Predatory Lending Practices May Defeat Your Foreclosure in New York

Mortgages/Predatory Lending. A New York court recently denied foreclosure and stayed the proceeding seeking to take back the home finding that the original lender violated New York ‘s “predatory lending” statue, Banking Law, Section 6-L (“High-cost home loans”).

The Court scheduled a hearing to determine damages incurred by the homeowner and indicated that the relief may actually include the voiding of the mortgage, return of all mortgage payments, return of the expenses of obtaining the loans and attorneys’ fees.

While it is still early in this mortgage crises, and the effects remain to be seen, the lender’s conduct in question included (i) lending in excess of the purchase price to enable payment of
points and closing fees, leaving the borrowers with negative equity in the property; (ii) financing
of fees and points in excess of three per cent of the principal amount of the loan; (iii) the failure
to undertake the “due diligence” required regarding the borrower’s ability to pay a “high cost
home loan”; and (iv) not issuing to the borrower a required “Consumer Caution and Home Ownership Counseling Notice”.

In LaSalle Bank NA v. Shearon the lender sought summary judgment in a foreclosure action (‘financing was for the full $355,000’). Apparently, the homeowners (‘joint tax return of $29,567 ‘) responded by proving that the original lender had engaged in predatory lending and violated New York State Banking Law 6-l(2).

The court found three violations of the Banking Law, including Section 6-l(2)(k), which deals with the plaintiff’s due diligence into the ability of the defendants to repay the loan; (2) Section 6-l(2)(l)(i), which requires lending institutions to provide a list of credit counselors licensed in New York State to any recipient of a high cost loan; and Section 6-l(2)(m), which requires that no more than 3 percent of the amount financed is eligible to pay the points and fees associated with closing the loans on the real property.

In this case, the homeowners paid $19,145 in expenses to secure the loan, or almost 5.4%percent of the high-cost loan.