March 1, 2012

Foreclosure Settlement Conferences in New York State

A recent article in the New York Times discusses efforts on the part of the New York State Court system to resolve foreclosure cases through settlement conferences. As discussed in a prior blog post, these settlement conferences are mandatory for residential foreclosure cases in New York State.

Despite the best intentions of the legislature and the Court system, it has proven difficult for the system to work as well in practice as it is meant to in theory. Having represented both mortgage holders and creditors at these conferences, I will discuss the situations which are most likely to arise during these meetings.

After a residential foreclosure case is filed with the Court, the Court must schedule a mandatory settlement conference within sixty days. At this conference, both the plaintiff (usually an institutional lender) and the defendant (the person who owns the property being foreclosed) are required to attend. It is highly recommended that the defendants appear in person together with their attorneys and that the lender has an attorney attend who has decision-making authority.

The first possible problem, which New York State is attempting to solve, is that the institutional lenders are sending representatives to the settlement conferences who are not authorized to modify the loans in question at the Court conferences. In the past, the law offices hired by major lending institutions to represent their interests have sent "per diem" attorneys to the Court conferences. Although well meaning, these are attorneys who are paid by the day to attend these conferences, and are neither partners nor associates of the law firms hired by the lending institution. Obviously, they lack authority to negotiate on behalf of the banks in question.

One law firm in New York State, the Law Offices of Stephen J. Baum, was cited many times by the Courts for failing to send attorneys with authority to negotiate on behalf of their clients to foreclosure settlement conferences, and for not responding to Court inquiries regarding the actions for which they were attorneys of record. This firm has since been dissolved and is no longer representing major lending institutions.

As cited in the New York Times article, a pilot program has started in Queens County to ensure that the lending institutions send representatives to the settlement conferences who are fully empowered to settle the cases. If successful, this program will be expanded statewide. In this blogger's opinion, this would be a major step towards ensuring that the settlement conferences have a realistic chance to resolve these matters before the Court. As it now stands, the settlement conferences held usually consist of the parties agreeing to make attempts to settle the case after the conference. Often, there is no follow-up, and the result is a series of Court conferences in which the parties never reach the issues at hand; namely, modification of the loan in question and a clear disposition of the property at issue.

Another issue cited in the New York Times article is the frequent lack of legal representation for the borrowers (the homeowner being foreclosed). Our firm has successfully obtained loan modifications through Court conferences for its clients. However, without proper legal representation, it would be difficult for a person without legal training to properly assert their legal rights and obtain a fair settlement which may include modification of the loan in question. It is incumbent on the Court system to attempt to obtain legal representation for those parties unable to afford an attorney either through public funding or an attorney referral system.

While the mandatory settlement conferences are an excellent idea, these modifications may help bridge the gap between good intentions and good results for all parties involved.