Sympathy Is Not A Defense To Foreclosure

So how is this as a frightening scenario for any mortgage servicer or mortgage holder?

A foreclosure is begun on a defaulted mortgage.  The borrowers are duly served but default in the action.  Mortgagee/plaintiff moves for appointment of a referee – the next step in a New York foreclosure – all standard stuff so far.

You can sense what is coming when we observe both that the borrowers did not oppose the motion to appoint the referee and that the plaintiff’s presentation was complete and met all standards.  No, said the trial court, motion denied.

In some way unstated by the case, the borrowers had apparently conveyed to the court information about their plight: some condition requiring significant medical expense.  It was that information which led the court, strictly on its own, not only to deny the reference (and thereby stall the foreclosure) but to direct that the borrowers thereafter make reduced monthly mortgage payments, to submit to plaintiff proof of their “excessive medical bills” and to increase the payments once the condition improves, then to make additional payments to cover the difference between the amounts due and the reduced payments made. (It is not clear how long payments would be reduced, what the numbers would become, how long all this might prevail, and when – if ever – this scheme might somehow vitiate the default.)

Pleasingly for lenders and servicers, the decision was reversed on appeal.  [Emigrant Mtg. Company Inc. v. Fisher, 90 A.D.3d 823, 935 NYS 2d 313 (A.D.2d 2011)]  On that appeal it was found that while generally a court can in its discretion grant relief warranted by plain facts clearly presented by all parties and proven, the relief cannot dramatically depart from what is sought and no prejudice to any party can result.  Most critically, it was ruled that stability of contract obligations must not be undermined by judicial sympathy.

This of course is the most critical part.

Lenders and servicers are all too aware of the atmosphere in many states, New York certainly manifestly among them, where borrowers are viewed as oppressed by lenders, needing special aid from the courts.  This is reflected both in legislation and in many decisions.  While, of course, fairness to borrowers is not something anyone would argue with, when courts proceed to in effect void provisions of the mortgage contract and impose terms at variance with that contract, lenders and servicers can understandably be dismayed.  But here the principle presented was that such a departure from the requirements of the contract could not be countenanced.  The point was strongly made as well that the relief granted at the trial court level exceeded the scope of the court’s authority, citing a number of recent cases where appeal level decisions have found that lower courts have gone too far.

While this decision is most assuredly comforting – and we easily opine, correct – it does not assure that further rulings refusing to honor the mortgage contract will not continue to bedevil lenders and servicers.  But it is welcome and it is helpful.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.