SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF BRONX
-----------------------------------------------------------------------X
HSBC BANK USA, NA, as Trustee for WELLS
FARGO ASSET SECURITIES CORPORATION,
MORTGAGE PASS THROUGH CERTIFICATES,
SERIES 2007-AR3,
Index No.:381244/2012

Plaintiff, Affirmation in Support

-against-

TIFFANY LUCAS and JOHN LUCAS, ET AL.

,
Defendants.
----------------------------------------------------------------------X

GEORGE RUSSO, ESQ. an attorney duly licensed to practice law before the courts of

New York State, affirms the following to be true under penalties provided by law:

1. I am the principal of GEORGE RUSSO, ESQ. counsel to defendant, TIFFANY

LUCAS and JOHN LUCAS (hereinafter “Defendants”).

2. I submit this Affirmation in Support of defendant’s Motion to under CPLR § 3408

and 22 NCYRR 202.12 et seq., to compel the Plaintiff to make all efforts necessary to effect a

modification of the mortgage loan, to cancel all the interest charges and late fees which have

accrued on the loan since April 1, 2012, and to remand the matter to the foreclosure settlement

conference part with directive that the lender and its servicer negotiate in good faith. Additionally,

in the interests of justice, the Plaintiff should be barred from collecting any legal fees, for their

wasteful dilatory tactics within these proceedings, and be charged with exemplary damages,

pursuant to relevant caselaw.

 3. A foreclosure action is equitable in nature, and demands that the Plaintiff comes to

the Court with clean hands. Numerous statutory frameworks further mandate that the Plaintiff’s

good faith participation to keep the distressed homeowner in his or her home. The pervasive bad

faith on the part of the Plaintiff as evidenced by, inter alia, its misrepresentations to the Court,

discussed infra; and its utter failure to attempt to effect a loan modification within the parameters

allowed under its contractual obligations, or to obtain a waiver of any alleged investor prohibition

to the same.

4. It is for these very reasons, solely the Plaintiff’s bad faith, that the parties have been

unable to come to a reasonable settlement agreement, in accordance with the auspices and

legislative intent behind the Federal and State statutes designed to protect homeowners..

FACTUAL BACKGROUND

5. This is a foreclosure brought upon the property commonly known as 3148 Valhalla

Drive, Bronx, New York. The Defendants, Tiffany Lucas and John Lucas, executed a first lien,

mortgage loan with Wells Fargo, NA. on December 12, 2006, in the amount of $416,000 dollars,

(Four Hundred and Sixteen Thousand Dollars).

6. The terms of the interest first, adjustable rate mortgage loan called for payments of

$2340.00, (Two Thousand Four Hundred and Thirty Dollars), per month with the interest rate set

at 6.75%, until the year 2017. Additionally, the Defendants executed a second mortgage loan

with Wells Fargo N.A, which is not the subject of this action.

7. The terms of the predatory, sub-prime loans put the Defendants at a severe

disadvantage. The financially unsophisticated Defendants, who were not on an equal playing field

as Wells Fargo, NA, entered into agreement (s) which later put them in a position to be damaged,

and divested of their property.

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 8. After over five years of interest only payments, the Plaintiff alleged a default

resulted on April 1, 2012.

9. From December of 2006 through April of 2012,

theXXXXXXXXXXXXXXXXpaid approximately $154,000.00 (One Hundred and Fifty Four

Thousand Dollars) in interest payments. During the same period, the principal sum due and owing

on the mortgage note was reduced by only five hundred dollars. Wells Fargo, NA additionally

received monies from theXXXXXXXXXXXXXXXXsecond mortgage, held by the same lender,

over and above the sizable profits on the loan at issue.

10. Plaintiff filed a foreclosure action in in November of 2012. The family members

seek to save their home, but could not come to an agreement with the current note “holder(s)”,

who rather than seeking a loan workout, as is required under Home Affordable Modification

Program (“HAMP”), and other like-minded statutes, sought only to divest the Defendants of their

home , and to seize the property at foreclosure.

11. The Plaintiff has offered no meaningful settlement options, claiming that their

investors prohibit loan modification, an assertion which is patently untrue; and nonetheless federal

law requires that the servicer, Wells Fargo, NA, who in this instance is also the original lender, to

seek to obtain a waiver from the investors, to allow for a loan modification, to enable

theXXXXXXXXXXXXXXXXto stay in their home.

12. Thus far, Plaintiff has belatedly proferred, only excerpts, of both its Pooling and

Servicing Agreement and its Servicers Agreement, which it claims prohibits modification of the

terms of the loan, and have offered only a one sided adhesion forbearance agreement, and

reinstatement of the loan at its present unconscionable terms.

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 13. This is not a mortgage foreclosure action where the Defendants have made very

little attempt to cure default, or to keep up with mortgage payments. The Defendants at all times

have sought a reasonable resolution, and the lender(s) have already collected interest far exceeding

those contemplated under HAMP, almost thirty percent the principle value of the loan.

Procedural History

14. On or about November 15, 2012, a Summons and Complaint, with Lis Pendens was

filed, (Exhibit “A”).

