Sanctions for Failure to Negotiate Loan Mod in Good Faith Were Appropriate, High Court Rules - Jacinto v. PennyMac Corp.
Vincent Howard and our Riverside County foreclosure defense attorneys were interested to see a case out of Nevada that resulted in sanctions for a lender that misbehaved during loan modification proceedings. Nevada's foreclosure mediation program, put into place during the housing downturn, requires mediation in every foreclosure case. Most importantly, the state law provides penalties for lenders who negotiate in bad faith, as evinced by failure to show up prepared or failure to send someone with authority to negotiate in the first place. Both flaws were apparently present in the foreclosure mediation at issue in Jacinto v. PennyMac Corp., a Nevada Supreme Court case. Miguel Jacinto has the right to appeal, the high court ruled, but his request for a loan modification as sanctions did not succeed.
Jacinto's first mediation was with Citimortgage, which agreed to try a HAMP loan modification. Jacinto then sent documents as requested, which led Citimortgage to deny the modification. He requested court sanctions against Citimortage for failure to negotiate in good faith, and the district court ordered another mediation. In the meantime, PennyMac acquired the interest in the mortgage and stepped into Citimortgage's shoes for the second mediation. However, it failed to bring needed documents to the mortgage or send an official with the authority to negotiate. Jacinto again filed for judicial sanctions, requesting financial penalties, attorney fees and a court order for a loan modification. The court declined to impose anything but the attorney fees, and Jacinto appealed to the Nevada Supreme Court.
That court affirmed the order, after first establishing that a homeowner like Jacinto has the right to appeal at all. PennyMac argued that Jacinto is not an aggrieved party because the lower court did hear his case. The high court disagreed, saying the denial of his request for a judicially imposed loan modification adversely and substantially affected his property rights. Moving on to the sanctions themselves, Jacinto argued that the attorney fee order was insufficient and re-requested a judicially imposed loan modification. Nevada courts have discretion to choose which sanctions to order, other than the bare-minimum sanction of withholding a certificate saying the mediation was completed. The high court found that the trial court imposed more than the bare minimum because it also ordered attorney fees. Thus, it upheld the trial court's order.
The attorney fees in this case were $3,500. This is not insubstantial, especially to someone who is having trouble making mortgage payments, but Vincent Howard and our Santa Ana foreclosure defense lawyers suspect that the costs to Jacinto of PennyMac's bad faith were substantially higher. Assuming he was still trying to hold on to his home, every month without a final answer on a loan modification was a month when he either had to make an unaffordable payment or go deeper into arrears--and closer to foreclosure. Indeed, this may be the reason why so many loan servicers tried to drag out their loan modification decisions as long as possible--because if they can foreclose instead, they stand to earn a lot more money. Vincent Howard and our Colton foreclosure defense attorneys believe this behavior is illegal as well as in bad faith, and we help clients seek redress through the courts.