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NY Judge Voids Loan By IndyMac

Riverhead, NY-In a move that has shocked many in the mortgage industry, a New York judge in Supreme Court here ruled that a Long Island couple's $292,500 adjustable-rate mortgage with an initial interest rate of 10.375% from IndyMac Mortgage Services is "cancelled, voided, avoided, nullified, set aside."

Justice Jeffrey Spinner of Suffolk County said Greg Horoski and his wife, Diana Yano-Horoski, who is the owner of the home, showed numerous times that they willing to make arrangements for repayment and that a loan modification would have been a "win-win" for all parties.

Two mortgage attorneys who are not involved with the case told Mortgage Servicing News that this is a classic example of a judge going behind his judicial authority to "back into a desired social result." Both lawyers, who would not give their names, said they expect this decision will be reversed on appeal.

"A servicer has no obligation to write down or write off a mortgage as a matter of law simply because the property value has gone down, the borrower is in poor financial circumstances or the servicer made mistakes in servicing," one attorney said. "This reminds me of the sheriff's office in Philadelphia that refuses to enforce foreclosures as a matter of social policy but not law."

The judge said OneWest Bank did not act in good faith on behalf of IndyMac, which is now a division. He said the way IndyMac behaved was "inequitable, unconscionable, vexatious and opprobrious."

According to the judge, Karen Dickinson, regional manager of loss mitigation, IndyMac Mortgage Solutions, said Ms. Yano-Horoski had been offered a forbearance agreement, upon which she quickly defaulted. "It was after substantial prodding by the court that Ms. Dickinson conceded that it had not been sent to the defendant until after its stated first payment due date."

According to the judge, the couple experienced multiple health problems but over the course of seven months, they appeared in court six times to try and resolve the situation.

Also, the judge said the bank flatly rejected an offer by the defendant's daughter to purchase the house for its fair market value or through a short sale.

"Plaintiff refused to consider a loan modification utilizing any more than 25% of the income of the defendant's husband and daughter (both of whom reside on the premises). Even a final and desperate offer of a deed-in-lieu of foreclosure was met with bland equivocation."

In a statement from OneWest Bank, the bank said it expects the lower court's ruling will be overturned on appeal.

"We respectfully disagree with the lower court's unprecedented ruling. OneWest Bank takes its role as a servicer of home loans very seriously, and has been extremely active working on home loan modifications through the Obama administration's Home Affordable Modification Program and other loan modification initiatives," the company said in its statement.

"In this particular case, we spent nearly four years working with the borrower to resolve the situation and the law does not authorize a judge to cancel a borrower's loan obligation because he did not like the way loan modification discussions were handled. We believe the Yano-Horoski ruling, if allowed to stand, has sweeping and dangerous implications for the entire mortgage lending industry."

A spokesperson for the company denied a rumor that the company has outsourced its loan modifications. "From 'day one' OneWest embraced the FDIC's loan modification programs and we are pleased to roll out HAMP to eligible borrowers across our entire portfolio," said Terry Laughlin, president and CEO of OneWest Bank. "We have made, and will continue to make, significant investments in our servicing operations in order to help homeowners who qualify under these programs."

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