15. The Defendants interposed a Verified Answer on January 25, 2013, (Exhibit “B”).

16. Court Ordered conferences were held on January 25, 2013, March 20, 2013 and

May 1, 2013 during which the Plaintiff requested additional documentation to evaluate

theXXXXXXXXXXXXXXXXfor a loan modification.

17. On or about June 6, 2013 at a court order settlement conference the Plaintiff’s

counsel then informed the Court that theXXXXXXXXXXXXXXXXwere not eligible for any

modification as the Plaintiff’s investors prohibited such. This conclusory assertion was not made

until six months after theXXXXXXXXXXXXXXXXhad submitted their modification

application.

18. The Court directed the Plaintiff to supply the Defendant with all necessary

information, to support its contentions that the Plaintiff was prohibited, by virtue of its Pooling

and Servicing Agreement , and related contractual obligations, from providing

theXXXXXXXXXXXXXXXXa modification under HAMP. The Defendants were to be informed

of the details of the investor’s restriction, and the Plaintiff was to identify the specific sections of

the Pooling and Servicing Agreement that identified such restrictions.

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 19. The Plaintiff supplied the Defendant with an abridged version of Servicer’s

Agreement and failed to fully disclose all of the provisions of both the Pooling and Servicing

Agreement of the Plaintiff trust, and also of the Servicing Agreement as and between the Trust and

its servicer, Wells Fargo, NA, which allegedly forbid modification.

20. The matter was released from the Foreclosure Settlement Part.

21. Plaintiff was granted an Order of Reference on or about July 29, 2015.

I. Plaintiff Has Failed To Negotiate In Good Faith

22. The Plaintiff represented to both the Court, and to the Defendant that no

modification was available to the Defendant due to restriction placed upon it by its Pooling and

Servicing Agreement (“PSA”) and the Servicing Agreement. No such blanket prohibition exists in

either contract.

23. Under HAMP, it is the Servicer who is responsible for availing the Defendants of

access to a modification. In the instant matter, the servicer, Wells Fargo, a recipient of huge sums

of money from the Troubled Asset Relief Program is also the originator of the predatory, sub-

prime loan.

24. In any event, regardless of the form that a PSA prohibition entails, a

servicer/plaintiff has an absolute duty to seek a waiver of the alleged prohibitions to inure to the

benefit of the homeowners. Plaintiff made no such effort, yet misinformed the Court that a

modification was impossible.

The Troubled Assets Relief Program

25. When the government infused the banks with billions of dollars in aid to escape the

consequences of their own wrongdoing, it was the intention of the legislature that some of the

benefit should inure to distressed homeowners. As one judge put it, :

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 “TARP directed the Secretary of the Treasury to implement a plan that
seeks to maximize assistance for homeowners and allowed the Secretary
to use loan guarantees and credit enhancements to facilitate loan
modifications to prevent avoidable foreclosures. Under this authority, the
Department of the Treasury announced the Making Home Affordable
Program in February 2009, which included the Home Affordable
Mortgage Program ("HAMP" [12 USC § 5219a]). HAMP was aimed at
helping homeowners who were in, or were at immediate risk of being in,
default on their home loans by reducing monthly payments to sustainable
levels.”(Thomas v JP Morgan Chase & Co.,811 F. Supp 2d 781, 786-787
[SD NY 2011, Scheindlin, J.], citations omitted; see also 1 Mortgages and
Mortgage Foreclosure in New York § 17:7).

26. The original lender, Wells Fargo, was one of the beneficiaries of the huge

government bailout, and would fall under the auspices of the government sponsored programs

such as TARP and HAMP. Such institutions were given incentives to modify loans, :

“HAMP was capitalized with $50 billion of TARP funds. Under the terms
of the program, dozens of mortgage lenders and servicers, including Citi,
received financial incentives from the federal government to modify
existing home loan mortgages so as to reduce monthly mortgage payments
of homeowners seeking to avoid foreclosure (see Wigod v Wells Fargo
Bank N.A., 673 F3d 547, 556 [7th Cir 2012]). Homeowners who sought to
modify their mortgages pursuant to HAMP had to complete Trial Period
Plan ("TPP") agreements and furnish various documents to the lender
(see Flagstar Bank FSB v Walker, 37 Misc 3d 312, 312-313 [Sup Ct,
Kings County 2012]).” Seller v. CitiMORTGAGE, INC., 2013 N.Y. Slip
Op 32851 (Sup. Ct. 2013), see JP MORGAN BANK v. Ilardo, 36 Misc. 3d
359, 940 N.Y.S.2d 829 (Sup. Ct. 2012).

27. In other words, the help provided to these banking institutions was meant to trickle

down from Wall Street to Main Street. By selling the loan at a profit, and then hiding behind a

viel of an investor’s prohibition to modify, these banking institutions stripped the homeowner of

rights and protections meant to be provided to the mortgagor to save the precious asset of

homeownership.

Home Affordable Modification Program,

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 28. Wells Fargo signed a Servicer’s Participation Agreement (“SPA”), with HAMP, a

federal program aimed at helping homeowners, by reducing their payments to sustainable levels.

