In response to the financial crisis, New York enacted new legislation requiring mandatory settlement conferences in foreclosure actions during which the foreclosing lender and the borrower must negotiate, in good faith, to determine if any foreclosure alternatives are available to the defendant borrower. However, that law conflicts with the prohibition in the Bankruptcy Code against a creditor taking any act that can be construed as trying to collect a discharged debt from a debtor. Thus, if a foreclosure action is commenced against a borrower who previously received a discharge on their mortgage loan debt, the lender is left with a “Catch 22″: comply with the CPLR and risk violating the Discharge Injunction, or vice versa.
CPLR 3408
CPLR 3408 was enacted in 2009 to address the mortgage crisis in New York, see N.Y. State Senate Introducer’s Mem. in Support, L. 2008, ch. 472, at 9, and was intended to provide “assistance to homeowners currently at risk of losing their homes by providing additional protections and foreclosure prevention opportunities” and provide “the homeowner [an additional] opportunity to reach resolution with the lender early in the foreclosure process … .” Id. at 10. As is relevant here, CPLR 3408 requires the parties engage in settlement discussions before the court to determine if the “parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home.”
