Diana Yano-Horoski, representing herself, was the defendant in the foreclosure by IndyMac Mortgage Services. Her mortgage on the property was in the amount of $295,000 - an adjustable rate loan with an initial interest rate of 10.375%, taken out in 2004. In the foreclosure IndyMac asserted that it was owed more than $525,000, but the property was only worth only about $275,000.
The court ordered a settlement conference, which was continued five times as the court attempted to obtain "meaningful cooperation" from the bank. The representative sent by the bank "made it abundantly clear that no form of mediation, resolution or settlement would be acceptable" to IndyMac. IndyMac claimed that they offered a forbearance agreement to Yano-Horoski, but she quickly defaulted. However, after prodding, its representative admitted that the agreement hadn't been sent to her until after its stated first payment due date. Therefore, it would have been impossible for Yano-Horoski to have consummated the agreement under any circumstances.
IndyMac also rejected a short-sale offer by Yano-Horoski's daughter to purchase the property with third-party financing for its fair market value, presumably more than would have been realized at a sheriff's sale. It also refused modification that included assistance from the incomes of Yano-Horoski's husband and daughter, even though the modification did not seek to forgive any of the principal.
The judge found IndyMac's positions deeply troubling and that it was apparent from its representatives "opprobrious demeanor and condescending attitude" that nothing short of consent to foreclosure and the ejectment of Yano-Horoski and her family would be acceptable to the bank.
The amount of money IndyMac claimed was due also seemed to bother the judge. A letter from IndyMac stated the principal balance was $285,381.70 as of February 9, 2009 and another stated a balance of $283,992.48 as of August 10, 2009. The bank stated that there must have been payments made, but it eventually conceded that no payments had been posted to the account. Then... there are the additional fees and charges:
That having been said, the Court is greatly disturbed by Plaintiff's assertions of the amount claimed to be due from Defendant. The Referee's Report dated June 30, 2008, which has its genesis in a sworn affidavit by a representative of Plaintiff (presumably one with knowledge of the account), reflects a total amount due and owing of $392,983.42. The principal balance is reported to be $290,687.85 with interest computed at the rates of 10.375% from November 1, 2005 through August 31, 2006 ($25,118.62), 12.50% from September 1, 2006 to February 28, 2007 ($18,018.66), 12.375% from March 1, 2007 to March 31, 2008 ($39,126.39) and 11.375% from April 1, 2008 to June 24, 2008 ($7,700.24) totaling $89,963.91. Plaintiff also claims $20.00 in non-sufficient funds charges, $295.00 in property inspection fees and $12,016.66 for tax and insurance advances. The Judgment of Foreclosure & Sale dated January 12, 2009 was granted in the amount of $392,983.42 with interest at the contract rate from June 24, 2008 through January 12, 2009 and at the statutory rate thereafter plus attorney's fees of $2,300.00 and a bill of costs in the amount of $1,705.00. Even computing the accrual of pre-judgment interest of $18,299.18 (using Plaintiff's per diem rate in the Referee's Report) together with post-judgment interest at a statutory 9% through November 19, 2009 (an additional $31,740.90), 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. Moreover, it now appears that the elusive principal balance is either $290,687.85, $285,381.70 or $283,992.48.
The court then noted that Yano-Horoski and her husband have serious medical issues, yet they managed to attend and "assiduously attempt to resolve this controversy in an amicable fashion, only to be callously and arbitrarily turned away" by IndyMac. But, this was only one case in what the court described as a "much greater social problem."
It is certainly no secret that Suffolk County is in the yawning abyss of a deep mortgage and housing crisis with foreclosure filings at a record high rate and a corresponding paucity of emergency housing. While foreclosure and its attendant eviction are clearly the inevitable (and in some cases, proper) result in a number of these situations, the Court is persuaded that this need not be the case here.
In short, a loan modification would result in a proverbial "win-win" for all parties involved. To do otherwise would result in virtually certain undomiciled status for two physically unhealthy persons and their daughter, leading to an additional level of problems, both for them and for society.
As repugnant as the court found IndyMac's behavior in this foreclosure case to be, what could be done about it? The homeowner was clearly in default (by whatever amount it may be) and the mortgage certainly provides IndyMac with its remedy of foreclosure. The judge, however, wasn't about to rule in favor of IndyMac.