Given that Wells Fargo voluntarily entered into the HAMP agreement, it is required to abide by

HAMP’s policies, “All banks that received financial assistance from the federal government

under the Troubled Asset Relief Program were required to sign a participation agreement with

the United States Treasury Department, agreeing to participate in the HAMP and comply with

HAMP guidelines.” Flagstar Bank, FSB v. Walker, 37 Misc. 3d 312, 946 N.Y.S.2d 850 (Sup. Ct.

2012).

29. When lender fails to do so, the Court’s evaluation of such conduct provides a

barometer with which to gauge bad faith.

30. Courts have held that HAMP policies are a good way to measure the Plaintiff’s

level of good faith, regardless of whether the loan qualified for a HAMP modification, or not:

“At least one court has held that "the best uniform standard for good faith' is compliance
with Federal HAMP regulations" (see Flagstar Bank, FSB v Walker, 37 Misc 3d 312, 313
[Sup Ct, Kings County 2012]), and that "whether or not the loan qualifies for HAMP or
not, the most appropriate benchmark for good faith are the HAMP guidelines" (see id. at
316; see also One W. Bank, FSB v Greenhut, 36 Misc 3d 1205 [A], 2012 NY Slip Op
51197 [U] [Sup Ct, Westchester County 2012]; HSBC Mtge. Corp. (USA) v Gigante, 2011
NY Slip Op 33327 [U] [Sup Ct, Richmond County 2011].) In addition to contributing to
uniformity, also a benchmark for justice, the HAMP program reflects the knowledge and
judgment of complex markets and institutions that most judges do not have, and what the
program requires is presumably a fair accommodation of the interest of lenders,
homeowners, and others with an interest in enforcement of the mortgage.” Deutsche Bank
Natl. Trust Co. v. Izraelov, 2013 N.Y. Slip Op 51482 (Sup. Ct. 2013).

31. As it is the servicer’s responsibility to seek a loan workout, this discussion will

focus on Wells Fargo, NA, as servicer. Although the Plaintiff may in fact be culpable, in the

interests of clarity your affirmant will discuss these policies as they relate to Wells Fargo’s

obligations. The term Plaintiff and servicer will be used interchangeably, as their obligations are

one, given that Wells Fargo functions as an agent of Plaintiff.

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 32. Wells Fargo, furthermore, entered into a Servicer’s Participation Agreement with

Fannie Mae under HAMP (Exhibit “C”), voluntarily agreeing to comply with the guidelines set

forth in the Making Home Affordable program. A handbook provided as a guide to direct the

servicers participation in March of 2014( Exhibit “D”), specifically addresses the issue of servicers

obligations when it is limited, by its investors, from performing certain acts laid out in HAMP. In

Section 1.3 of the handbook it states, “participating servicers are required to use reasonable efforts

to remove any prohibitions and obtain waivers or approvals from all necessary parties in order to

carry out (their obligations under HAMP)”.

33. Although HAMP does not override the legal obligations contained in a Plaintiff-

Trust’s PSA, a number of rules apply. If the investor in fact does forbid modification, a servicer

must apply for a waiver in writing to the investors. If one portion of the HAMP guidelines is

prohibited by the PSA, the servicer must still modify, omitting only the prohibited steps of HAMP

“waterfall” process.

34. The waterfall process of HAMP program, as outlined by the United States

Department of Treasury is as follows:

The first step of the "waterfall" is to capitalize accrued interest and arrears (all late fees
may not be capitalized and must be waived if the borrower satisfies all conditions of a trial
plan). Second, the interest rate is lowered to the current interest rate; if the loan is an
adjustable rate loan then the starting interest rate is the "reset interest rate." The interest
rate is then lowered in increments of .125% until the 2% floor. If necessary, the term of the
loan is extended by up to 480 months from the modification effective date; "[i]f a term
extension is not permitted under the applicable PSA or other investor servicing agreement,
reamortize the mortgage loan based upon an amortization schedule of up to 480 months
with a balloon payment due at maturity" (US Dept of Treasury, Supplemental Directive
09-01, at 9). If necessary the servicer must provide for principal forbearance to achieve the
target monthly mortgage payment ratio. If the monthly mortgage payment is lowered to
31% of the monthly income then the "net present value" test is run to determine whether it
is advantageous for the lender to offer the modification or to proceed in the alternative.

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 35. As will be discussed, infra, nothing within the agreements Plaintiff relies upon

would prevent the Plaintiff from administering those portions of the waterfall process that do not

violate the terms of the PSA.

36. Most importantly, there is no evidence on the record that the Plaintiff at any time

attempted to request a waiver of any of the limitation on loan modification set forth by its investors.

That omission alone can form the basis for a finding of bad faith. HAMP Q2301 requires that the

servicer make reasonable efforts to secure a waiver. In the instant matter, there has been NO effort

whatsoever, to secure a waiver for the benefit of the Lucas family.

