David Dunn, Victoria McKenney and Jessica Ellsworth of Hogan Lovells For Reuters

A New York state judge’s order sanctioning Wells Fargo for failing to negotiate during a foreclosure settlement conference violated the bank’s constitutional rights, a state appeals court ruled Wednesday.

The Appellate Division, Second Department, reinstated a foreclosure action brought by Wells Fargo Bank N.A. against Paul and Michela Meyers.

In doing so, the court held that Acting Supreme Court Justice Patrick Sweeney in Suffolk County had overstepped his authority by dismissing the complaint and ordering the bank to enter a loan modification.

The order violated the Contract Clause – which bars the impairment of a contractual relationship – by effectively rewriting a mortgage and loan agreement, as well as Wells Fargo’s due process rights by not giving it notice that the Supreme Court was considering the dismissal and modification, Dickerson wrote.

“It is obvious that the parties cannot be forced to reach an agreement, CPLR 3408 does not purport to require them to, and the courts may not endeavor to force an agreement upon the parties,” Justice Thomas Dickerson wrote in a unanimous opinion.

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