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Angry Judge Voids Mortgage

By
Services for Real Estate Pros with Paul Warkow-D.G. Weber Law Associates

A judge in Suffolk County on Long Island had enough with a bank’s arrogance and attitude and completely voided a mortgage.  This may be the start of a trend where now the judicial system is getting fed up with lenders and are taking matters into its own hands.

 

The case is actually pretty straight forward.  A couple purchased a house in 1994 and refinanced in 2004.  They fell behind on their mortgage payments because of loss of income due to the wife having triple bypass surgery.  The couple tried to work out a payment plan but the bank refused and initiated a foreclosure action.  In New York, whenever there is a foreclosure action, there is a mandatory conference to see if something can be worked out short of foreclosure.  It was during these conferences that the judge became fed up and ordered the $292,500 mortgage “canceled, voided, avoided, nullified and set aside.”  The judge gave the reason for this decision because the actions of Indymac Mortgage Services were “harsh, repugnant, shocking and repulsive.”  The judge went further and specifically gave six points that were the underlying rationale for his decision:

 

  1. A conference in February had to be rescheduled five times because of Indymac’s  intransigence in its continuing failure and refusal to cooperate and the judge ordered that an officer of the bank  appear at a September 22 conference
  2. The bank officer that appeared on September 22 had a “opprobrious demeanor and condescending attitude” and no offer by the homeowners, including purchase of the house by their daughter was acceptable.
  3. At a November 18 conference, Indymac could not specify the principal balance owed on the house.
  4. Noting Suffolk County’s foreclosure rate, the judge said the home owner’s desire to keep and maintain their home and property would prevent it from becoming “neighborhood blight.”
  5. The company’s actions toward the home owner were “harsh, repugnant, shocking and repulsive” and sanctions were needed to prevent it from  “further mortifying abuse.”
  6. Indymac would not consider any loan modification

 

The house is currently underwater and the daughter of the home owners was willing to buy the house in a short sale at its current market value.  It made the judge mad when Indymac refused to do a short sale.  There are two other remarkable things about this case.  One is that the homeowners do not have a lawyer and came to court every time representing themselves.  Secondly, the homeowners did not ask the judge to void the mortgage.  The judge did this entirely on his own.

 

One of the messages of this case is that if a lender is going to use the courts to take back a property and kick out the current homeowners, the bank better act in good faith.  I had a previous blog that asked the question of whether a lender can be forced to modify a mortgage?  If the bank is going to use the judicial system, it may be open  to having that question being answered in the affirmative.

Alexandria Virginia
Featuring Susan Craft, CRS, REALTOR® - McEnearney Associates - Alexandria, VA
Real Estate Editor

I can't believe this will hold up.  If it does, it spells doom for mortgage investors, banks and anyone else involved . . . like Fannie Mae, FHA and the taxpayers footing the bill.

Nov 30, 2009 03:23 AM
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

I read the story, and while it's nice to poke a stick in the eye of the lender, I can't believe the ruling will stand.

Nov 30, 2009 03:31 AM
Tim Bradley
Contour Investment Properties - Jackson Hole, WY
Commercial Real Estate Expert in Jackson Hole, WY

I'm guessing this gets overturned on appeal. The borrowers may have a hardship story, but the bank is entitled to foreclose instead of negotiate.

Nov 30, 2009 03:46 AM
Paul C. Wilkinson
CENTURY 21 Preferred - Menifee, CA
GRI, REALTOR -Menifee, Murrieta, Temecula - (951)

Whether it holds up or not this judge sends a strong message to those involved.  It's amazing how many home owners are in similar situations and have fallen behind in their payments because of an actual hardship, and when they try to keep current or work something out with the lender they are treated like deadbeats....I mean really, most people loosing their homes are humiliated enough they don't need this 'extra' humiliating treatment from the lender, it is shamefull and if there is a state law that requires the lender to sit down at the table for a mandatory conference and the lender refused....then whether it is  called a ruling, sanction, penalty, whatever...good for the home owners in this case!

Will similar rulings fall on the backs of tax payers?  Really?  What hasn't fallen on the backs of taxpayers?   Maybe this will become the home-game version of the consumer BAILOUT that the big companies have already received on the backs of taxpayers!