37. The Appellate Division has ruled that there must be an attempt on Plaintiff part to

secure a waiver for the benefit of the Defendants:

“Here, the totality of the circumstances supports the referee's finding that the plaintiff
failed to negotiate in good faith. The referee's finding was based, in part, upon the
plaintiff's failure to follow guidelines pursuant to the federal Home Affordable Mortgage
Program (hereinafter HAMP). The applicable guidelines required the plaintiff, as a lender
participating in HAMP, to attempt to obtain a waiver of an investor prohibition or
restriction in lowering the interest rate and to keep such evidence in the loan file (see U.S.
Department of Treasury, Making Home Affordable Program, Handbook for Servicers of
Non-GSE Mortgages, ch 2, § 6.5 at 99 [Version 4.0, Aug. 17, 2012]). However, despite
repeated requests by the referee to produce evidence 917*917 that the plaintiff attempted
to obtain a waiver of the investor's restrictions in the PSA, the plaintiff failed to do so for
more than one year. Therefore, the plaintiff failed to demonstrate that it followed HAMP
regulations and guidelines, which, as several trial courts have concluded, constitutes a
failure to negotiate in good faith pursuant to CPLR 3408(f) (see e.g. U.S. Bank, N.A. v
Rodriguez, 41 Misc 3d 656, 664 [Sup Ct, Bronx County 2013]; Flagstar Bank, FSB v
Walker, 37 Misc 3d 312, 316 [Sup Ct, Kings County 2012], revd on other grounds 112
AD3d 885 [2013]). Accordingly, the Supreme Court properly concluded that the plaintiff
violated CPLR 3408(f) by failing to negotiate in good faith (see US Bank N.A. v
Sarmiento, 121 AD3d 187 [2014]; Wells Fargo Bank, N.A. v Meyers, 108 AD3d at 17;
Bank of Am., N.A. v Rausher, 43 Misc 3d 488, 492 [2014]).” US Bank National
Association v. Smith, 123 A.D.3d 914, 999 N.Y.S.2d 468 (App. Div. 2014).

38. Moreover, the HAMP directives themselves set out a certain requirement that the

servicer attempt to have such restrictions alleviated. "If a servicer was restricted or prohibited

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from freely performing or taking the modification step, ... documentation should show that it

made reasonable efforts to seek a waiver from the applicable investor and whether the requested

waiver was approved or denied." (See HAMP, "Q2301."), Deutsche Bank Natl. Trust Co. v.

Izraelov, 2013 N.Y. Slip Op 51482 (Sup. Ct. 2013).

39. Evidence of the request to obtain a waiver must be documented, and kept in the

loan file. Failure to do so provides the basis for a finding of bad faith:

“The referee's finding was based, in part, upon the plaintiff's failure to follow guidelines
pursuant to HAMP. The applicable guidelines required the plaintiff, as a lender
participating in HAMP, to attempt to obtain a waiver of an investor prohibition or
restriction in lowering the interest rate and to keep such evidence in the loan file. See,
Making Home Affordable Program, Handbook for Servicers of Non-GSE Mortgages,
version 4.0, ch 2, § 6.5 at 99 [August 17, 2012]. However, despite repeated requests by
the referee to produce evidence that the plaintiff attempted to obtain a waiver of the
investor's restrictions contained in the PSA, the plaintiff failed to do so for more than one
year. Therefore, the plaintiff failed to demonstrate that it followed HAMP regulations and
guidelines, which constituted a failure to negotiate in good faith pursuant to CPLR
3408(f)”, Deutsche Bank Natl. Trust Co. v. Husband, 2015 N.Y. Slip Op 50457 (Sup. Ct.
2015).

40. Without having requested, or obtained a waiver, the Plaintiff is also violating the

provision of the CPLR 3408 that counsel appearing for Plaintiff at a foreclosure settlement

conference be fully authorized to dispose of the case. Absent a request for a waiver, the Plaintiff

has shown no effort to gain authorization to effect a settlement.

41. As per Wells Fargo’s Servicer Participation Agreement with Fannie Mae, Wells

Fargo was required to identify each loan it serviced whose modification potentially would be

effected by investor restriction, to provide well documented evidence of Wells Fargo’s efforts to

seek waivers of the investors rules, and to keep lists of the results. An entire section was devoted

to the servicer’s specific obligations with regard to investor prohibitions:

1.3 Investor Solicitation

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 Within 90 days of executing a SPA, the servicer must review all servicing agreements to
determine investor participation in HAMP. Within 30 days of identifying an investor as a
non- participant, or as unwilling to extend its participation in MHA to include any extension
or expansion of an MHA program, or identifying a servicing agreement that limits or
prohibits a servicer from offering any assistance available under MHA, including HAMP Tier
2 modifications (i.e., prohibition against modification of non-owner occupied mortgages or
limits on multiple modification of the same mortgage), the servicer must contact the investor
in writing at least once, encouraging the investor to permit modifications and other assistance
available under the extended and expanded MHA programs.

Servicers, within 120 days of signing the SPA, must create and maintain in their records an
Investor Participation List containing the following information: (1) the number of investors
for whom it services loans; (2) a list of those investors who do not participate in HAMP; (3) the
number of loans serviced for each investor that does not participate in HAMP; and (4) pool-
level identification data, such as pool name and pool number, for loans serviced for each
investor that does not participate in HAMP or whose participation is subject to any limitations
or restrictions. In addition, servicers must provide a copy of the servicing agreement or other
pool documentation to Treasury or its agents upon request.

