No, The Mortgage Was Not Unconscionable

One of the exquisite ironies in the mortgage foreclosure arena is a borrower’s assault on the mortgage claiming that the borrower was always unable to pay the mortgage, the lender knew it and so the mortgage was unconscionable – and the foreclosure should be dismissed.  Presumably the borrower wanted to keep both the money and the property.  Dismayingly, the trial court in such a case found issues of fact and would not grant summary judgment to the lender.  Yet another lender then needed to slog through the appeal process (time and money expended) and was vindicated: decision reversed, no unconscionability. [Emigrant Mortgage Company Inc. v. Fitzpatrick, 95 A.D.3d 1169, 945 N.Y.S.2d 697 (2d Dept. 2012)].

First, observe that unconscionability is a cognizable defense to foreclosure.  There is much obscure and prolix law on this subject, how unconscionability is defined, when it is accepted, when it is rejected – all meaningful, but not the stuff of these alerts. [For those wishing to delve into the details, see extensive discussion and citation at 1 Bergman on New York Mortgage Foreclosures, §5.04, LexisNexis Matthew Bender (rev. 2012)].

What is most instructive about this case was that the lender had documentary evidence showing that the borrower was fully informed as to the terms of the loan, that it was issued based upon her equity in the home and that the lender was not independently verifying the borrower’s income, instead relying upon the borrower’s own representations regarding her ability to pay.

Encouraging here is that the court (the appeal court anyway) saw well what was going on.  The borrower knew what the deal was and could not wiggle out with a transparent assertion of unconscionability.

Giving some pause, however, is the court’s recitation of all the things the borrower could not show, suggesting perhaps that if she were able to do so, unconscionability might have been more viable.  She had no evidence regarding her education, financial status, access to financial or legal counsel, the availability of other types of loans, or loans of lesser amounts, or of deception or high pressure tactics used by the lender.

In the end, though, lenders and servicers should recognize that while they may not be entirely immune to any unconscionability defense, keeping proper records of legitimate transactions should save the day.  Such a defense only very seldom succeeds.

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.