Nov 30, 2009 03:49 AM
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

Susan, John and Tim-your reactions are similar.  I would agree that if judges were able to start tossing mortgages, there would be far reaching implications.  However, this decision taps into a populist outrage against banks.  All these lenders received money from the government, that is the taxpayer, including the homeowners in this case (remember Indymac actually failed and was bailed out by the FDIC).  It is about time they act more responsibly.  Maybe this will send a message. 

Paul-I agree that hopefully this will send a message.  At the very least they may be more responsive.

Nov 30, 2009 05:06 AM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

It feels good, but it will come back to severely damage the housing market if it stands. 

Nov 30, 2009 02:36 PM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

I say, "Hoorah for the judge!"  What's severely damaging the housing market is these banks outrageously inept handling of fair offers from serious buyers for houses being sold short, and efforts from home owners who really want to keep their house but aren't given a chance.I'm sure the judge is hoping to teach a lesson, send warning out to all banks, not just make us all feel  good.  I had a judge make a surprising decision on one of my transactions once, and everyone said it wouldn't stand, but it did!  This would make a great movie.

Dec 01, 2009 01:18 AM
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

Lane-I understand completely your take on this.  I agree that banks will severly curtail their lending if they fear that judges will eventually void the mortgage.  On the other hand, we are where we are.  Banks made foolish loans and have received billions of dollars from taxpayers, including the homeowners in this case.  We cannot undo that.  My hope is decisions such as this will make banks act more responsibly in dealing with the current foreclosure crisis so that the lending environment will improve.

Dec 01, 2009 01:21 AM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

If we think that the foolish decisions of the banks hurt the housing market, wait until you can't get a house until you have at least 20% down...  And stellar credit... And still pay a mortgage insurance premium...

Dec 01, 2009 10:48 AM
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

Lane-Fannie Mae has already announced that it tighten underwriting criteria as of December 12.  The minimum FICO score will be 620 and the maximum DTI will be 45% with a possible higher limit of 50% if there are compensating factors such assets, good credit, etc.  Under no circumstances will a DTI above 50% be approved.  Maybe you are right.  Eventually the only loan applications that will be approved is if it is an all cash deal.

Dec 01, 2009 10:39 PM
Retired Notworking
Tallahassee, FL

Aren't judges supposed to intrepret the law and see that it gets followed? While I am in favor of helping homeowners, especially in this case, I don't want a country where judges base decisions on their emotions or personal ideals of what they think is fair.

Dec 02, 2009 01:02 AM
Bill Ladewig
LoanOfficerSchool.com - Escondido, CA
Experience Is Your Advantage

Indymac was purchased by George Soros of Movingon.com fame with Michael Dell, the computer guy with other investors and it now called OneWest Bank.

The way their deal with the government plays out it is actually more profitable for them to foreclose than to allow a short sale or renegotiate the loan.

Bob Hertzog wrote an excellent blog on the subject. 

The judge set a dangerous precedent and I am sure it will be appealed.

Dec 18, 2009 04:25 AM
yanni raz
hml investments - Los Angeles, CA

I wanted to share some more information.

Fannie Mae and Freddie Mac make it harder for home buyers and real estate investors with mortgages on Condos. It's hard to really understand why these giants corporations are tightening their regulations while the government is trying to fix the economy. If you're a condo home buyer or a condo home seller you should read this article because it might change the way your realtor presents your property.

These days most real estate purchases are done by real estate investors. This is a great time for all investors to put the money they've saved in the past years in real estate, but purchasing condos is a little different animal I guess unless if you will purchase the property cash. Condos are a little different than single family residents by all means, also by the way they've getting financed by banks or the government.

Fannie Mae and Freddie Mac have said in march that they will no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold. They've created controversy, this may drive the condos market down because they are one of the main investors in America to land money on real estate. I'm thinking how the first 70% of condos will sale if home buyers and/or real estate investors can't get a loan to purchase them.

While I'm thinking about Fannie Mae and Freddie Mac's new regulations and thinking about the real estate market and the economy crisis in the world I discovered another new reason why Fannie Mae and Freddie Mac will not land money to new home owners: "delinquency in home owner association dues. I really don't know why it's so important that while a home buyer with a great credit comes to purchase a condo in a building that other homeowners weren't responsible enough to pay the Home owner association dues will not qualify for a mortgage.

Fannie Mae and Freddie Mac said they will not guarantee mortgages to condo buyers if 15% of the homeowners in the building are delinquent on the homeowner association dues.

That's what I wanted to talk about today just to give you readers some general information about the market.

Good Luck.

Dec 24, 2009 09:11 AM