All servicers must update their Investor Participation Lists within 30 days of any change and
maintain both the old and revised versions of the lists, which should clearly identify the time
period during which each list was applicable, on a system that MHA-C may access upon
request.

42. A number of recent cases in the State have addressed the issue of whether a

Plaintiff’s PSA can relieve the party of its obligations under CPLR 3408 and HAMP. While it is

recognized that a Court may not interfere in contractual relations, a party may not use such as a

vehicle of injustice or oppression, Bank of Am., NA v. Lucido, 2012 N.Y. Slip Op 50655 (Sup. Ct.

2012).

43. Lucindo, supra, is instructive here. The Plaintiff in Lucindo represented to the Court

that their client’s Pooling and Servicing Agreement forbade modifications. After months of stalling

the Plaintiff did disclose what it claimed to be “salient portions of the PSA”. Upon the Court’s

review, no such blanket restriction was found, as the Plaintiff had vigorously asserted. The Court

noted:

“This failure to disclose, coming upon the heels of Plaintiff's 155 day delay in providing
the PSA coupled with what appears to be the intent, by Plaintiff and its prior counsel, to

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 deceive this Court by deciding to only provide what it deemed to be the "salient" portions
of the PSA leads this Court toward the conclusion that Plaintiff was not acting in good
faith throughout the pendency of this matter.” Bank of Am., NA v. Lucido, 2012 N.Y. Slip
Op 50655 (Sup. Ct. 2012).

44. Lucindo is directly on point. In the case at bar, it is the Plaintiff’s contented that

their investors prohibited loan modification. The Plaintiff provided mere excerpts of both the

PSA and Servicers Agreement. Your affiant has obtained full copies of both agreements.

45. In another matter addressing the issue of the prohibitions or restrictions set forth

in a servicer’s contract, the Court opined that the statutory duty of good faith negotiations

imposed upon a Plaintiff is unaffected by its contractual obligations to a third party, who is not a

party to the foreclosure action, “The foreclosure settlement conference mandated by CPLR 3408

is based upon "the relative rights and obligations of the parties under the mortgage loan

documents" (see CPLR 3408 [a]), and an "investor" is not the party seeking to foreclose on the

mortgage, and is not a party to the action at all (see Wells Fargo Bank, N.A., v Meyers, 30 Misc

3d at 701, rev'd on other grounds 108 AD3d 9.) Deutsche Bank Natl. Trust Co. v. IZRAELOV,

2013 N.Y. Slip Op 51482 (Sup. Ct. 2013).

46. Deutsche Bank Natl. Trust Co. v. Izraelov, Id. involved a situation much like that

pertaining to theXXXXXXXXXXXXXXXXloan. The Izraelov case restriction was placed by

one HSBC entity as purchase and another HSBC entity as servicer, much like the case at bar

where Wells Fargo is both the depositor of the Trust, the loan’s originator and the Master

Servicer of the Trust. That’s like saying I can’t make a deal with you because I promised myself

I wouldn’t.

47. The Court in Deutsche Bank Natl. Trust Co. v. Izraelov, noted the conflict of

interest when determining that HSBC had acted in bad faith, and chose the remedy of cancelling

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interest charges accrued on the mortgage loan. The Court further noted that the duty of good

faith dealings under CPLR 3408 superseded investor relations:

“The courts have yet to fully articulate the effect that purported "investor" prohibitions or
restrictions on loan modification might have on the plaintiff's duty to negotiate in good
faith as required by CPLR 3408(f). The late Justice Herbert Kramer said, "There is only
one standard for good faith under CPLR 3408," and "[t]hat standard exists regardless of
insurance regulations by [the Federal Housing Administration], or others and independent
of investor restrictions." (Flagstar Bank, FSB v Walker, 37 Misc 3d at 313.)” Izraelov,
Id.
48. Banks are required by HAMP to disclose all such information regarding to

provide all information relevant to the contractual prohibitions they rely upon, US Bank National

Association v. Smith, 123 A.D.3d 914, 999 N.Y.S.2d 468 (App. Div. 2014).

The Servicer’s Agreement

49. The relevant portions of the Servicer’s Agreement (Exhibit “E”) which the Plaintiff

claims relieve it obligation to facilitate a reasonable settlement, actually afford the servicer

discretion to offer a modification to the mortgagors. Section 3.1.2 actually gives the servicer

explicit authority to offer a settlement: “With the prior written consent of the Master Servicer, the

Servicer may modify the terms of a Mortgage Loan which is in default” (Exhibit “E” at § 3.1.2)

50. Certain restrictions do exist, for instance: the principal owed on the loan is not to

be reduced, nor the interest rate to be reduced permanently. “(i) such modification may not reduce

the amount of principal owed under the related Mortgage Note or permanently reduce the

Mortgage Interest Rate for such Mortgage Loan.” However nothing in the document prevents the

Defendant’s being offered a temporary reduction in interest, or for the term of the loan to be

extended. This section, in its entirety reads as follows:

3.1.2. Modifications of Mortgage.

With the prior written consent of the Master Servicer, the Servicer may modify the terms of a
Mortgage Loan which is in default or a Mortgage Loan as to which default is reasonably

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foreseeable; provided, however, that (i) such modification may not reduce the amount of principal
owed under the related Mortgage Note or permanently reduce the Mortgage Interest Rate for such
Mortgage Loan and (ii) the Servicer and the Master Servicer have determined that such
modification is likely to increase the proceeds of such Mortgage Loan over the amount expected
to be collected pursuant to foreclosure.

