Is this a precedent that will force banks to negotiate settlements with delinquent homeowners, or will it cause the further weakening of the banking system? What does this mean with regards to contracts in a larger context? Should judges have the power to cancel contracts and award property to one party to the detriment of the other?
Personally, I support such sanctions in extreme cases like this, where the bank makes absolutely no effort to comply with mediation. I think it is not a dangerous precedent, and banks need to be reminded that they are not omnipotent. In the case, the bank’s actions were egregious, and the bar is set pretty high for anyone else to try to get their mortgage set aside. However, I do expect more judgements like this before the banks get the message, and are forced to negotiate with distressed borrowers.
As far as I’m concerned this judge deserves a medal; banks dragging their feet on renegotiating these loans hurts everyone (including sometimes the banks). More power to him.
The rule of thumb I have followed, in good times and, especially, bad, is that the last thing your bank wants is your house. “Now” is the very definition of “bad times.” The bank may wag that it owns your home, but nobody else wants it, either, so so what? Better to get a portion of the official mortgage payment than none.
I hoped that this was still true when I fell a couple months behind because of unemployment. The lady at Citi listened a moment to my apologies and said, “Come in Thursday and sign the temporary agreement.” After knocking $600 from my payment on Thursday she said, “Don’t forget to request another extension before December 31.”
I appreciate the New Dealish extensions by the current administration. And I note that, given the likelihood that I will continue, physically, to absorb the financial broadsides my family must otherwise endure for but a few years more, I don’t care beyond my death. I’m not God, did my best, and they really shoulda planned better, though they all be women. BIG
The mortgages have been sliced up and sold around the world. Sometimes the company doing the foreclosing can not produce the mortgage at all. A few judges have thrown those cases out too. There is a sliver of hope. The fed should have taken over one of the main banks and ran it themselves. They could have redone mortgages and helped with the fo0reclosure problem. The banks don’t seem to care about the homeowners.
I didn’t read the linked article, so I can’t comment on the propriety of what the judge did here. I did read your post and the responses to it. You pick up here an exceedingly important point that the others in this thread have missed–however emotionally satisfying it might be to see a bank get its comeuppance, these sort of judicially-imposed renegotiations do have a deleterious effect on our capital markets (by the way, you ask if this is a precedent–the textbook case on unconscionability is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965)–so yes, it’s not a new development).
But back to the ill effects: ask yourself what will happen in the future, whether with subprime mortgages or poor women buying furniture on layaway. The party to the litigation gets a break, but all future customers, some of whom are perfectly happy to abide voluntarily by the terms of the contract won’t. And they won’t because these lenders or merchants won’t offer those contracts anymore, since they now know that courts are willing to bar their enforcement on unconscionability grounds.
This is not to say that the doctrine should be eliminated or never applied in real life. But it is to very strongly emphasize that unconscionability is not a cost-free panacea for our social ills. Again, we mustn’t allow our own personal distaste for big, rich corporations distort our system of justice and unduly imperil our enforcement of what is, after all, freely-entered agreements by parties that are (or should have been) informed about the terms and wisdom of the proposed lending arrangements.
This is a decision from a trial court in one county in New York. It’s not binding precedent on other courts. It does signal at least one judge is getting frustrated with certain conduct by lenders, and I suspect will prompt a greater willingness on the part of banks to settle similar cases in his court, at the very least. I suspect the bank will appeal, so this ain’t necessarily over…
It really wasn’t about unconscionability and contract principles, but rather the fact that the Bank is a Plaintiff who sought relief in equity (foreclosure and ejectment) and their own behavior was such that they are not entitled to equitable relief. You cannot receive equity with unclean hands. (where both are guilty, the defendant is in the better position, right?) In this case, the bank’s behavior evinces such a egregious lack of good faith, that equity swings towards the homeowner instead.
The Court is constrained, solely as a result of Plaintiff’s affirmative acts, to conclude that Plaintiff’s conduct is wholly unsupportable at law or in equity, greatly egregious and so completely devoid of good faith that equity cannot be permitted to intervene on its behalf.
