Suffolk County Supreme Court Justice Jeffrey A. Spinner clearly has empathy. Unfortunately, it’s the sort of empathy that may well wreak havoc when one considers that unintended, but obvious, consequences of his decision. As reported in Newsday (with apologies to anyone who can’t access the link since Newsday isn’t really a newspaper anymore):Last Thanksgiving, Greg Horoski and his wife faced foreclosure. Thursday, they celebrate the holiday in the East Patchogue home they now own outright, thanks to a State Supreme Court justice’s ruling to cancel their mortgage because of a bank’s failure to act in good faith in working out a foreclosure alternative.
Justice Jeffrey A. Spinner in Riverhead ordered the $292,500 mortgage “canceled, voided, avoided, nullified, set aside” and blasted the actions of IndyMac Mortgage Services, a division of OneWest Bank F.S.B., and its representatives, as “harsh, repugnant, shocking and repulsive,” according to his Nov. 19 decision.“We never asked for this,” Greg Horoski, 56, said Wednesday from the modest single-story home on Oakland Street. “I was shocked, honestly.
“It’s not like we said, ‘Judge, please throw the loan away.’ We just wanted them [the bank] to be reasonable.”
The Horoski saga is remarkably ordinary. The refinanced and pulled a little over $100,000 out of their home when the market was good. They fell behind after some normal medical issues arose. They tried to get the bank to work things out with them, but the bank behaved like a bank. It appears that what really annoyed the judge was the bank’s attitude during the action:Spinner’s decision notes that the couple appeared at every court conference despite their health problems. Conferences were rescheduled five times because of the bank’s failure to cooperate, the decision says.
The judge’s annoyance is well-warranted, and appreciated by every lawyer who would never show such disrespect to a court. But this sort of conduct warrants sanctions, not voiding the mortgage. The former is a terrific way to penalize a party or its lawyers who have made the other side suffer for its failure to appear or comply with the court’s directions. The latter is a way to make banks rescind mortgage offers, or move to Alabama.
As maddening as the impersonal and patently unhelpful attitude of mortgage lenders may be, there are two overarching concerns. First, without them, there will be no mortgages and people can’t purchase homes. Second, they put out the money and they are entitled to get it back, with interest. This was no scam loan or contract of adhesion. It was just your basic mortgage. Sometimes, people who get loans also get sick, or get laid off, or just have problems repaying. That’s the nature of loans. They knew when they took the mortgage that they would have to repay, and as Greg Horoski’s post decision statement shows, he’s almost embarrassed at the monumental gift he’s been given for no good reason. He knows this decision is over the top.
We would all love to have a human being on the other end of the phone, someone who might actually think when we call with problems, and then help to resolve them. Banks suck. They aren’t human. They have no heart. But they do have money, and we need that money. This isn’t the way to make banks into nicer people. This is the way to make banks run away.
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I don’t ordinarily comment and I rarely disagree with you. But in this case the Judge made a courageous and entirely appropriate decision. Banks have a duty to negotiate in good faith, taking into account changed economic circumstances. I am involved as an attorney in several sad cases involving “subprime mortgages” and other mortgage which banks issued to buyers who put down 5% or less on apartments that they could not afford, betting that the market would continue to rise. While the banks cannot be faulted for making such risky loans, they nonetheless have an obligation to negotiate in good faith when the risks come home to roost. “Short sales”, “loan workouts”, “loan restructurings” and other such loan renegotiations are a fact of life in this economic environment, and banks must share some of the losses with borrowers. As this Judge properly recognized, the bank would have been much better off accepting a restructured loan arrangement with a lower interest rate, since this provided the bank with a realistic opportunithy to reduce the extent of its loss, while at the same time recognizing the homeowner’s interst in avoiding a total loss of his investment (not to mention loss of his home). Most responsible banks recognize the obligation in the current economic environment to negotiate in good faith in an effort to avoid foreclosure–and this means that the bank will have to take an economic hit. This is in the interest of the banks as well as the borrowers–banks who have to take properties into foreclosure almost never make out as well as banks who work with the borrowers to restructure the loans.