Notwithstanding anything to the contrary in this Agreement, the

Servicer shall not permit any modification of any material term of a Mortgage
Loan (including the Mortgage Interest Rate, the principal balance, the
amortization schedule, or any other term affecting the amount or timing of
payments on the Mortgage Loan) where such modification is not the result of a
default or as to which default is reasonably foreseeable under the Mortgage Loan unless the Master
Servicer has consented thereto and the Servicer has received an Opinion of Counsel or a ruling
from the Internal Revenue Service (at the expense of the Servicer or the party making the request
of the Servicer to modify the Mortgage Loan) to the effect that such modification would not be
treated as giving rise to a new debt instrument for federal income tax purposes or a disposition of
the modified Mortgage Loan and that such modification is permitted under the REMIC Provisions.

51. TheXXXXXXXXXXXXXXXXinitial interest rate was set at 6.75%, which is

incredibly high by today’s standards. As HAMP calls for interest rates as low as 2%, and the

waterfall process, described above, envisions a schematic whereby interest rates can be adjusted

throughout the term of the modified loan; the Plaintiff/Servicer could offer

theXXXXXXXXXXXXXXXXa reduced rate for a period of five years, significantly alleviating

their financial distress, allowing the homeowners to preserve their home, and still be well within

their legal obligations under the contract.

52. Moreover, the Servicer granted discretion to extend a modification:

12.3.2. Servicer’s Discretion.

The Servicer shall have reasonable discretion to extend appropriate relief to Borrowers who
encounter hardship and who are cooperative and demonstrate proper regard for their obligations.

53. In fact, the Servicer’s contract describes the servicer’s role as one of an advocate:

12.3.1. Servicer’s Role.

The Servicer shall be readily available to Borrowers to offer skilled financial counsel and advice
and shall make personal contact with delinquent Borrowers as often as possible to achieve a
solution that will bring the Mortgage Loan current as soon as possible. The Servicer shall be

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fully familiar with the form of relief to Borrowers provided for herein and shall employ such
relief.

54. In a number of provisions it is laid out that the loan modification must be financially

advantageous to the trust to modify, or that foreclosure be the remedy. However, the Trust was

created prior to the TARP bailout, and numerous statutes since then have been promulgated to

lessen or eliminate any impact a modification may have on a trust. 15USC § 1639(a) was passed,

as a safe harbor for servicers of pooled mortgages who modify home loans, which, inter alia,

indemnifies a servicer for any losses occasioned by a loan modification.

55. Moreover, the Internal Revenue Service modified its regulations allowing for

modifications of loans held in a REMIC trust, without triggering negative tax consequences,

Treasury Decision 9463, 74 Fed.. Reg. (No. 178, (September 16, 2009), Internal Revenue Rev.

Proc. 2009-45, 2009-40 I.R.B. (September 15, 2009).

56. Additionally the Treasury Department has begun requiring servicers to provide a

list of every agreement that could impeded a government sponsored modification. The list has not

yet been made public.

IV. DEFENDANTS SEEK REMAND TO THE

FORECLOSURE SETTLEMENT PART

57. The undersigned respectfully requests that the Court remand the matter to the

foreclosure settlement conference part, with directives that the Plaintiff attempt to seek a waiver

of the PSA’s rules for the benefit of the Defendants.

58. The substantial payments by Defendants, and significant bad faith on the part of the

Plaintiffs warrants a closely supervised foreclosure settlement conference, informed by the light

shed on the alleged “investor prohibition” herein.

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 59. Indeed, the Defendants are the quintessential homeowners the legislature had in

mind when it enacted the Subprime Residential Loan and Foreclosure Laws. “In an effort to

address the mortgage foreclosure crisis in New York, the Legislature passed the Subprime

Residential Loan and Foreclosure Laws” (see L 2008, ch 472; see also Hon. Mark C. Dillon, 30

Pace L Rev at 856).”

