NY judges punish banks that fail to negotiate “in good faith” with distressed homeowners

September 12, 2011 03:11PM

New York judges are beginning to take a stricter interpretation of the “good faith effort” banks are required to make under a 2009 state law passed to offer support to distressed homeowners, according to the New York Daily News.

The law states that banks must try to negotiate with distressed homeowners so that they can modify the loans and keep their property. But those homeowners are increasingly complaining that they can’t get modifications. Since November, 2009 judges have found at least seven cases where banks, including Wells Fargo, HSBC, Bank of America and Deutsche Bank, failed to act in good faith, and in one case the judge ordered the mortgage debt wiped out (although that was later reversed by an appeals court).

The banks sanctioned are slow to accept paperwork, ask for extra paperwork, refuse applications without merit or prolong negotiations for more than a year.

“We’re not looking to find banks not negotiating in good faith and we’re not looking to sanction banks,” Judge Herbert Kramer, who sanctioned HSBC and Deutsche Bank in two separate cases, told the Daily News. “We’re looking to get the underlying problem resolved.” [NYDN]