Court Cuts Homeowner's Debt, Says Bank's Lawyers Acted in 'Bad Faith'

Court Cuts Homeowner's Debt, Says Bank Acted in 'Bad Faith'
The New York Law Journal by Andrew Keshner  -  April 20, 2012

A state judge has nearly cut in half the amount of principal owed by a Long Island homeowner, ruling that a lender's conduct during almost three years of foreclosure proceedings was "wholly devoid of even so much as a scintilla of good faith."  Acting Supreme Court Justice Jeffrey Spinner in Suffolk County said Bank of America "deliberately acted in bad faith" while prosecuting the foreclosure over 34 months and ordered the bank to pay $200,000 in damages to the homeowner, John Lucido. The award will be put toward the $493,219 principal Lucido owes on his mortgage.  The April 16 ruling also blocked the bank from seeking to collect fees against Lucido, who is acting pro se, except for the principal balance owed.  Spinner chastised the bank for maintaining that the pooling and servicing agreement governing the terms of Lucido's mortgage prohibited any principal reductions. But when the document was produced, almost six months after the court's request, an attorney for the bank acknowledged there was no "absolute bar."

Through Bank of America's "repeated and persistent failure and refusal to comply with the lawful orders of the Court including those which directed production of documentation that was essential to address critical issues in the present matter, it has repeatedly caused to be put forth material misstatements of fact which appear to have been calculated to deceive the Court and has delayed these proceedings without good cause, thereby needlessly increasing the amount owed upon the mortgage debt, to say nothing of the needless waste of the Court's time and resources, as well as those of Defendant," Spinner wrote in Bank of America v. Lucido, 03769-2009.  Lucido, a one-time commercial mortgage broker, took out a $494,000 mortgage for his Rocky Point residence in March 2007 but later defaulted, with the principal amount remaining at $493,219.  The action was begun in 2009 and there were 18 settlement conferences scheduled in the case, complicated by delays like Lucido's illness at one point and the death of his wife.  In an early settlement conferences, Lucido raised the possibility of a principal reduction, pointing to Bank of America ads holding out that hope.

The bank, represented by Steven J. Baum P.C. at the time, first said it would weigh the principal reduction offer but later said it was not able to consider it under the terms of the pooling and servicing agreement, the judge said.  Spinner wrote that he had "serious and substantial questions" on whether the Baum firm, along with the bank, acted in good faith.  He requested the pooling and servicing agreement in July 2011, and received it in December, after the bank offered to produce "salient portions" of the document "despite the Court's clear and unambiguous order that the entire agreement be provided."  The document given to the judge excluded information on the mortgages included in the pooling and servicing agreement.  In January 2012, Davidson Fink replaced the Baum firm as Bank of America's attorney.  Edmond Foy, a per diem counsel for Pulvers, Pulvers & Thompson, which itself was of counsel to Davidson Fink, represented the bank at a Jan. 12 hearing on whether to impose sanctions for a lack of good faith.  At the hearing, Spinner asked Foy to cite a specific provision barring principal reductions altogether, according to a transcript.  "We have not found an absolute bar, a prohibition of forgiving or reducing. It is our position, and we submit to this Court, that there are circumstances that if occurring, which is also the signing off of the client, that a principal reduction could occur under certain circumstances," Foy replied.  In his decision, Spinner said that during the hearing when he asked about the bank's change in position, Foy tried to "deflect attention" from the bank, "instead intimating that the Court was, in effect, coercing a resolution."  The judge added, "It must be pointed out that in this matter as in all other foreclosure matters assigned to this Part, the Court has only attempted to fulfill its statutory responsibilities and has not, in any manner forced, coerced nor compelled any particular resolution."  Spinner observed that court rules under Uniform Rules for the Trial Courts 22 NYCRR §202.12-a required that he ensure both homeowners and lenders negotiate in good faith at the settlement conferences, pursuant to CPLR §3408(f).  "For this Court to do anything less would be a serious derogation of its statutory responsibilities and would do a great disservice to the public that it is obligated to serve," he wrote.  Neither Lucido, the homeowner, nor Foy, the attorney appearing during the January hearing, could be reached for comment.  Neither Bank of America nor Davidson Fink, the firm now representing the bank, responded to a request for comment.  In November 2009 in a separate case, Spinner vacated a judgment of foreclosure and canceled a mortgage, blasting the lender's "unconscionable, vexatious and opprobrious" conduct in IndyMac Bank v. Yano-Horoski, 2005-17926.  A year later, the Appellate Division, Second Department, reversed Spinner saying "the severe sanction…was not authorized by any statute or rule" (NYLJ, Nov. 23, 2009; Nov. 22, 2010).  Andrew Keshner can be contacted at akeshner@alm.com.