60. The Court’s discretion to invoke its equitable powers to promote the intent of CPLR

3408 is broad, in Astoria Federal Savings And Loan Assn., v. Rigano, et al.,36 Misc.3d 630 (2012),

950 N.Y.S.2d 233, 2012 NY Slip Op 22167 (Sup. Ct. Westchester 2012) the court declared:

61. “Such transparency is this court's duty to promote (see Uniform Rules § 202.12-a

[c] [4]). Foreclosure actions are equitable in nature and trigger this court's equitable powers (see

e.g. Notey v Darien Constr. Corp., 41 NY2d 1055 [1977]; Mortgage Elec. Registration Sys., Inc.

v Horkan, 68 AD3d 948 [2d Dept 2009]; Wells Fargo Bank, N.A. v Meyers, 30 Misc 3d 697 [Sup

Ct, Suffolk County 2010] [equitable powers in CPLR 3408 proceedings]). Once equity is invoked,

a court's power is "as broad as equity and justice require" Mortgage Elec. Registration Sys., Inc.,

68 AD3d at 948, quoting Norstar Bank v Morabito, 201 AD2d 545, 546 [2d Dept 1994]).

62. In 2009, shortly after the passage of the Subprime Residential Loan and Foreclosure

Laws, the Legislature amended a number of the recently enacted statutes, including CPLR 3408

(see L 2009, ch 507). The purposes of the amendments were to allow more homeowners at risk of

foreclosure to benefit from consumer protection laws and opportunities to prevent foreclosure; to

establish certain requirements for plaintiffs in foreclosure actions obligating them to maintain the

subject properties; to establish protections for tenants living in foreclosed properties; and to

strengthen consumer protections (Governor’s Mem, Bill Jacket, L 2009, ch 507, at 5). The 2009

amendments include a provision requiring that “[b]oth the plaintiff and defendant shall negotiate

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in good faith to reach a mutually agreeable resolution, including a loan modification, if possible”

(CPLR 3408[f]).

63. The purpose of CPLR 3408 was designed to keep the homeowner in their home:

“Moreover, the main purpose of the settlement conference is for the parties to try to
resolve the matter without litigation and to try to keep the homeowner in his or her home.
U.S. Bank National Association, as Trustee for CMLTI 2007-WFHE3 v Alejandra Padilla,
et al., 31 Misc 3d 1208[A] [Sup Ct Dutchess Co 2011]. Generally, good faith as described
in New York case decisions is an interpretative concept, "necesitat[ing] examination of a
state of mind." Credit Suisse First Boston v Utrecht-America Fin. Co., 80 AD3d 485, 487
[1st Dept 2011], quoting Coan v Estate of Chapin, 156 AD2d 318, 319 [1st Dept 1989].
"Conduct such as providing conflicting information, refusal to honor agreements,
unexcused delay, unexplained charges, and misrepresentations have been held to
constitute bad faith." Flagstar Bank, FSB v Walker, 37 Misc 3d 312, 317 [Sup Ct Kings
County 2012] [internal citations omitted]; see also, One West Bank, FSB v Greenhut, 36
Misc 3d 1205[A] [Sup Ct Westchester Co 2012].”, DEUTSCHE BANK NATL. TRUST
CO. v. Husband, 2015 N.Y. Slip Op 50457 (Sup. Ct. 2015).

GOOD FAITH

64. When the legislature amended the provisions of the CPLR regarding court

mandated foreclosure settlement conferences, the requirement that “[b]oth the plaintiff and

defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan

modification, if possible” (CPLR 3408[f]) was added to ensure that the intent of the law not be

thwarted by profiteering lenders.

“In 2008, New York's Assembly and Senate enacted Chapter 472 of the Laws of 2008
which constituted a sweeping reform of the laws governing sub-prime, high cost and non-
traditional home loans. Included as part and parcel of that legislation was the newly
enacted CPLR § 3408 which required a mandatory settlement conference in an action to
foreclose such a mortgage. Since that enactment, this Court, sitting first as Suffolk
County's Residential Mortgage Foreclosure Conference Part and thereafter as an I.A.S.
Part, has mandated that the parties to such an action act and negotiate in good faith. Indeed,
in December of 2009, both the Assembly and the Senate amended CPLR § 3408 by way
of Chapter 507 of the Laws of 2009, which, among other things, added a requirement that
the parties act and negotiate in good faith (see CPLR § 3408(f) which states that "Both the
plaintiff and the defendant shall negotiate in good faith to reach a mutually agreeable
resolution, including a loan modification, if possible."). This statutory scheme is further

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 buttressed and implemented by the provisions of The Uniform Rules For The Trial Courts,
22 NYCRR § 202.12-a.
Indeed, that Rule vests the Court with broad powers to assist the parties in reaching a
settlement of their differences, stating, in pertinent part, that "... The court may also use
the conference for whatever other purposes the court deems appropriate," 22 NYCRR §
202.12-a(c)(2). That Rule further imposes upon the Court the duty to be certain that all
parties act in compliance therewith, stating that "... The court shall ensure that each party
fulfills its obligation to negotiate in good faith..." 22 NYCRR § 202.12-a(c)(4). For this
Court to do anything less would be a serious derogation of its statutory responsibilities
and would do a great dis-service to the public that it is obligated to serve.” Bank of Am.,
NA v. Lucido, 2012 N.Y. Slip Op 50655 (Sup. Ct. 2012).

