New York Appeals Court Overturns Sanction Requiring Bank To Accept Terms of Trial Loan Modification

HAMP / HARP

On May 1, the Supreme Court of the State of New York, Appellate Division, overturned a lower court’s order requiring a lender to modify a borrower’s loan agreement under the terms employed in the trial period as the penalty for failing to negotiate with the borrower in good faith during the required settlement conference. Wells Fargo Bank, N.A. v. Meyers, No. 34632/09, 2013 WL 1811781 (N.Y. Sup. Ct. App. Div. May 1, 2013). On appeal, the appellate court held that the HAMP trial agreement is not a proper agreement regarding the real property and cannot be enforced as an agreement. Moreover, the appellate court held that a court may not rewrite a contract that the parties freely entered into upon a finding that one of those parties failed to satisfy its obligation to negotiate in good faith during the settlement conference. Further, the court held that because the lender was not given notice that the trial court was considering such a remedy, the sanction violated the lender’s due process rights. The appellate court overturned the trial court’s order and remanded the case for further proceedings.