The New CPLR §3408: a Cheat Sheet

Section 3408 of the New York Civil Practice Law and Rules (CPLR) governs how settlement conferences are run in foreclosure cases. Last year the state legislature made some important changes that benefit homeowners. These changes took effect last month and will remain in force until at least February 13, 2020.

Here is a cheat-sheet on how the law applies, and how it may affect you if you are in foreclosure.

·         Applies to residential foreclosure actions involving a home loan (defined in RPAPL 1304) where defendant resides in the subject property.

·         Plaintiff required to file proof of service within 20 days of service. Court required to hold conference within 60 days after proof of service is filed.

·         Purpose of conference: Settlement discussions for purposes including but not limited to:

o   Determining whether the parties can reach a mutually agreeable resolution to help defendants avoid losing their home.

o   Evaluating potential modification of monthly payments or amount owed.

o   Explore other workout options such as loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option.

o   Whatever other purposes the court deems appropriate.

·         At initial conference, any defendant appearing pro se shall be deemed to have made a motion to proceed as a poor person under CPLR 1101. Court may appoint counsel for pro se defendant under CPLR 1102(a). If it does, conference must be adjourned for appearance of counsel. [3408(b).]

·         Mechanics of the conference. [3408(c)]

o   Plaintiff and defendant shall appear in person or by counsel.

o   Each party’s representative shall be authorized to dispose of the case.

o   If defendant is pro se, court must advise defendant of the nature of the action and his rights and responsibilities as a defendant.

o   Court may permit plaintiff’s representative or the defendant to attend by phone or video-conference.

·         What happens when the RJI is filed. [3408(d) and (e)]

o   Court must send copy of RJI or send defendant’s name & contact info to a housing counseling agency on a list designated by DHCR.

§  Agency must use information to make homeowner aware of housing counseling and available foreclosure prevention services and options.

o   Court must promptly send notice of conference date/time purpose and what information the parties must bring.

o   Plaintiff is required to bring (this is not an exhaustive list):

§  Payment history

§  Itemization of the amounts needed to cure and pay off the loan

§  The mortgage and note or copies of the same

§  Standard application forms

§  A description of loss mitigation options, which may be available

§  Any other documents required by the judge.

o   If plaintiff is not the owner of the mortgage and note, plaintiff must provide the name, address and phone number of the legal owner of the mortgage and note.

o   If lender or servicing agent has evaluated or is evaluating eligibility for loan modification programs or other loss mitigation options, in addition to the documents listed above, plaintiff must also bring:

§  Summary of the status of the evaluation

§  List of outstanding items (if any) required from the borrower to complete any modification application

§  Expected date of completion of the evaluation

§  If modification was denied, plaintiff must also bring:

·         Denial letter or other document explaining the reason for denial.

·         Data input fields and values used in net present value evaluation.

·         If modification was denied on the basis of an investor restriction, plaintiff must also bring documentary evidence which provides the basis for the denial, such as a pooling and servicing agreement.

o   Defendant must bring documents to the conference, including but not limited to:

§  Information on current income tax returns

§  Expenses

§  Property taxes

§  Previously submitted applications for loss mitigation

§  Benefits information

§  Rental agreements or proof of rental income

§  Any other documentation relevant to the proceeding required by the judge.

·         Good faith. [3408(f)]

o   Both sides must negotiate in good faith to reach mutually agreeable resolution, which may be loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation, if possible.

o   Factors in deciding good faith:

§  Compliance with 3408, court rules, court orders, and directives pertaining to settlement conference process.

§  Compliance with mortgage servicing laws, rules, regulations, investor directives, and loss mitigation standards or options concerning loan modifications, short sales, and deeds in lieu of foreclosure.

§  Conduct consistent with efforts to reach a mutually agreeable resolution. This includes, but is not limited to:

·         Avoiding unreasonable delay.

·         Appearing at the settlement conference with authority to fully dispose of the case.

·         Avoiding prosecution of the foreclosure action while loss mitigation applications are pending.

·         Providing accurate information to the court and parties.

§  Mere failure to make or accept an offer is sufficient to establish failure to negotiate in good faith.

·         Discontinuance. [3408(g)]

o   Plaintiff must file a notice of discontinuance and vacate lis pendens within 90 days after settlement agreement or loan modification is fully executed.

·         No fees to borrower for conference. [3408(h)]

o   Bank cannot require homeowner to make payment for any cost, including but not limited to attorneys’ fees, for appearing at settlement conferences.

·         Bad-faith.

o   If court determines that a party failed to negotiate in good faith, court can issue order, on motion or sua sponte, finding bad faith. A referee may hear and report findings of fact and conclusions of law concerning any party’s failure to negotiate in good faith and remedies. [3408(i)]

o   Remedies for bank bad faith [3408(j)]:

§  Tolling of interest, costs, and fees during any undue delay caused by the plaintiff. This is the minimum the court must do. Court may also impose one or more of the following:

·         Compel production of any documents requested by the court during the settlement conference.

·         Impose a civil penalty payable to the state that is sufficient to deter repetition of the conduct, up to $25,000.

·         Award actual damages, fees, including attorney fees and expenses to the defendant.

·          Award any other relief that the court deems just and proper.

o   Remedies for defendant’s bad faith. [3408(k)]

§  Remove case from conference calendar.

§  Court must take into account equitable factors including, but not limited to, whether the defendant was represented by counsel.

·         Answering the complaint: 3408(l) and (m).

o   At the first settlement conference, if the defendant has not filed an answer yet, the court shall:

§  Advise defendant of the requirement to answer the complaint;

§  Explain what is required to answer a complaint in court;

§  Advise that if an answer is not served, the ability to contest the foreclosure action and assert defenses may be lost; and

§  Provide information about available resources for foreclosure prevention assistance.

§  The court shall also give the defendant a copy of the Consumer Bill of Rights provided for in RPAPL 1303.

§  A defendant who appears at the settlement conference but who failed to file a timely answer 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 30 days of the first conference.

§  The default shall be deemed vacated upon filing an answer.

·         Motion practice [3408(n)]

o   Any motions by either side shall be held in abeyance while the conference process is ongoing, except for motions concerning compliance with this rule and its implementing rules.