THE BLOG

There's No Business Like Loan Business

03/18/2010 05:12 am ET | Updated May 25, 2011

Did you read or hear about the Long Island judge who told IndyMac Mortgage that its actions in refusing to modify a mortgage were so onerous he was voiding the lien rather than enforcing the foreclosure? http://www.newsday.com/long-island/foreclosure-ruling-sends-message-to-lenders-1.1626914

I have to admit that I inwardly cheered a bit when a reporter called to share the recent news with me and obtain an opinion from my perspective as a real estate attorney. Upon quick consideration, my enthusiasm was chilled by the prospect of the current crop of skittish lenders becoming even more conservative in regions of the country where compassionate judges were apt to do more than just admonish them for appallingly coldhearted conduct.

I've urged my federal representatives to provide bankruptcy judges with the capacity to "cram down" mortgages to affordable levels. The legislation died in the US Senate after the powers-that-be proclaimed that they were championing the "sanctity" of contracts. While I am all for living up to contractual obligations, I regularly read court decisions where union contracts were set aside, pre-nuptial agreements voided, and judges unilaterally decided the mindsets and intentions of contracting parties. If such modifications to everyday pacts aren't protected from judicial intervention, why should mortgages be inviolable? The cynic in me leaps to the conclusion that those contracts involving financial institutions and investment entities which make large political contributions and deploy legions of lobbyists might just be receiving special legislative safeguards.

Why is it verboten for voracious violators of equity and reasonable lending practices to be penalized? If mortgage lenders can cavalierly disregard circumstances without punishment, why would they ever reconsider an existing lien? Practitioners of predatory lending got away with so much in the past decade because it wasn't in regulators' best interests to enforce existing policies and laws. As an officer of the court, I want to place my faith in judges to do what regulators didn't: level the playing field.

As stated, I believe wholeheartedly that there must be consequences for borrowers who don't pay their debts. Yet the realist in me knows that there must be a caveat when fantasizing about consumer protections: if judges may always evaluate the current state of a mortgagor's finances before enforcing a prior contractual commitment, I acknowledge that there will be exploitative borrowers who will turn to courts for relief rather than live up to their obligations.

There's a middle ground to be found in letting judges consider facts and circumstances before depriving homeowners of the roofs over their heads. I hope powerful financial interests don't obliterate all borrower protections via their contributions and lobbyists, and I hope the appellate courts in this mortgage-busting case affirm the uniqueness of every contractual relationship.