Ultimately, this case was a classic examploe of the duty of good faith and fair dealing as applied to a bank. Banks know that some percentage of their loans will go bad. When a loan goes bad, it is not necessarily the case that the bank can never be deemed to act in bad faith when it takes a hard line and attempts to enforce its contractual rights. To the contrary, every contract in New York includes an implied covenant of good faith and fair dealing. Fair dealing means that a bank must always consider whether in the individual circumstances at hand, the bank should be willing to take a financial hit in order to work out an fair and equitable solution. Remember–banks are in the business of taking risks, and when the bank makes a bad bet on a specific borrower, this does not mean that the borrower has engaged in wrongdoing, criminal misconduct, or otherwise is a bad actor. Sometimes circumstances of life are unpredictable, and when the unpredictasble happens, it is the duty of a responsible bank to negotiate in good faith to find a solution that mitigates its own loss while at the same time gives the borrower an opportunity to salvage its own financial condition with dignity and respect. I comment this Court for recognizing and properly applyuing the covenant of good faith and fair dealing.
Actually, I have to disagree. There’s a lot more going on here.
We have been living through an era where the morality of all this leverage and borrowing has been brought into stark relief. It isn’t a pretty picture. The lending process itself drives up the cost of the “assets” that are bought because so much “money” is available – through borrowing, of course – to purchase them. If banks stopped lending to people to buy houses, the price of houses would have to come down to a range where people could buy them without borrowing.
As it is now, the banks can screw up royally and get a bail out. Their officers never disgorge their salaries and bonuses no matter how perfidious they have been. But the poor slob at the bottom, if he screws up he’s homeless. This is intolerable, if you ask me.
People should pay their debts, but that shouldn’t be limited to the people at the bottom. As it is, there is a lot of defaulting, but only the small fry suffer any consequences, and they are severe.
Look at the federal government. Do you think the government is ever going to actually “pay” the $15 trillion or so in official debt plus the oh, say $100 trillion or so “unfunded liabilities”, like social security and medicare? Not a chance. We’re looking at the biggest default in history no matter what anybody does at this point, though it will probably be called something else.
And if the federal government is going to default, one way or another; and if there is no remedy for that (after all, it is very well armed); and if defaulting banks are simply bailed out, which then winds up being the solution for all others similarly connected politically; then why should the low men on the totem pole be the only ones to suffer?
I think we need a jubilee. Cancel all the debt. Start over.
I was just wondering what kind of effect this is going to have on mortgage insurance, and whether this kind of judgment would be exempted from recovery because of bad faith just like an officer or director’s liability would be exempted from coverage if he neglected his responsibilities. How will insurance companies likely rule on this because that seems to be what will have the largest impact on whether bank’s will continue to loan money?
I hope this story attracts the attention of the bank examiners.
In the inception of a loan, banks have a duty of good faith. And that was the case here, when the bank handed over a check that netted the borrower more than $100k in his pocket. This was no subprime mortgage scam, but an ordinary refi. The borrower was not duped, but understood exactly what his obligation was and agreed to it.
Do contracts cease to be contracts whenever one side has trouble performing after the other side has fully performed?
While I wouldn’t imagine that mortgage insurance would play any role, there’s clearly no role now since the mortgage has been voided. There’s no debt to pay. And insurance companies don’t “rule” on anything.
For what?
I don’t know whether it will change your opinion, but here is the slip decision. The judge did consider sanctions and explains why he chose instead to void the mortgage. Also, the offenses of the bank exceed merely failure to attend conferences.
My understanding is that bankers are supposed to be good citizens and contempt of court is not a hallmark of good citizenship.