IMHO, Justice Spinner’s decision is wrong and will not be sustained on appeal, if there is one. Neither at law or in equity is there an obligation for a lender to negotiate a “reasonable” loan modification. Nor is there an obligation to reach a mediated settlement in a legal or equitable suit. If the lender insists on determination at trial, it is of course true that it may lose. But, it is losing at trial, not refusing to renegotiate the loan or settle the suit, which produces that result.
Meanwhile, forfeiting the lender’s debt and mortgage is a distinctly inequitable outcome. After all, the borrower did use the lender’s money to buy the house. At most, Justice Spinner’s reasoning supports rewriting the loan along “equitable” lines. (Not that he actualy has that power.) Giving the borrower a windfall (a free house) is social engineering of the worst sort.
And screwing around the homeowner with the ultimate likelihood of adding another foreclosed house to a neighborhood, all while being propped up by taxpayer bailout money, is, what, the magic of the invisible hand?
dropzone, I agree that it’s not entirely apparent what the bank’s motive is in a case like this one. They seem to be thinking in the aggregate rather than on a case-by-case basis about the impacts of renegotiating loans on their bottom line and possibly it has something to do with the time and effort it takes to renegotiate (though in this case time was taken in what appears to have been an effort to blindside the homeowner and force foreclosure–and to what rational purpose?)
Uck, Citi was my lender too for a time. I hope that is all the past for you!
Ha ha. I am on vacay, so no opinion reading for me.
Anyways, you would balance the equities, no? On the one hand Plaintiff Bank sent out (what, the notice of redemption?) late; on the other, Defendant Homeowner isn’t keeping up with her mortgage. So the balance is not a slam dunk, but surely the price of tardy notices shouldn’t be the invalidation of the mortgage.
Now, I’m sure there was other objectionable conduct besides, but it is difficult to think what caliber of harassment is need to cancel a mortgage likely worth hundreds of thousands of dollars. Do recall, even if this suit sounds in equity, that in the legal analogue of such cases, breach of contract, we don’t usually award punitives. We should not allow a mere change in nomenclature–nomenclature based on the needs of medieval England–to alter that rule.
And it was more than the bad faith mailings. They are outlined in the opinion and numerous. The court was also within its discretion to sanction the Bank for asserting “material false factual statements” under 22 NYCRR 130-1.1[c], as to the amount owed (the bank, without any documentary support, claimed the amount owed was over $500,000; the defendants proof and prior Plaintiff’'s affadavits stated the amount was around $250,000. So the basis of the sanctions was statutory.
The article garbled this point. The $500K figure included accrued interest and late fees, while the $290K figure was principal only. The judge did find uncertainty of about $7K in the principal and $30K in the overall figure, but the discrepancy was not as large as the article suggests.
I read too fast and also misstated that, but according to the opinion, the discrepancy was $80,000+ in regards to the balance which included $34,000 relating to the escrow account.
…[math omitted] the application of simple addition yields a total amount due of 447,028.50. This figure is 80,409.23 less than the 527,437.73 asserted by Plaintiff to be due and owing from Defendant. The Court is astounded that Plaintiff now claims to be owed an escrow advance amount of 46,627.88 when, under oath, its officer swore that as of June 24, 2008 that amount was actually $ 34,611.22 less.
I think the judge was also irked when…
*Plaintiff was unable to tell the Court the amount of the principal balance owed. *
BTW, I am not stating an opinion either way, I just find it interesting, and not wholly unsupported by the judge’s reasoning. However, I wish people would just read the opinion to find out what the opinion said.
I agree to an extent. But, when both the state and federal governments have established loan modification and/or mandatory mediation; and when the bank in question, Indymac, was itself bailed out by the FDIC, I think there is a strong equitable argument to be made that the bank has an affirmative duty to negotiate loan modification in good faith. Whether the Judge’s equitable remedy is the correct one is another matter.
I have a mortgage that is upside down, so I’m not unsympathetic, but I don’t see the legal reasoning.
If you loan me $10 and I pledge my shiny red widget as collateral, why does it matter that my widget is now worth $6? Didn’t I voluntarily sign a contract to pay you $10 with terms and when I don’t, do you not have the right to foreclose on my red widget?
Why does it matter if I offer you $9 or $8 or $7 or $6? The contract says $10 and I didn’t pay.
