One Judge’s Mortgage Modification Revolution

While the pols debate (or don’t debate) a bank reform bill, one judge is making headlines in New York by single-handedly taking on the banks.  And he’s done it (at least in part) with basic contract doctrine.

In Suffolk County, New York, in the Residential Mortgage Foreclosure Conference Part, Justice Jeffrey Arlen Spinner is waging his own mortgage reform revolution.  Back in November, Justice Spinner canceled a $292,500 mortgage on unconscionability grounds, describing IndyMac Bank’s behavior as “harsh, repugnant, shocking and repulsive.”  Then, just last week, he ordered the Emigrant Mortgage Company to pay $100,000 to the homeowners as compensation for the bank’s “deplorable” mortgage agreement and its bad-faith foreclosure negotiations.  The judge "forever barred" Emigrant from collecting interest on the $302,500 mortgage, as well as any legal fees, costs "or any sums other than the principal balance."  He wrote: 

The Court…determines that the imposition of exemplary damages upon [the plaintiff bank] is equitable, necessary and appropriate, both in light of Plaintiff's shockingly inequitable, bad-faith conduct, as well as to serve as an appropriate deterrent to any future outrageous, improper and wrongful activities . . .  

When Emigrant initiated the foreclosure proceeding, the homeowners contested the action, arguing that Emigrant refused to engage in good faith settlement conferences, as required by a 2008 amendment to the Banking Law.  The decision, however, focused on the provisions of the mortgage agreement, which Justice Spinner described as “inequitable.”  Among other “deplorable” and “repugnant” provisions, the agreement had a clause prohibiting the homeowners from ever seeking protection under the U.S. Bankruptcy Code.  The judge reasoned:

This Court has never been presented with such a waiver. …It is axiomatic that a pre-bankruptcy waiver of such a valuable statutory right, even if freely bargained for (and in this Court's opinion, this is certainly not the case), should not, under any circumstances, be enforced against consumer debtors. …[S]uch a highly questionable waiver as this one is unconscionable, unreasonable, overreaching and is absolutely void as against public policy.

The judge's opinions read like a punishing thesaurus entry for "very bad bank" -- he has liberally thrown around language like "deplorable," "vexatious," "repugnant," "repulsive," "harsh," even describing the bank's actions as "premeditated."  Definitely cases to watch on appeal.

[Meredith R. Miller]