Fighting Back Against Foreclosure
New York Judge Denies Foreclosure Based on Alleged Predatory Lending
By JIM AVILA, BETH TRIBOLET, LAUREN PEARLE and SCOTT MICHELS
ABC News Law & Justice Unit
April 3, 2008—
David and Karen Shearon decided to buy their first house so they could give their three children stability and security. It seemed easy: Though they made less than $30,000, the couple was able to put nothing down on a $335,000 house in Staten Island, N.Y.
But within a year, facing rising interest rates and loan payments that were much higher than what they said they were promised, a process server was banging on their door.
"He was trying to make us more embarrassed by screaming it out at the top of his lungs and banging on our door and going, 'The Shearons are in foreclosure! They're in foreclosure!'" David Shearon told ABC News.
But unlike many of the thousands of American families who are on the verge of losing their homes, the Shearons fought back -- and so far appear to be winning.
A New York state trial court judge in February found that the bank that is trying to foreclose on their house violated the state's predatory lending laws. In what lawyers in the case say is the first ruling of its kind in New York, Judge Joseph Maltese denied the bank's bid for foreclosure and ruled that the Shearons may be entitled to a refund of their mortgage payments and attorneys fees.
The case "gave the judge … reason to pause and consider in the current climate what is going on here, not just with these borrowers but with the industry in general," said Noah Pusey, the Shearons' attorney.
Lasalle Bank attorney Tom Solferino said no predatory lending took place and said the law was misapplied. "There's such a thing as predatory borrowing going on," he said. "There are people going out and buying property with no cash down, not making any payment and then pointing the finger at the people who lent them the money."
Maltese has agreed to rehear arguments about his decision to stop the foreclosure, and LaSalle Bank has also appealed.
But among all the talk of subprime mortgages and predatory lending, the Shearons are the uncommon example of consumers who were able to beat the lenders, at least so far. In several states, home buyers are beginning to successfully fight off foreclosure in court.
"There are some people who are clearly victims of fraud, and judges are reacting differently," said James Tierney, Maine's former attorney general and the director of the National State Attorneys General Program at Columbia Law School, who was not familiar with the Shearons' case. "In the meantime, people are losing their homes. A number of judges are saying, fraud is fraud, and we're not going to let this proceed."
When the Shearons bought their house in 2005, they say their mortgage broker told them they would qualify for a fixed interest loan. But at closing, they say they were presented with a high-interest, subprime loan package and balloon interest payments up to 14 percent.
"It was day and night compared to what we asked for, and we had good credit at the time," Shearon said.
But they felt they couldn't back out. The Shearons said they were told they would lose their $5,000 deposit and could be sued if they did not go through with the agreement. And they had already given up their old apartment.
"I feel that I was bullied into accepting the way it was," said David Shearon.
Though the couple made less than $30,000, they borrowed $355,000 for the $335,000 house. The extra money went to pay mortgage costs and fees -- a violation of the state's banking laws, which allow a maximum of 3 percent of a loan to go to paying down fees, according to Maltese.
Maltese also ruled that it was the bank's responsibility to verify that the Shearons were able to repay the loans, even though their bank application said they earned more than they really did, according to the opinion.
Housing law experts say courts nationwide are going to have to face more litigation over predatory lending as more Americans lose their homes.
"Now that we have more awareness of all the abuses that there were in this market, there's closer scrutiny to what was going on," said Jessica Attie, a lawyer with South Brooklyn Legal Services who counsels homeowners threatened with foreclosure. "So it's not a hopeless battle, it's maybe a David and Goliath battle.... We are fighting banks that have a lot more resources than us, but what's happened has been so egregious in so many cases that the battle, it can be won in some cases."
As for the Shearons, they say they are hopeful they can win.
"You have to fight," said Karen Shearon. "You can't just lie down."
Legal experts say there are a number of ways to keep a lender at bay. In an interview with ABC News, Attie offered a few pieces of advice for people faced with foreclosure.
Call a nonprofit housing service or legal aid society to find out who owns your mortgage. They're listed on hud.org, the Web site for the federal Department of Housing and Urban Development.
"You'll need help with this," she said, "because 90 percent of the time a bank has resold your loan, and it's almost impossible to find out on your own who currently owns your mortgage."
It's probably a bad idea to call up the bank yourself. "Experts say many banks will not only not help you, they might get you to sign things that could ultimately harm you," said Attie.
If a bank refuses to renegotiate your loan, hire a lawyer. "There were so many predatory lending practices and loans made with such egregious terms that many were plain illegal," she said. "A lawyer can see if that was true with your loan, in which case you could take the mortgage broker to court to stop the foreclosure."
If none of the above works, sell your house for less than the amount that you owe the bank, if necessary. "Banks will sometimes agree to let you sell [your house] and eat their loss," Attie said. "The leverage you have here is the banks lose less money if you sell the house than if they foreclose and lose more or all of the loan."
Whatever you do, don't hire a for-profit negotiator or think you can solve your problems by declaring bankruptcy. The negotiators "are frequently scam artists who charge fees and produce no agreements," said Attie. And under current bankruptcy law, "judges can't modify terms of mortgages, so you will still have to pay even if you declare bankruptcy."