Short answer, no, it doesn’t change my opinion in the slightest. Longer answer, I’m appalled that the judge appears deeply angered by the plaintiff’s refusal to move off its full claim during court-involved mediation, at the defendant’s request. This is outrageous. No one, but no one, is obliged to settle for a dime less than the claim during mediation, and the suggestion that it will be used against them demonstrates a fundamental misunderstanding and abuse of the process.
Huh? What rule of law says bankers have to cooperate in reducing the amount of their claim?
I guess we will have to see how the appeal turns out.
Foreclosure is an equitable remedy. If the bank comes in seeking it, they have to be fair and reasonable.
It’s not a rule of law, it’s a rule of equity.
You’re right, foreclosure is an equitable remedy. But doesn’t fairness apply to the terms of the agreement rather than capitulation? Is there any action that requires someone to agree to reduce their claim? Would you really want a judge to be able to force that on you? Really?
Scott, what can I tell you. I’ve done a little bankruptcy work here and there. Nobody gets every dime they claim. People enter into agreements in good faith but things don’t turn out like they planned: they get sick, the business isn’t there, their wife takes the kids and divorces them.
I was reading some figures the other day on displaced persons in Europe during WWII. It amounted to about 6% of the population. And of course that was a terrifying conflagration.
If every bank gets every dime it seeks on every defaulted or defaulting mortgage loan, on pain of making the obligor and his family homeless, the displacement would be many times greater than 6%. Talk about the equivalent of war.
The banking industry has been completely out of control for more than 30 years. They have had one crisis after another, and the cost of their screw ups has been papered over and fudged and pawned off to the next unsuspecting rube, with the conniving assistance of bought off legislatures, state and federal. Now they’re costing everyone trillions, and they turn around on some poor slob and demand his house, which they don’t want and can’t use and will just waste anyway. The only reason they do it is to make a point: you must pay your debt to the bank. But the bank doesn’t have to pay ITS debts. The bank gets a bailout.
It’s just my opinion, but I hope a lot more judges start stiffing the banks. The legal system hasn’t done anything to stop the madness so far; at least we can look at the morons who begot this mess and say: you guys are supposed to be the brilliant policy wonks. Figure something else out, other than making a lot of people unemployed and homeless.
And I’m sure I don’t need to tell you that judges are trying to force settlements all the time. They’re almost always pressuring the weaker litigant, of course. It’s nice to see the bank getting squeezed for a change.
I’m not at all sure what effect this will have on the banks. Will it make them even less likely to do mortgages? Possibly. That’s obviously a bad thing. More likely to be accommodating when a mortgage holder simply can’t — as opposed to won’t — pay? Also possibly.
My guess is both, but not much, either way. About the only thing I’m pretty confident of is that it will make this bank more likely to at least simulate being accommodating, and I’m not sure that’s a huge win for anybody.
My issue isn’t with whether banks should get every dime, but with tossing the action because they weren’t cooperative. Anyone can reject mediation, or else it isn’t mediation. Let them go to trial and lose, if that’s what the evidence shows. But to void the mortgage on paper?
Were did you get the impression that Greg Horoski was grateful or surprised y the Judge’s decision. He and his wife continue to complain.
He continues to moan over his large belly, that dealing with the bank was like dealing with organized crime. Diane appears to use the race card whenever anyone disagrees with the Judge’s decision. Bottom line–they needed a sub-prime loan before any self-reported medical problems arose. More than likely there loan was obtained by over-stated income in 2004.
Did the Judge verify that loan was obtained without any fraud? I pay a lot more than 25% of my income on PITI right now, not sure why Greg thought only 25% of his online business and 25% of his daughters income should be used. What happened to his wife’s income as a COLLEGE PROFESSOR.
We are only hearing part of the story- They should produce their tax returns and 1003 and paid medical bills. During the foreclosure process with THREE Working ADULTS living in the house, they were not willing to pay any real estate taxes. Let their own community suffer. Despite not agreeing with the bank–THEIR REAL Estate TAXES WERE OWED. Did not the borrower as an English Professor have the ability to read and understand the mortgage documents/ They accepted a 10 interest rate–because they were SUB-PRIME. They could have sold and downsized.
