In a decision that will have enormous ripple effects through local foreclosure cases, a powerful New York court hit Wells Fargo for failing to negotiate in good faith with Brooklyn borrower José Sarmiento.
The smackdown came as the court affirmed an earlier ruling on the issue, and upheld sanctions preventing Wells from collecting interest and fees on the loan since December 2009 and legal fees in this action — a total of roughly $300,000, according to estimates by Sarmiento’s attorney, David Fuster.
Sarmiento endured 18 rounds of settlement negotiations with Wells, which “delayed and prevented resolution of the action,” according to the decision.
What’s more, in the decision, New York’s Appellate Division, Second Department, laid out a long-awaited definition for “good faith” negotiations in foreclosure conferences. These conferences force banks and borrowers to meet, under court supervision, to work out a modification.
The Second Department includes Staten Island, Brooklyn, Queens and Nassau, Suffolk and other metro-area counties especially hard-hit by foreclosures. Foreclosure courts in these counties must follow its directives.
The new definition opens the door for other struggling borrowers mired in seemingly endless settlement conferences to try to demonstrate that their lenders did not act in good faith. Millions of dollars could be at stake.
“If you take even $50,000 in interest fees times 1,000 people making that claim, it’s huge,” Fuster told The Post.
The decision marks a big setback for Wells, which continues to face legal challenges to its foreclosure practices in New York. A lawsuit by state Attorney General Eric Schneiderman for allegedly failing to abide by the 2012 National Mortgage Settlement is pending.
A Wells Fargo spokesman said the bank did not meet its “own standards in this case” and would continue working with Sarmiento. Wells has not decided if it will appeal the decision.