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 ForeclosureConference Part, Justice Jeffrey Arlen Spinner is waging his ownmortgage reform revolution.  Backin November, Justice Spinner canceled a $292,500 mortgage on unconscionabilitygrounds, describing IndyMac Bank’s behavior as “harsh, repugnant, shocking andrepulsive.”  Then, just last week, heordered the Emigrant Mortgage Company to pay $100,000 to the homeowners ascompensation for the bank’s “deplorable” mortgage agreement and its bad-faithforeclosure 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.”  Hewrote: 

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

When Emigrant initiated the foreclosure proceeding, thehomeowners contested the action, arguing that Emigrant refused to engage ingood faith settlement conferences, as required by a 2008 amendment to theBanking Law.  The decision,however, focused on the provisions of the mortgage agreement, which Justice Spinnerdescribed as “inequitable.”  Amongother “deplorable” and “repugnant” provisions, the agreement had a clauseprohibiting the homeowners from ever seeking protection under the U.S. BankruptcyCode.  The judge reasoned:

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