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You may not remember the court case IndyMac v. Yano-Horoski by name, but there's probably a good chance that you remember the story.  This was the case where a judge wiped out a mortgage and gave the defaulted homeowners their home free and clear because IndyMac (now part of OneWest) had acted in such bad faith in dealing with the homeowner. 

The Judge in the case, Jeffrey A. Spinner, normally known for his polite and unassuming manner, spared no adjectives in ripping IndyMac up one side and down the other in his ruling last November.  Spinner described IndyMac's conduct as "overreaching, shocking, willful and unconscionable." In court-ordered workout sessions, the IndyMac rep's demeanor toward the Horoskis was "opprobrious" and her attitude was "condescending."  In total, IndyMac's actions toward the Horoskis had been "harsh, repugnant, shocking and repulsive," Spinner ruled.

When he got around to spelling out what all this bad faith conduct was going to cost IndyMac, he switched parts of speech, stomping out the mortgage and the debt several times over with a blizzard of verbs. Robert Franco, in his Source of Title Blog, described the judge's orders:

The judge ordered that the note in favor IndyMac be "canceled, voided, avoided, nullified, set aside and of no further force and effect."  It further ordered the mortgage to be "vacated, canceled, released and discharged of record."  And, just in case that was not enough, IndyMac, "its successors and assigns are hereby barred, prohibited and foreclosed from attempting, in any manner, directly or indirectly, to enforce any provision of the aforesaid Adjustable Rate Note and Mortgage or any portion thereof."

Judge Wipes Out Mortgage Debt, Denies Foreclosure Relief to Lender

It was as if Spinner subconsciously believed that if he could just destroy this mortgage enough times with enough different words, it would never come back.

But as Robert predicted then, the Horoski mortgage was destined to rise from the dead.  According to Robert and many other legal observers, the decision handed down by Judge Spinner exceeded his authority-- exercising a power that had no basis in the law.  "Not even a bankruptcy judge has the authority to set aside a residential mortgage," Robert wrote.  "I would expect IndyMac to file a successful appeal."

Indeed, the ruling was appealed.  And, as expected, when they decided the case last month, the appeals court reversed the decision.  The appeals court said that Judge Spinner was not authorized to vacate a foreclosure judgment and wipe out IndyMac's  mortgage:

Here, the severe sanction imposed by the Supreme Court of canceling the mortgage and note was not authorized by any statute or rule, nor was the plaintiff given fair warning that such a sanction was even under consideration . The reasoning of the Supreme Court that its equitable powers included the authority to cancel the mortgage and note was erroneous, since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank, particularly after a judgment had already been rendered in the plaintiff's favor.

IndyMac Bank, F.S.B. v Yano-Horoski

Unfortunately for the Horoskis, this decision reinstates a $525,000 mortgage debt and a foreclosure judgment against them.  The house is only worth about half the debt, and the Horoskis very likely cannot pay. This likely means that they will lose their home.  The Horoskis have health problems and losing their home will likely create great hardship for them.  Mr. Horoski sounded resigned when told of the ruling, telling a reporter that he didn't know if he had the heart left to continue fighting the bank. This case, like most foreclosure cases, is unlikely to have a particularly happy ending.

Still, Spinner's ruling will probably be remembered by many as a ray of light in a rather dark period.  While the ruling didn't stand up to legal scrutiny, it may have sent a more important message... that the justice system, at least some part of it, still hears the little guy, and isn't going to just stand idly by while he is systematically treated like an inconvenient piece of trash by powerful, moneyed interests.


Originally posted to skymutt on Thu Dec 09, 2010 at 02:35 AM PST.

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Comment Preferences

    •  Perhaps judges should be given the power. n/t (4+ / 0-)
      Recommended by:
      Major Tom, ER Doc, skymutt, Otteray Scribe

      "A man abstemious, rigidly upright, inflexibly honest, ferociously chaste. A man with every virtue, except humility and human kindness." -Cadfael mysteries.

      by Jane Lew on Thu Dec 09, 2010 at 02:54:49 AM PST

      [ Parent ]

      •  The Horoskis (9+ / 0-)

        Should assert a claim for monetary damages, based upon the bad faith of IndyMac. Perhaps, the court might order damages equal to the mortgage amount? In any case, I suspect that the case is not over.  

      •  Well, (3+ / 0-)
        Recommended by:
        virginislandsguy, ER Doc, merrily1000

        It has bee proposed several times that bankruptcy judges should be authorized to "cram down" mortgages in bankruptcy.  Overall, it is probably a good idea that judges not be given this authority in general however-- they could wipe out the debts of their friends, for instance.  It is a power that could be abused.

        •  It could be (6+ / 0-)

          but, given the massive amount of fraud on the banks' parts all over the country, it's like denying a patient with terminal cancer morphine for the pain because he/she "might" get addicted.


        •  You make a silly assertion. (4+ / 0-)
          Recommended by:
          ER Doc, skymutt, Jane Lew, laker

          "cram down" is the purpose of bankruptcy.  Current federal law is what prevents cram-down, all other types of debt can be discharged.  Your accusation is that bankruptcy judges could "wipe out the debts of their friends" in a corrupt manner. Do you have anything to support that assertion?  As it is, the law (related to mortgages) has a preference against debtors in favor of the banks put in place by "friends of the bank" (congress critters).  

          The opportunity for corruption certainly exists, but I think you have the direction of corruption backwards. Which party has more money and more interest in seeing a debt discharged or not? In states with elected judges the ability of financial firms to support campaigns poses a much larger opportunity for corruption than the personal relationships of a judge.

