ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, November 23, 2010

A Wrench in One Judge's Mortgage Modification Revolution: Reversal on Appeal

In an April 2010 post titled One Judge’s Mortgage Modification Revolution, we wrote:

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."

About a year after Judge Spinner cancelled the IndyMac mortgage, the Appellate Division (Second Department) has reversed his decision.  The appellate court reasoned that Judge Spinner did not have the authority to cancel the mortgage:

Here, the severe sanction imposed by the Supreme Court of cancelling the mortgage and note was not authorized by any statute or rule (see Tewari v Tsoutsouras, 75 NY2d 1, 5-7), nor was the plaintiff given fair warning that such a sanction was even under consideration (see Matter of Harner v County of Tioga, 5 NY3d 136, 140; Barasch v Barasch, 166 AD2d 399, 400). The reasoning of the Supreme Court that its equitable powers included the authority to cancel the mortgage and note was erroroneous [sic], since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank (see First Natl. Stores v Yellowstone Shopping Ctr., 21 NY2d 630, 637; Levine v Infidelity, Inc., 285 AD2d 629, 630), particularly after a judgment had already been rendered in the plaintiff's favor.

My colleague, Tom Maligno, Executive Director of the William Randolph Hearst Public Advocacy Center and Director of Public Service at Touro, commented in Newsday: “The way the banks have been dealing with homeowners has not been fair. I wish all courts would take the fairness part of the equation into account more.”  

On the other hand, the lenders can now let out a biiiig-slooooow-sigh-of-relief.... 

[Meredith R. Miller]

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