The Court cannot be assured that Plaintiff will not repeat this course of conduct if this action is merely dismissed and hence, dismissal standing alone is not a reasonable option. Likewise, the imposition of monetary sanctions... is not likely to have a salubrious or remedial effect on these proceedings and certainly would not inure to Defendant's benefit. This Court is of the opinion that cancellation of the indebtedness and discharge of the mortgage, when taken together, constitute the appropriate equitable disposition under the unique facts and circumstances presented herein.
Yes! The judge ordered that the note in favor IndyMac be "cancelled, voided, avoided, nullified, set aside and of no further force and effect." It further ordered the mortgage to be "vacated, cancelled, released and discharged of record." And, just in case that was not enough, IndyMac, "its successors and assigns are hereby barred, prohibited and foreclosed from attempting, in any manner, directly or indirectly, to enforce any provision of the aforesaid Adjustable Rate Note and Mortgage or any portion thereof."
What legal authority could the judge possibly have for such a ruling? Judge Spinner came up with something to hang his hat on. Citing a string of cases from the late 1800's to the early 1900's, he found that foreclosure was an equitable remedy and that canceling the mortgage in this case was equitable.
Since an action claiming foreclosure of a mortgage is one sounding in equity, the very commencement of the action by Plaintiff invokes the Court's equity jurisdiction. While it must be noted that the formal distinctions between an action at law and a suit in equity have long since been abolished in New York, the Supreme Court nevertheless has equity jurisdiction and distinct rules regarding equity are still extant. Speaking generally and broadly, it is settled law that "Stability of contract obligations must not be undermined by judicial sympathy." However, it is true with equal force and effect that equity must not and cannot slavishly and blindly follow the law. Moreover, as succinctly decreed by our Court of Appeals, "a party having a legal right shall not be permitted to avail himself of it for the purposes of injustice or oppression…"
In attempting to arrive at a determination as to whether or not equity should properly intervene in this matter so as to permit foreclosure of the mortgage, the Court is required to look at the situation in toto, giving due and careful consideration as to whether the remedy sought by Plaintiff would be repugnant to the public interest when seen from the point of view of public morality. Equitable relief will not lie in favor of one who acts in a manner which is shocking to the conscience, neither will equity be available to one who acts in a manner that is oppressive or unjust or whose conduct is sufficiently egregious so as to prohibit the party from asserting its legal rights against a defaulting adversary. Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be.
Still, this seems like an extreme concoction of jurisprudence. The interesting recitation of legal precedent is surely an accurate depiction of the laws of equity, but to me it only means that the court can rightfully dismiss this case - upon finding that IndyMac's bad faith in the mediation leaves the equitable remedy of foreclosure unavailable. Permanently denying IndyMac of its rights under the mortgage would seem to go to far. Of course, as Judge Spinner pointed out, merely dismissing the action would leave IndyMac free to bring another foreclosure action. That alone, in my opinion, would not be sufficient basis to cancel the indebtedness.
Let's consider, for a moment, the Contracts Clause of the U.S. Constitution: "No state shall pass any law impairing the obligation of contracts." The purpose of this clause, although it does not apply to judicial decisions, is instructive.
The Framers of the Constitution added this clause due to fear that states would continue a practice that had been widespread under the Articles of Confederation—that of granting "private relief." Legislatures would pass bills relieving particular persons (predictably, influential persons) of their obligation to pay their debts. It was this phenomenon that also prompted the framers to make bankruptcy law the province of the federal government.
Does it make sense that a judge in a simple, albeit unusual, foreclosure case could grant relief that the legislature could not constitutionally provide? Not even a bankruptcy judge has the authority to set aside a residential mortgage - and debt relief is the primary purpose of bankruptcy.
Take for example an Ohio House bill that purported to give state judges the authority to modify mortgages in foreclosure. Although it provided restrictions on this power, committee testimony revealed that it was most likely unconstitutional. The provision was later removed. Judge Spinner's decision would seem to indicate that although such power cannot be given to the judges by the legislature, with a wink and a nod the same result can be obtained under the guise of the courts' powers of equity.
I would expect IndyMac to file a successful appeal. If this decision stands, judges across the country could decide to clear their dockets by discharging debts of mortgagors who are looking more and more sympathetic in the midst of the financial crisis. Clearly, there is a shift in sentiment towards the homeowner and not many people for sorry for the banks.
Although I do believe that Judge Spinner exceeded his judicial authority in this case, I can't help but smile when I read the opinion. Legally, I don't believe that there is support for the holding. But, morally I applaud the judge for his bold step toward doing what many would term "the right thing." If nothing else, he sent shivers down the spine of every banker who will now think twice before blowing off court ordered mediation.
Robert A. Franco
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