          •  Bankruptcy judges operate within a framework (2+ / 0-)
            Recommended by:
            Jane Lew, laker

            To discharge the debts, all kinds of conditions have to be met.  That is wholly distinct from giving any judge the power to wipe out debts for any reason.  

            So no, there's little fear that bankruptcy judges would wipe out the debts of their friends in a biased manner-- the friend would first have to declare bankruptcy for that to happen, and then all the rules and restrictions and requirements of bankruptcy would have to be met, or, like the Spinner decision, the bankruptcy is likely to be appealed by the unfairly treated creditors and the debts reinstated.

        •  The problem is that there is already power (2+ / 0-)
          Recommended by:
          ER Doc, skymutt

          that is being abused.

          The power to abuse by mortgage holders should have limits. How you do that I do not know, but when corporations abuse the power they have, there should be consequences for their bad behavior.

          Without consequences there is no reason for them to treat people better than they currently do.

          "A man abstemious, rigidly upright, inflexibly honest, ferociously chaste. A man with every virtue, except humility and human kindness." -Cadfael mysteries.

          by Jane Lew on Thu Dec 09, 2010 at 04:15:56 AM PST

          [ Parent ]

          •  The judge (3+ / 0-)
            Recommended by:
            ER Doc, VClib, Jane Lew

            ...had the power to dismiss IndyMac's case, but chose not to use that power.  He could have also assessed fines or penalties on the bank for misconduct within the realm of the court case-- in fact, Spinner has done that in other cases.  But he can't wipe out the mortgage debt.

            •  I am not suggesting that what you (0+ / 0-)

              say is not the case. Sure, the judge can issue fines and penalties, but that does not right the situation.

              You have people who have been wronged, terribly wronged.

              At what point does the behavior of the mortgage companies become malpractice?

              I am saying that when behavior is so egregious and so harmful to the people who depend upon them, a judge should have the power to undo the damage.

              Only when there are real consequences for acting badly will companies change.

              I don't know how this would work, but at the very least a judge should be able to recommend that those who have been wronged file a case in another court against the mortgage company.

              "A man abstemious, rigidly upright, inflexibly honest, ferociously chaste. A man with every virtue, except humility and human kindness." -Cadfael mysteries.

              by Jane Lew on Thu Dec 09, 2010 at 08:37:00 AM PST

              [ Parent ]

  •  Thanks for the update. eom (2+ / 0-)
    Recommended by:
    Major Tom, skymutt

    I used to be Snow White. And then I drifted. - Mae West

    by CherryTheTart on Thu Dec 09, 2010 at 02:37:50 AM PST

  •  predatory lenders (10+ / 0-)

    I once had my mortgage sold to a predatory lender. It was around 2003 that the troubles started for me and luckily, I got out from under them - there was a class action suit against them.  The mortgage company was Fairbanks Capital corp:   There actually was a pretty cool story attached to the class action suit.  They ran a scam where they would post a payment late and then charge late fees but not tell the home owner (I don't mean the payment was late, they just sat on it until it was late).  When they didn't receive the late fees, they would send somebody by to take a picture of the house.  The fee for that was $300, now added to the late fee.  When they also didn't receive that (usually as a result of not happening to mention it to the owner), they would have their lawyer send a certified letter.  Now there were lawyer's fees as well.  You get the picture - eventually, huge amounts owed and foreclosure.  So anyway, they started this bull on someone who actually happened to have a good deal of money (mostly they targeted fixed income people) and he set out to fight them on it.  At one point, his house with all his documentation against Fairbanks actually burned down...This didn't stop him. ( I think he had backups).  He started a website dedicated to bringing this company down and helped all those fixed income people who were selling their cars to keep their homes.  It was thanks to this guy (I don't think the website is up any more - part of the negotiations was that he would take it down), that I avoided more significant problems, because he had detailed information about how to deal with them - sending your mortgage payment certified, return receipt so a date would be stamped on it, saving everything etc.   Here's FTC and HUD charges:Fairbanks Capital settles FTC and HUD Charges   I learned a lot from that experience.  For one - just how slimy banks could be.  But also, the power of the web and what one person with resources could do - how many people could be helped.  I don't even remember the guy's name, sadly, but he was a hero.

  •  It is just a house.... (2+ / 0-)
    Recommended by:
    VClib, skymutt

    Worth less than is owed on it.  Let it go, declare bankruptcy and move on.  

    In a few years buy another at a much cheaper price, ya know something you can afford.

    Americans need to break their emotional attachment to assemblages of wood, bricks and granite.

    •  "After a few years"? (3+ / 0-)
      Recommended by:
      skymutt, QuestionAuthority, laker

      These people are not young nor are they in good health.  They don't have that kind of time, let alone the ability to accumulate the assets with which to do that.  

      I think there is much more to this story than people buying a house they couldn't afford.  If not, the judge wouldn't have written such a stunning decision.  Assuming that everyone who defaults has bitten off more than they can chew is simply wrong.

      -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

      by luckylizard on Thu Dec 09, 2010 at 05:02:29 AM PST

      [ Parent ]

      •  For God's sake, people LOSE JOBS--that's why (3+ / 0-)

        they can't afford their mortgages!  We bought a house in 1976 for $50,000.  In 2005, before the Great Fall of 2007-2008, the bank appraised it at $539,000.  We couldn't get that much for it now, of course, but it scarcely matters--we have no intention of selling, ever.  

        The point is, the Horoskis may well have been able to afford their mortgage before they got sick and lost their jobs.  That's the kind of country this is:  get sick, lose your job, lose your health insurance, and lose your house.

        That sucks.

        Religion is what keeps the poor from murdering the rich.__Napoleon Bonaparte

        by Diana in NoVa on Thu Dec 09, 2010 at 07:25:47 AM PST

        [ Parent ]

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