Bank of America v. Lucido, Appellate Division, Second Department, Index No. 3769/2009
The Second Department has reversed Justice Jeffrey Spinner’s award of sanctions in a residential mortgage foreclosure case after a settlement conference failed to produce a settlement. The sanction barred the lender from recovering more than the principal balance due on the loan plus any advances for taxes and insurance. The sanction further awarded the borrower a $200,000 credit against the amount due on the mortgage as “exemplary damages.”
In reversing Justice Spinner, the Second Department wrote that although the Court had the authority to award sanctions against a lender as a result of its failure to negotiate in good faith, such an award must be made on notice to the lender. The Second Department wrote that because “a reduction of the principal balance of the subject mortgage  was done without notice to the plaintiff that the court was contemplating such sanctions [it] thereby deprived the plaintiff of its right to due process.” The court further wrote that the lender’s conduct was “not so egregious as to merit the imposition of sanctions.”
The lesson of Bank of America v Lucido is that borrowers seeking sanctions against lenders for failure to participate in mandatory mortgage foreclosure settlement conferences must be sure to do so on notice to the lender. Courts, similarly, must insure that the lender has an opportunity to be heard before they awards sanctions.