65. Lenders are required to negotiate in good faith US Bank NA v. Sarmiento, 2014 NY

Slip Op 5533( 2nd Dept. 2014), Wells Fargo Bank, N.A. v Meyers, 108 A.D.3d 9 ,966 N.Y.S.2d

108, 2013 NY Slip Op 3085(2nd Dept. 2013), see L 2008, ch 472; CPLR 3408. What constitutes

bad faith has been the subject of lengthy analysis, but it appears that there are a number of measures

being used by the Courts. In Deutsche Bank Natl. Trust Co. v. Husband, 2015 N.Y. Slip Op 50457

(Sup. Ct. 2015), the court described the various approaches Courts have used:

“The analysis applied in Flagstar is tethered to the HAMP guidelines. Using the HAMP
provisions as a benchmark of good faith in negotiations, as stated in Flagstar, enables the
bank to abide by both state and federal regulations. Flagstar Bank, FSB v Walker. 36 Misc
3d at 317-318. Another line of cases extended this concept to ascribe a lack of good faith
to a plaintiff-mortgagee which had engaged in dilatory tactics and "failed to provide a
proper review and to extend to defendant an affordable loan modification." See, Deutsche
Bank Trust Co. of America v Davis, 32 Misc 3d 1210[A][Sup Ct, Kings County 2011].
The test applied in a third line of cases is the failure to "work out a loan modification, as
required by statute, with a homeowner who is gainfully employed" and "earns income
[sufficient] to sustain a modified payment." See, BAC Home Loans Servicing v Westervelt,
29 Misc 3d 1224[A] [Sup Ct, Dutchess County 2010].” Husband, Id.

66. By every single rubric described above, the Plaintiff has failed to engage in good

faith negotiations with the Lucases.

REMEDY

67. It is clear, as outlined above, that the Plaintiff has failed to negotiate in good faith

by failing to disclose its ability to modify the terms of the mortgage, and the discretion afforded

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by the contracts with its investors. Furthermore, its failure to seek a waiver of the restrictions

placed upon it by the terms of the contracts is absolute evidence of bad faith.

68. Remedies employed by the Courts in instances where bad faith have been found

have varied, and are adjudicated given the totality of the circumstances:

“Courts are authorized to impose sanctions for violations of CPLR 3408(f); see, U.S. Bank
N.A. v Smith, 123 AD3d 914 [2nd Dept 2014]; US Bank N.A. v Sarmiento, 121 AD3d 187
[2nd Dept 2014]. However, CPLR 3408(f) does not set forth any specific remedy for a
party's failure to negotiate in good faith. U.S. Bank N.A. v Smith, 123 AD3d 914; Wells
Fargo Bank, N.A. v Meyers, 108 AD3d 9, 19 [2d Dept 2013]. The courts have resorted to
a variety of remedies in an effort to enforce the statutory mandate to negotiate in good faith.
U.S. Bank N.A. v Smith, 123 AD3d 914; Wells Fargo Bank, N.A. v Meyers, 108 AD3d at
9, 19. The standard is that a court must find an appropriate, permissible and authorized
remedy.” DEUTSCHE BANK NATL. TRUST CO. v. Husband, 2015 N.Y. Slip Op 50457
(Sup. Ct. 2015).

69. The general consensus is that a cancellation of interest accrued on the loan is a

proper remedy to address bad faith:” In an appropriate case, the published decisions inform us,

equity permits the cancellation of interest awarded to the mortgagee on the unpaid principal

balance of a mortgage. Citibank, N.A. v Van Brunt Props, LLC, 95 AD3d 1158, 1159 [2nd Dept

2012]; Norwest Bank Minn., N.A. v E.M.V. Realty Corp., 94 AD3d 835, 837 [2nd Dept 2010].

70. Due to the misrepresentation made to the Defendants and to this honorable Court

by the Plaintiff, interest has been accruing on the Defendants loan while a settlement could not be

reached for the Plaintiff failure to disclose its ability to modify the loan. A proper remedy would

be the cancellation of interest charges from the date of the first application for a modification sent

to Wells Fargo in December of 2012 through present and the imposition of exemplary damages.

71. In Bank of Am., NA v. Lucido, 2012 N.Y. Slip Op 50655 (Sup. Ct. 2012). supra,

strikingly similar to the case at bar, where the Plaintiff claimed its investors flatly prohibited loan

modification, and upon the Court’s review it was discovered that the Plaintiff possessed the

authority to modify the terms of the loan, within limits, the Court awarded exemplary damages to

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the Defendants, “Exemplary damages may lie in a situation where it is necessary to both effectuate

some punishment and to deter the offending party from engaging in such reprehensible conduct in

the future. Such an award may also be made to address, as so clearly and succinctly enunciated by

our Court of Appeals in Home Insurance Co. v. American Home Products Corp. 75 NY2d 196,

550 NE 2d 930, 551 NYS 2d 481 (1989) "...gross misbehavior for the good of the public...on the

ground of public policy". Indeed, exemplary damages are intended to have a deterrent effect upon

conduct which is unconscionable, egregious, deliberate and inequitable, I.H.P. Corp. v. 210

Central Park South Corp. 12 NY2d 329, 189 NE 2d 812, 239 NYS 2d 547 (1963).”, Lucindo, Id.

72. Fixing the amount of exemplary damages payable to Defendants at $200,000 the

Court in Lucindo referenced the exact type of misrepresentations that the Plaintiff in the instant

matter exhibited.

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