Upstate NY Judge Excoriates Wells Fargo For Acting In Bad Faith By Offering "Adjustable Rate" Loan Modification To Homeowner In Foreclosure
- It is against this universal condemnation of ARM loans and their contributory role in the current foreclosure crisis that this Court evaluates Well's Fargo's conduct in this case.
- Commencing on August 13, 2009, and through the end of October 2009, this Court conducted several conferences with counsel for the parties, pursuant to CPLR §3408. The conference process concluded with Wells Fargo offering Hughes a proposed loan modification agreement, dated October 27, 2009 (the "Modification Agreement"), which included, inter alia, the following terms:
- Interest Rate: An initial interest rate of 7.850% for the first five years of the modified loan, but, thereafter, rate changes would resume in accordance with the terms of the original Note. Not surprisingly, Hughes objected to the proposed Modification Agreement because it included an ARM. This Court informed Wells Fargo that it rejected the ARM and directed Wells Fargo to offer Hughes a modification agreement that included a fixed interest rate. Wells Fargo refused to do so.
- Amounts Past Due to be Capitalized: As of October 27, 2009, Wells Fargo determined that Hughes owed it $24,414.65 in arrears, which it agreed to recapitalize into the modified loan. Included in this amount were unspecified "corporate advances" of $3,708.02 and an unexplained charge of $5,562 identified as "OSFC."
- Amortization Term: The amortization term did not change and the loan, as proposed to be modified, would have matured on April 1, 2035 as set forth in the original Note. Wells Fargo's refusal to extend the term resulted in a monthly principal and interest payment in the Modification Agreement, commencing on November 1, 2009, of $703.67, as compared to the monthly payment of $520.81, which Hughes was required to pay commencing on May 1, 2005 in accordance with the original Note. The required monthly payment of $703.67, which does not reflect any upward adjustments created by the adjustable rate provision, was approximately 35% higher than the Note's original monthly payment of $520.81, which Hughes could not afford.
- It is well settled that a plaintiff seeking equitable relief, such as Wells Fargo in the instant foreclosure action, has the burden of satisfying the requisites of equity by coming to court with "clean hands." [Dunn v. Moss, 64 AD2d 838 (4th Dept. 1978); see also, M & T Mortgage Corp. V. Foy, supra, at 275]. The terms of the proposed Modification Agreement, particularly but not exclusively the inclusion of an adjustable rate component, are unacceptable to the this Court.
- The proposed Modification Agreement flies in the face of the above-described legislation passed in 2008 and in December of 2009, which was designed to assist borrowers in foreclosure cases to remain in their homes and to prevent a foreclosure crisis like the one currently gripping this State and the nation from re-occurring in the future.
- Moreover, Wells Fargo has acted in bad faith and contrary to CPLR §3408 by presenting Hughes with the Modification Agreement described above and, notwithstanding the Court's directive, obstinately refusing to revise its terms in accordance with the stated intention of the
Legislature.(2)
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In light of the foregoing, and the fact that Wells Fargo failed to prove that it had standing to foreclose
For the ruling, see Wells Fargo Bank, N.A. v Hughes, 2010 NY Slip Op 20081 (Sup. Ct. Erie County, January 13,
Thanks to "Deontos .is" for the heads-up on the court ruling.
(1) In another of his court rulings [Deutsche Bank Natl. Trust Co. v McRae, 2010 NY Slip Op 20020 (Sup. Ct. Allegany County, January 25, 2010)], Walker discussed the significance of standing and real party in interest in foreclosure litigation and analyzes the applicable law in New York in connection thereto, and in which he emphasizes the importance of judges exhibiting the necessary initiative to scrutinize the status of the plaintiffs bringing these foreclosure actions in cases involving homeowners unrepresented by legal counsel.
(2) There is usually an implied requirement of "good faith and fair dealing" in a contract-based relationship. For additional commentary on the principles of "good faith and fair dealing" in the context of a loan workout, see Lexology: How to avoid lender
(3) With respect to Wells' Fargo lack of standing in this case, Justice Walker stated:
- The complaint alleges that Wells Fargo is "the owner and holder of the subject mortgage and note, or has been delegated the authority to institute a mortgage foreclosure action by the owner and holder of the subject mortgage and note." Wells Fargo, however, has failed to attach a copy of an applicable assignment of mortgage and note, assuming one exists. Nor has Wells Fargo submitted an affidavit of merit from a representative of Wells Fargo, with knowledge, attesting to the delivery of the Note and Mortgage to Wells Fargo prior to the commencement of this action. Similarly, in the event Wells Fargo did not own the Note and Mortgage at the commencement of this action, Wells Fargo has failed to submit a power of attorney from the holder of said Mortgage and Note, authorizing it to proceed with the action. Accordingly, Wells Fargo has not established that it has standing to commence this action. [see Mortgage Electronic Registration Systems, Inc. V. Coakley, 41 AD3d 674 (2nd Dept. 2007); see also HSBC Bank USA, N.A. v. Cherry, 18 Misc 3d 1102(A) (Sup. Ct.., Kings County 2008)].
(4) Representing the homeowner was the Buffalo-based Western New York Law Center, a not for profit law and technology firm that represents low-income and underserved clients and groups in civil cases and that provides legal, training and technical assistance to legal service organizations.
posted by Home Equity Theft Reporter at 4:00 AM
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