Settlement Conference Basis For Borrower’s Woefully Late Answer

This was predictable and inevitable.  A borrower was permitted to file an exceptionally late answer in a foreclosure based upon the perceived “intent” of the amended statute regarding the mandatory settlement conference.  This was found even though the new statute – effective December 20, 2016 – was not in effect when the decision was rendered on September 28, 2016.  [JPMorgan Chase Bank, N.A. v. Hernandez, 53 Misc. 3d 1100, 39 N.Y.S.3d 695 (Sup. Ct. 2016)]  But such is the fate of lenders holding defaulted mortgages in New York.

Some helpful background:

Overwhelmingly foreclosing lenders much prefer that the action proceed expeditiously to reduce accruing interest and other expenses, reaching a conclusion as quickly as possible.  There are of course rules which require various defendants (including borrowers) to respond to the action in a certain amount of time.  If they do not they are in default and the case can proceed.

When, circa 2010, the requirement of a settlement conference before a foreclosure could proceed to a referee’s appointment in a home loan case was instituted, borrowers would sometimes assume that because they were involved in the settlement process, they were not required to file an answer.  Case law, however, was to the contrary.  Just because there was a conference was not an excuse for a borrower to ignore interposing an answer if that was the path she wanted to follow.  Meanwhile, though, lenders were stymied in prosecuting the action because they were barred from taking any steps until the settlement conference process was concluded.  For any number of reasons, that process could take many months, or considerably more than that.

The New Statute

Displeased with the status of the law that borrowers could not use the settlement conference as an excuse for refraining from answering, the legislature promulgated new statutes (our alerts and articles have examined these at length) one aspect of which expands and clarifies the settlement conference portion.  As to the subject of the late answer in particular, the new CPLR § 3408(m) provides as follows:

“(m) A defendant who appears at the settlement conference but who failed to file a timely answer, pursuant to rule 320 of the civil practice law and rules, shall be presumed to have a reasonable excuse for the default and shall be permitted to serve and file an answer, without any substantive defenses deemed to have been waived within thirty days of initial appearance at the settlement conference.  The default shall be deemed vacated upon service and filing of an answer.”

In short, a borrower is free to default (unlike all other defendants in all other cases) but file a late answer within thirty days of first appearing at the settlement conference.

The New Case

Here, a residential foreclosure was commenced on June 8, 2015.  The borrower defaulted in answering, but did appear at settlement conferences on July 31, August 17, December 1, 2015, February 26 and March 15, 2016 (emphasizing the remarkable potential duration of such proceedings).  The case was released from the settlement part on March 15, 2016 but the defendant did not file her answer until March 30, 2016.  Plaintiff appropriately rejected the answer as late.

Upon the motion for leave to file a late answer – the subject case – the court relied on the “intent” of the new legislation, divined as being to permit foreclosure defendants to answer.  The court found that filing that answer within fifteen days of the case being released from the foreclosure part was sufficient.  Of course, that does not comply even with what the new statute says, which is the requirement that the answer be filed within thirty days of the first appearance at the settlement conference.  In this case, that would have meant that answer could be timely only if served on August 30, 2015.  No matter, the late answer was fine.

Conclusion

The defaulting borrower in this case was absolutely in violation of case law and statute at the time the decision was rendered.  She was even in violation of the new statute (albeit that that had not yet come into force).  In sum, there was no basis for the court to rule as it did, except that such is what it wanted to do.  Those who believe that such a sentiment is worthy will appreciate the result of the case.  Those who believe that clear statutes should be adhered to, will disagree.

This is yet another example of the difficulty that foreclosing lenders encounter in the empire state.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.