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N.Y. Supreme Court Blocks Foreclosure Due To Predatory Lending Violations

http://www.docutechcorp.com/compliance/mortgage-compliance-updates/home-foreclosure-blocked-due-to-predatorylending-

violations.html

In a recent potentially precedent-setting decision, New York Supreme Court

Justice, Joseph Maltese, denied a bank’s motion to foreclose on a sub-prime

mortgage due to several predatory lending violations.

In the LaSalle Bank N.A. v. Shearon Case (No.100255/2007, 2008 WL

268449), the lender LaSalle Bank, moved for summary judgment in its

foreclosure action against David and Karen Shearon. Not only did Justice

Maltese dismiss the foreclosure action by the lender, but also granted the

homeowners summary judgment on their counter claim that the lender violated

New York predatory lending law.

The Judge ordered a hearing to assess damages against the bank. The

borrower may be entitled to receive damages including all of the interest

paid, the closing costs charged for the loan and a refund of any amounts

paid. Because the bank engaged in predatory lending practices, the

mortgage and loan may be voided, thus stripping the lender of any right to

collect, receive or retain any principal or interest. This also gives the

borrower the ability to recover any payments made under the agreement.

Details of the Purchase

In January 2006, Karen and David Shearon bought their first home in Staten

Island New York for $335,000. The sales contract however, listed a purchase

price of $355,100.00, which included a $20,100 "seller’s concession" used to pay

closing costs associated with obtaining the loan. The sale was ultimately

financed with two loans. One loan for $284,000 with a fixed-to-adjustable rate

feature, and a second for $71,000 at a fixed rate in excess of 10%. Total points

and fees financed on the loan were approximately 5.4% of the total amount

borrowed.

Although the Shearon’s combined annual income was only $30,000, their

mortgage broker assured them that they would qualify for traditional loan

products with fixed interest rates and that he was "shopping around for the best

rates." Despite their strong credit scores, and the assurances of their broker, the

Shearon’s were given a high-cost loan typically assigned to sub-prime borrowers.

The borrower’s attorney said his clients tried to back out of the loan prior to

closing but were told they’d lose their $5,000 deposit and could be sued if they

didn’t go through with the agreement. They had also already given up their

apartment lease. "I feel that I was bullied into accepting the way it was," said

David Shearon. They ended up closing the loan with WMC Corporation.

Less than two years after closing their loan, when the Shearon’s failed to make

their monthly mortgage payments, LaSalle Bank as loan trustee and successor to

the original lender began foreclosure action. In defense of the foreclosure action,

Shearon argued that he was the victim of predatory lending practices.

Borrower Claimed Predatory Violations

David Shearon alleged that the original lender had engaged in six predatory

lending practices through the loan closing process on his Staten Island home.

1. Excessive financing was approved (106% of the purchase price) to

allow closing costs to be financed.

2. Inadequate due diligence regarding Shearon’s ability to repay

the loan.

3. The lender intentionally placed Shearon in a sub-prime loan to the

benefit of the lender with excessively high interest rates.

4. Failure to provide federally mandated disclosures.

5. Forgeries of numerous loan-related documents.

6. The lender repeatedly employed coercive tactics.

Court Acknowledged Predatory Violations

The New York Supreme Court found that the bank had committed at least three

predatory lending violations of the New York Banking Law.

1. Points and fees financed on the Shearon loan equalled nearly 5.4%

of the total loan. The court held that the original lender, by financing

fees and points in excess of the 3% allowed had violated the statute.

2. The court found that the original lender did not even attempt to

demonstrate that they had performed their due diligence in

determining the borrower’s ability to repay the loan. Not providing

this due diligence is a violation of New York banking law governing

high cost loans.

3. The court held that the original lender also failed to comply with the

so-called "Counseling Statue" of the banking law by not providing a

"Consumer Caution and Home Ownership Counseling Notice"

with a list of credit counselors.

Why This Decision is Important

This court case has been followed closely and will have a significant impact on

the future of predatory lending for a number of important reasons.

Establishes a Defense for Borrowers Undergoing Foreclosure

This is the first time in New York that a judge has invoked those predatory

lending violations against a lender, and it could signal a shifting tide in how

foreclosures are handled. James Tierney director of the National Attorneys

General program at Columbia Law School said, "Trial judges across the country

are beginning to question banks seeking to foreclose on homeowners in similar

situations."

This decision will encourage other borrowers and their counsel to wave the red

predatory lending flag in response to foreclosure proceedings. One copycat suit,

Alliance vs. Dobkin (No. 10625/2006, 2008 WL 1758864), has already received

national attention and although this case was unsuccessful because the judge

ruled that predatory lending practices were not employed, you can be sure that

many more will follow. Expect for many undergoing foreclosure to use this same

tactic.

The WarningMessage Has Been Sent

Although damages have not yet been assessed, many are shocked by the extent

of the damages that may be awarded to the borrower. Damages may include

returning all mortgage payments and expenses to the borrower, awarding

attorney’s fees and voiding the bank’s mortgage and loans. The scope of

the possible relief in this decision makes it very clear that judges are taking

predatory lending very seriously.

Margaret Becker, director of the Homeowner Defense Project at Staten Island

Legal Services said, "It is very encouraging that judges are clearly taking the

issue of predatory lending in the subprime market seriously and are willing to

enforce laws to protect people from these kinds of pernicious practices."

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Can anyone in New York find and post this Case Court Order for me here . I can use it to defend my case. Thanks a million. I am sure other people can use this case as a case law too.

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Moose
Ann wrote:

Can anyone in New York find and post this Case Court Order for me here . I can use it to defend my case. Thanks a million. I am sure other people can use this case as a case law too.



Ann - contact these folks - they handled the case:

Staten Island Legal Services
36 Richmond Terrace, Ste. 205
Staten Island, New York 10301
Tel: (718) 233-6480
Fax: (718) 448-2264
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William A. Roper, Jr.
Ann:

There were two decisions styled LaSalle Bank, N.A. v Shearon.  Neither is a singularly recent case.

These were:

 

LaSalle Bank, N.A. v Shearon, 2008 NY Slip Op 28032 [19 Misc 3d 433] (Decided January 28, 2008)

http://www.nycourts.gov/reporter/3dseries/2008/2008_28032.htm

 

LaSalle Bank, N.A. v Shearon, 2009 NY Slip Op 29055 [23 Misc 3d 959] (Decided February 9, 2009)

http://www.nycourts.gov/reporter/3dseries/2009/2009_29055.htm


You can generally search for published New York decisions at the site of the New York Official Reports:

http://www.courts.state.ny.us/reporter/Index.htm


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Thanks Moose and Bill for your help.

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