Owning a 3400 square foot house in Suffolk County is a luxury not an American right. How much did they contribute to the foreclosure by refusing to chane their standard of living after they developed medical issues. We as taxpayers should pick up the tab- for a couple who does not even have children living in the house. There are single Mom’s trying to hold onto a small, modest home.
Waiting to see what size the check is they write to their community homeless shelter!! That is the least they can do, since they have come into over Half a Million of TARP Funds–and have lived in their very large home for over 2 years at no cost to them, only to the US Taxpayers.
You can’t effectively answer for the conduct of the bank(s), so you’re trying to change the focus to the “borrowers”.
It’s a lot like politicians who focus on bad, bad welfare recipients to explain budget shortfalls that are more due to bloated public employee salaries and retirements.
I have to admit it’s effective on the surface and you’ve done a good job, but in the end it’s still ad hominem.
In truth the murky allegations of “fraud” by a bank are laughable. The whole “securitization” process with respect to home mortgages – which every home lender has been engaged in for years – has been a massive scam, pretty much on the entire world, that makes Bernie Madoff look like a piker.
The lending industry has been so inherently dishonest for so long it’s possible that those involved don’t even see it anymore. But it’s still there. That’s where this crisis comes from.
I don’t think misdirection, ad hominem argumentation, and scapegoating little people is going to work in the long run. It might make people angrier at the banks when all is said and done.
We’ll see.
Thanks for your Reply–
But after being in the Mortage Industry for over 20 years–and only doing Conforming Loans and very few stated loans, feel it is a two way street.
I did not totally blame the borrower, but if we cannot hold College Professors responsibe for reading and understanding loan documents, I guess we need to give everyone a free pass.
I have two mortgage companies that have not paid me substantial wages due to their BK, and I still take responsibility for paying my mortgage.
Not able to get Cobra, due to Company’s BK.
Sorry, Clearly all the blame does not belong on the bank.
BTW, have no problem with welfare receipants as long as they are not
mis-representing their income while collecting.
I have no problem with loan modifications–just needs to be documented that income actually decreased from time (1003) when loan was granted.
Well, I’m on your side with respect to the wages you are owed, and I don’t see how you have to meet all your “responsibilities” when the lenders, as a group, don’t meet theirs.
In one sense I can understand how your continuing to assume as much responsibility as you can is admirable. But I can see another side: you’re enabling others who are grossly irresponsible.
I think at this point the other side has it. You’ve got a sick system that hedges risk by using the government as the guarantor of last resort. Without that backstop, you would have never seen securitization and such exotic hedging mechanisms as Credit Default Swaps.
Anyone with any sense of proportion could have seen that this house of cards would come down with a hiccup, and there were even several warning signs. Yet instead of retreating from the offending behavior, the lending industry dug faster and deeper. Now they look at the people at the bottom and say pay up, deadbeats, while with their other hand they lobby Congress and get bailed out and none of the “responsible” parties misses a paycheck.
And how do you like that, Elizabeth? You’re being extra responsible to make up for the grotesque irresponsibility of bonus-fed Wall Street whiz kids. They don’t have your sense of responsibility. They don’t have any sense of responsibility at all.
I’m on your side. And the Horoskis. And about 100 million other people.
I think this discussion is getting badly strained, to the degree of pointlessness. John, you’ve already made it clear that you think banks are evil and no borrower should have to pay their mortgage. Enough of my space has been wasted on this.
I agree with 85% of what you are saying.
When my mortgage loan was held by my BK employer MLN, and they owed my 2.2 years of deferred compensation I argued that I would subtract the wages owed from the loan. Again, I was on the conforming side.
Anyhow, loan was transferred while I was thinking about retaining a lawyer.
Bottom line, do feel that if one homeowners entire substantial debt is wiped out, then everyone should be entitled to the same benefits.
[Ed. Note: Balance of comment deteted, and this will be the last comment on the subject from this commenter.]