New York recently implemented changes to their civil processes, one of which is Rule 3408. This provision requires that in actions of residential foreclosure, a settlement conference be held within sixty days of when the summons and complaint are filed. At this conference, parties must demonstrate “good faith efforts” to negotiate possible resolutions. If either party fails to make a proper attempt at negotiating, the court may potentially impose penalties. The homeowner (defendant) will receive a notice that specifies the time, date and location for the conference. In addition to both parties and their attorneys, a representative from the court will be present and attempt to facilitate prospective resolutions.

Conference Preparation

Prior to the settlement conference, it is important to consult with an attorney who practices foreclosure defense. There are also free housing counselors that are a useful resource for consultation. Bring documentation and prepare a summary that details your financial situation, which is critical in accurately determining which options may be feasible. Gather recent pay stubs, recent mortgage statements, create a list of outgoing expenses etc. Even if you do not feel totally prepared, always attend the conference.

What Does Negotiating in “Good Faith” Mean?

Rule 3408 has several provisions that explain what is considered to be good faith negotiations, including:

• Complying with the laws, orders, or directions of the court for the settlement conference
• Complying with the laws associated with mortgage servicing, such as loss mitigation options and standards for loan modifications, short sales, etc.
• Showing effort to reach a resolution
• Not creating irrational delays
• Not advancing the foreclosure process while mitigation efforts are pending
• Providing real and accurate information.

Common Penalties

There are several common penalties imposed on parties who fail to employ good faith in negotiations. Some of these are monetary (financial) in nature including interest, fees, civil penalties up to $25,000, and attorney fees and expenses. Others include a court order compelling a party to produce information and dismissal of the case.

Potential Considerations for Negotiation

At the initial conference, you may be granted additional time to answer the complaint, if you had not done so already. Your attorney will likely be of assistance and the courts have both print and online materials for you to use for information as well. Some of the considerations that may arise in negotiations include:

• An arrangement for paying any past due balance
• Modifying the term (length) of the loan
• Conducting a short-sale of the property
• Entering a deed in lieu of foreclosure agreement and others.

If you and the plaintiff (lender) do reach a mutually acceptable settlement, it must be put in writing and signed by all parties. A follow-up conference may be needed, such as if you will be submitting an answer. There may also be a discovery phase of the proceeding needed where the parties exchange relevant information. Failure to submit an answer within the time frame specified by the court can lead to a default judgment being ordered against you.