Foreclosure Defense Law Blog

New York Courts Uphold Many Defenses to Foreclosures

The July 21, 2010 New York Law Journal discussed the fact that many defenses are being upheld to prevent successful foreclosure actions by lenders. The article noted that “Over the last five years, the annual number of foreclosure filings in New York state has more than doubled, from 22,350 in 2005 to 46,673 last year. More cases were filed in the first five months of 2010 than in all of 2005. In [Suffolk County], the increase has been even steeper, to 7,536 filings last year from only 2,016 in 2005. And the county had recorded 4,144 foreclosure filings as of May 24 (See County-by-County Foreclosure Numbers for 2010 as of May 24 and 2009).”

    Many of the defenses, and the assessment of damages, that have been upheld are familiar to those who represent borrowers: (a) unconscionable practices during loan modification negotiations; (b) damages for failing to obtain the legal right to go into a defaulted borrower’s home; (c) damages for the unreasonable and overreaching language of a mortgage agreement.

    These decisions have been very important in setting the stage for the mandatory settlement conferences that the New York Courts conduct in regard to foreclosures. The lenders are compelled to take the conferences seriously, given the fact that the Judges appear open to the idea of turning the foreclosure process against lenders who cause the borrower unjustified harm. In essence, it is a way of promoting settlement and restructuring of mortgage debt.

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC

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Litigating the Risks Involved In Investing In Subprime Mortgage Trusts

Commentary: In the past ten years, the amount of subprime mortgages provided to borrowers has increased dramatically. Generally, subprime mortgages are provided to those borrowers who have a low credit rating. The term “subprime” means that from a credit perspective, these are less than ideal debtors who will not qualify for the prime interest rate. Because the risk to the creditor is higher, the interest rate and penalties associated with subprime mortgages will also generally be higher. Mortgage lenders who place the loan usually assign it to another institution, such as Freddie Mac or Fannie Mae. Often, the mortgages are then collected into an investment pool, shares of which will then be offered in the public and private markets. It has now become public knowledge that many of the subprime mortgages were created with documentation concerning the borrower that was either faulty or outright fraudulent.

This means enhanced risk for those who invested in those pools. Simply put, mortgage backed investment pools are collapsing at record rates. Many investors had no idea that there were such serious risks involved in purchasing shares of a pool comprised of subprime mortgages. As more subprime mortgages are defaulting, investors are frequently turning to the Courts for redress.

So, where is the potential lawsuit? There are many approaches, but the most basic is this: a claim of breach of fiduciary duty against the trustees or underwriters of the pool. Think of a situation where false information and/or representations are made with respect to a particular trust of subprime mortgages. One could contemplate bringing a claim against the trustee (the individual and/or entity who manages the trust) and/or the underwriter (the individual and/or entity who markets the shares to the public). It is doubtful that these participants would be able to raise the business judgment rule defense. Under that defense, courts will generally refrain from reviewing the actions of those who control and manage a company, provided that such individuals act in good faith and with a reasonable belief their actions are in the bests interests of the company. However, when there is an allegation that the directors violated their duty of care, courts will typically closely examine the actions of those directors.

Accordingly, the most direct approach to seeking redress for a fraudulent mortgage backed investment pool will likely involve on some level a claim of breach of fiduciary duty against the trustees or underwriters of the pool.

Comments/Questions: ljm@gdnlaw.com

© 2008 Nissenbaum Law Group, LLC

Please visit our website at www.gdnlaw.com and our other blogs at www.nissenbaumlawblog.com; www.foreclosuredefenselawblog.com; www.saleofbusinesslawblog.com; www.internetdefamationlawblog.com; www.constructionlawinfoblog.com; www.filmproductionlawblog.com; www.internetlawinfoblog.com; and www.njbusinesslawblog.com