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by Benjamin N. Hoen, Esq. and Larry R. Rothenberg


In a scathing decision issued on November 19, 2009, a judge lashed out at the mortgage lender in a New York foreclosure case and imposed a draconian remedy of ordering the note and mortgage canceled. 

The plaintiff, Indymac Bank, commenced the foreclosure action in 2005, and a judgment of foreclosure was granted in January, 2009. Upon the borrower’s subsequent request, the court scheduled a settlement conference. The settlement conference was continued five times due to, in the court’s words, “a series of unsuccessful attempts by the court to obtain meaningful cooperation from plaintiff.” Finally, the Court ordered that an officer of the bank appear in person. 

According to the court’s decision, the plaintiff’s regional manager of loss mitigation who attended made it plainly clear that the plaintiff “had no good faith intention whatsoever of resolving the matter in any manner other than a complete and forcible devolution of title from the borrower.”  The plaintiff asserted that the total debt was in excess of $525,000, but conceded that the value of the property was no more then $275,000. The Plaintiff argued that it had previously offered the borrowers a forbearance agreement, but after substantial prodding by the court, conceded that it had not been sent to the borrower until after the first payment was due.  The Plaintiff flatly rejected an offer by the borrower’s daughter to purchase the house for its fair market value, as a short sale.  The borrower’s husband and daughter offered to be added as obligors on the loan so that their income could be included in a determination of eligibility for a loan modification but the plaintiff refused.  The court pointed out that the borrower was merely requesting some tinkering with the interest rate and a modification of terms in order to enable her to repay the loan, and that even a final desperate offer of a deed-in-lieu of foreclosure was met with bland equivocation.  The court found the lender’s manager to have shown an “opprobrious demeanor and a condescending attitude.”  The court stated, “In short, each and every proposal by Defendant, no matter how reasonable, was soundly rebuffed by Plaintiff.”

The court, on its own motion, conducted yet another hearing which added more fuel to the fire.  When the court reviewed the balance claimed due on the loan, it found glaring inconsistencies in the amounts due in the lender’s previously filed sworn affidavits.  The plaintiff was unable to explain why the debtor had received one letter saying that as of February 9, 2009, the principal balance was $285,381.70, and another letter saying that as of August 10, 2009, the principal balance was $283,992.48, although no payments had been made for those periods.  Moreover, the Referee’s report, which was based on an affidavit of the plaintiff, showed a principal balance of $290.687.85.   The court used the Plaintiff’s per diem rate to calculate a total debt of $447,028.50, being $80,409.23 less than the $527,437.73 amount asserted by the plaintiff at the settlement conference.  The court stated that it was astounded that the plaintiff was now claiming an escrow advance of $46,627.88, while the plaintiff’s officer had stated under oath that as of June 24, 2008, the amount was $34,611.22 less.

Based on the evidence, the Court stated that it was “unable to find even so much as a scintilla of good faith on the part of Plaintiff.”   The Court went on to state at length and in very strong terms, that the conduct exhibited by Plaintiff was “inequitable, unconscionable, vexatious, opprobrious, unsupportable at law or in equity, harsh, repugnant, shocking, and repulsive to the extent that it must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against Defendant.”  The Court decided that even a monetary fine under a state statute would not be sufficient, and therefore, “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.”  

It remains to be seen whether the plaintiff will appeal this extreme decision, or whether it will be upheld on appeal.  Nevertheless, lenders should take note of the judge’s decision as part of the strong and growing national trend of activism by judges in foreclosure cases.

For a complete copy of the case, go here. 

If you have any questions on this information, please contact Mr. Benjamin N. Hoen, Esq. or Larry R. Rothenberg, Esq. Ben is an Associate focused on foreclosure services in the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A., practicing in the Real Estate Default Group.  He can be reached at (216) 685-1164 or via email at bhoen@weltman.com. Larry is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via email at lrothenberg@weltman.com.  

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. © 2009