New York's Supreme Court has blocked a mortgage lender from foreclosing on a borrower who committed mortgage fraud because of violations to the state's predatory lending laws by the originating mortgage broker.
In a sweeping decision, a motion for foreclosure in LaSalle Bank, N.A. v. Shearon was denied by the state as a result of numerous violations of New York's predatory lending laws, David Souders, an attorney for Weiner Brodsky Sidman Kider P.C., told MortgageDaily.com. In addition, the borrowers were entitled to recovery of their "financial damages" and attorney's fees.
In the case, filed in the Supreme Court, Richmond Co., N.Y., the borrowers were mistakenly provided disclosures under the Home Ownership Equity Protection Act even though the loan didn't qualify as a high-cost loan.
"Consistent with the legal expression, 'bad facts make bad law,' the court found that, although the borrowers allegedly misrepresented their income in their loan application, the originating broker and lender, as well as other non-parties who 'stood to benefit from the loan process,' participated in 'coercive and concerted tactics' to force the borrowers to close on a high cost loan that was unfair, predatory and destined to go into default," Souders explained.
The court determined the property sales price was inflated, and signatures were forged. In addition, no analysis was done to determine the borrowers' repayment ability, disclosures were missing or inadequate, and the borrowers were placed in a subprime loan even though they qualified for a prime mortgage.
Souders noted the current mortgage holder was placed in the position of having to defend unfavorable facts.
"This type of scenario is, unfortunately, not uncommon and re-emphasizes the need for lenders and servicers to scrutinize loan files early in the foreclosure process in order to spot potential problems and perhaps try to work with the borrower in resolving such origination issues outside of the courthouse," Souders said. "It also exemplifies the fact that judges are reacting to the publicity surrounding the collapse of the subprime mortgage industry and are demonstrating a willingness to step in and assist a borrower when they believe that the borrower may have been taken advantage of."
LaSalle Bank, N.A. v. Shearon No. 0100255/2007, 850 N.Y.S.2d 871, Jan. 28, 2008