangement to avoid a foreclosure. On December 15, 2009, Governor Paterson signed the Foreclosure Prevention, Tenant Protection and Property Maintenance Act of 2009,2 which extended the mandatory foreclosure settlement conferences to all people facing foreclosure.

Leveling the Field

Prior to the enactment of these two laws, homeowners and their advocates had few choices when faced with foreclosure.  Many homeowners tried to call their lenders directly when they began to experience financial hardship, but quickly discovered that trying to navigate the endless and often illogical maze of conflicting requests presented by the lenders was nearly a hopeless endeavor.  Some homeowners had the fortunate experience of working with a housing counselor.3  While this greatly  improved their chances of obtaining some kind of agreement with their lender, it was still very time consuming, and the banks continued to hold all the leverage in the negotiations.  A very limited number of homeowners had the opportunity to hire an attorney to help guide them either through the negotiations or pursue legal claims against the lender.  While having a legal advocate certainly increased homeowners odds of keeping their house, there was no guarantee.  On top of that, the legal fees of the homeowners’ attorney at times cancelled out any savings gained in the modified loan.

The creation of the settlement conference process has created a brand new opportunity for homeowners to have a third party offer assistance during the negotiations.  Previously, the lender had nearly all the choices and the homeowner was left at the mercy of the lender to determine whether there was a possibility of saving their home.  If the lender repeatedly lost properly submitted paperwork, the borrower had to hope that they could resubmit in time to save their home.  If the lender incorrectly applied information correctly submitted by the borrower, the lender did not have to offer any explanation or review of their own work.  If the lender offered conflicting explanations of denials of workouts, no one forced the lender to offer a clear or accurate answer.  The settlement conference offers the chance for a more level playing field.

The new laws have created an opportunity for the homeowner to get clear answers from their lender and have a real conversation about possibilities for saving their home.  Pro bono and legal services advocates throughout New York are making a real difference in client lives by their representation at these conferences.  Below is an example of one homeowner who found the value of the settlement conference process.

A Client’s Story

Everything in Shannon L’s life seemed to be going well in the spring of 2008.  She had recently been promoted at her job with the local transit authority, her daughter was doing well in school, and together they lived in a house Shannon pictured them being in for years to come.  

And then the bank that owned her mortgage sold it to another bank.

It’s something that happens literally every day, but that simple sale of the mortgage started Shannon down a path that at times was equally frustrating and scary.  Frustrating, because Shannon spent hours on the phone trying to get some straight answers.  And scary, because the fear of her house being foreclosed upon was a very real threat.  

Looking back on her ordeal, Shannon simply says, “I went from living the American dream to an absolute nightmare."

The mandatory foreclosure settlement conference process, and the work of the Empire Justice Center, gives this story a happy ending.  But the details of what happened to Shannon shed a light on just how quickly a homeowner’s worst nightmare can become reality.

Shannon went to make her electronic payment in May of 2008, as she did every month.  But when she checked her on-line account, she noticed that her payments were not being applied.  When she contacted the bank, she was told that they had sold her loan to another company.  Except there was a catch --  her bank could not tell her to whom they had sold it. 

Over the next four months, Shannon spent countless hours on the phone, attempting to find out where she should send her mortgage payment.  Yet every call ended with no answers and a growing sense of frustration.  “I wanted to make my mortgage payment, “ Shannon says.  “I was not trying to get out of my mortgage.  But I literally could not find out where to send my check!”

In August, she finally received some concrete information.  Unfortunately, it was in the form of a letter from a new bank, and that letter stated that they owned her loan and had begun foreclosure proceedings on Shannon’s house.

Desperate to save her house, Shannon attempted to negotiate with the new bank.  The bank set her up on a repayment plan, which increased her monthly payments from $1,000 to $1,300.  Three months later, however, the bank now claimed that she owed an additional $5,800.  After hours on the phone, Shannon was ready to give up.  She had tried to fight for her house, but it appeared to her that foreclosure was inevitable.

“That was my lowest point,” Shannon tearfully recalls, “because I was slowly realizing that I very well could lose my home that I had worked so hard to buy."

Before the bank could push through the foreclosure, however, they first had to have a settlement conference.  It was at this time that Shannon was referred to Empire Justice Center.  After pouring through her loan documents and loan payment history, our attorneys were able to piece together the grim story of what happened to Shannon’s loan.  Her previous bank and current bank had almost certainly violated federal disclosure laws when the loan was sold between the parties, and had made it almost impossible for Shannon to get any answers along the way.

Over the course of the next nine months, attorneys worked to get Shannon’s case resolved.  The bank continued to push for foreclosure, but the judge assigned to the settlement conference would not let that occur until she was satisfied that the bank had looked at all other alternatives, and had addressed the potential violations that had occurred.

After extensive negotiations with the bank, Shannon received great news.  A loan modification offer had been received from the bank.  And under the terms of the negotiated modification, Shannon’s variable interest rate (at the time approximately 10%) would be converted to a 5% fixed-rate loan.  In addition, Empire Justice attorneys had been able to negotiate a principal balance reduction of $40,000 on the loan.  This meant that not only was Shannon going to be able to keep her house, but her monthly payment would drop from $1,300 to $750!

Shannon is back to smiling today.  “I don’t think I would be in my house right now if it were not for the settlement conference process, and the help of legal services.  I never knew how quickly everything could go wrong, and I would never want anyone else to go through what my daughter and I faced.  But if they do, I just hope they have the kind of support I did from Empire Justice Center – I cannot thank them enough!”

For more information on handling cases of this type, please contact Kevin Purcell.

Footnotes

1  Chapter 472 of the Laws of New York, 2008.
2  Chapter 507 of the Laws of New York, 2009.
3  Foreclosure prevention services are available free of charge through the U.S. Department of Housing and Urban Development.  You can check on-line for the housing counseling agency near you or call HUD’s interactive voice system (800) 569-4287.