Some homeowners in foreclosure who have not been successful with typical loss mitigation options (repayment plan or modification) still have an absolute right to reinstate their mortgages. Reinstatement is when the borrower is able to cure all mortgage arrears by paying the full sum of such arrears. Once the lender receives the reinstatement funds, it is required to reinstate the mortgage and discontinue the foreclosure action if one was commenced. The homeowner will continue making all future monthly mortgage payments. Many mortgages are contracts and have provisions limiting this right. Many mortgages prohibit reinstatement after a judgment of foreclosure and sale is granted by a court. Despite this prohibition, the homeowner has an absolute right to reinstate the mortgage. RPAPL Section 1341 permits a homeowner/mortgagor to reinstate a mortgage from the date of default to the time just before the mortgaged property is sold at auction. Whenever a homeowner is in foreclosure, he or she should always contact an experienced foreclosure attorney to fully protect the homeowner's rights.
In foreclosure actions commenced in New York, the CPLR Section 3408 requires the court to schedule a mandatory foreclosure settlement conference. Such conference is to the benefit of both the bank and the homeowner. During the conference(s) the bank is prohibited from moving forward with the foreclosure until the court determines if the parties are able to resolve the matter through some type of loss mitigation. If the homeowner or his/her attorney does not appear at the conference, the homeowner will be deemed in default and the case will be transferred to the active foreclosure part which permits the bank to move forward with the action. During the conference(s) the law requires that the parties negotiate in good faith in trying to resolve the foreclosure through some type of loss mitigation or settlement. Although the obligation to act in good faith applies to both parties, the banks are often accused of acting in bad faith by frustrated homeowners. How then is bad faith defined by the courts? Recently, the Appellate Division for the Second Department clarified the meaning of “negotiate in good faith”. The court held that the standard was not a showing of gross disregard or conscious or knowing indifference to another’s rights but rather under the totality of circumstances did the party's conduct fail to constitute a meaningful effort at reaching a resolution. See US Bank N.A. v. Sarmiento, 121 AD3d 187 (2nd Dept 2014). Obviously each case is different, but the bank may be acting in bad faith if it can be shown that it failed to take meaningful steps in trying to resolve the matter such as consistently delaying the mortgage assistance application process, misrepresenting the facts such as the amounts owed on the reinstatement letter or wrongfully denying a modification to the homeowner. Always speak to an experienced attorney early in the foreclosure process.
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.