In what appears to be the first reported New York decision enforcing anti-predatory lending provisions of section 6-L of the New York Banking Law, a Supreme Court Justice in Staten Island has ordered a hearing to assess damages against a bank following a series of violations of the law. In LaSalle Band v. Shearon, 100255/07, the lender moved for summary judgment in its foreclosure action. But not only did Hon. Joseph J. Maltese deny the motion, he searched the record, found three separate violations of the anti-predatory Banking Law, and granted the borrower summary judgment on his counter claims alleging violations of that law.
The case concerned the purchase of a home for the sum of $335,000.00. According to the decision, the purchasers’ mortgage broker advised that they would qualify for traditional loan products with fixed interest rates and that he was ‘shopping around for the best rates.’ The Contract, however, listed a purchase price not of $335,000.00 but instead of $355,100.00 with a ‘Seller’s Concession’ of $20,100, which was used to pay points and fees associated with the closing on the property. Additionally, despite the purchasers’ strong credit scores, the loan given was a high-cost loan with a higher-interest loan typically assigned to subprime and other risky borrowers.
At the execution of the contract, the purchasers deposited $5,000 with the seller’s attorneys, which would leave a balance of $350,100. But the financing was for the full $355,000, implying that it would be a ‘no money down’ purchase at closing where arguably that amount should have reflected a deduction of the $5,000 deposit that the Shearons paid at the contract signing.
The bank, as an initial matter, argued that the loans were not “High Cost Home Loans” so as to come within the ambit of the anti-predatory provisions of section 6-L of the Banking Law. The bank’s position was rejected by the Court, which observed that the lender prepared forms titled: a New York High Cost Loan Disclosure; New York High Cost Loan Payment Disclosure; and New York High Cost Loan Insurance.
The Court then found that the bank had committed three violations of the Banking Law.
- First, the bank failed to make the required “due dillience” inquiry regarding the borrower’s ability to repay the loan. (Banking Law 6-L(2)(k).
- Second, the bank failed to comply with the so-called “Counseling Statute” of the Banking Law. (Banking Law 6-L(2)(l)(I) provides that a lender or mortgage broker must deliver, place in the mail, fax or electronically transmit the following notice in at least twelve point type to the borrower at the time of application: ‘You should consider financial counseling prior to executing loan documents. The enclosed list of counselors is provided by the New York State Banking Department.’ Banking Law 6- L(2)(l)(ii) requires that the lender or mortgage broker within three days after determining that the loan is a high-cost loan, but no less that ten days before closing, give the ‘Consumer Caution and Home Ownership Counseling Notice’ to the borrower.)
- Third, and, in the Court’s opinion, most egregiously, the bank violated 6-L(2)(m), which states 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. The amount financed to cover the fees are violative of the statute because the $19,145.69 in expenses equates to almost 5.4 percent of the High Cost Loan.
Justice Maltese concluded that the borrower’s demonstration by a preponderance of the evidence that the Lender violated the anti-predatory lending statutes of New York’s Banking Law, the borrower may be entitled to receive: actual, consequential and incidental damages, as well as all of the interest, earned or unearned, points, fees, the closing costs charged for the loan; and a refund of any amounts paid. Significantly, the Court found that the Lender intentionally violated the Banking Law rendering the home loan agreement (mortgage) void, and strips the lender from having a right to collect, receive or retain any principal, interest, or other charges whatsoever with respect to the loan, as well as giving the borrower the ability to recover any payments made under the agreement.
The Court scheduled a hearing to determine the amount of damages. In addition, the Court held that the defendant is entitled to receive reasonable attorneys fees in conjunction with the defense of the action.