When I teach the Short Sale class, I say many times during the class that homeowners selling short and homeowners in default should always be directed more than one time to seek legal counsel. Sometimes homeowners in financial distress don’t hear you the first time. Just handing them the agency pamphlet isn’t enough. Attorneys can help homeowners in ways that real estate agents cannot. They will know more about their state’s deed of trust laws and any state-specific anti-predatory lending laws as well as federal residential mortgage lending laws than an average real estate agent, and attorneys will have access to recent case law.

Stuck with a bad loan, a Staten Island family fights back
Staten Island Advance

David and Karen Shearon were like many other Staten Islanders stuck with bad loans, collapsing financially under the weight of a crushing mortgage less than a year after buying their first home.

But unlike thousands of others who have entered foreclosure as part of the fallout from the subprime lending crisis — homeowners often embarrassed by their situation and unable to afford legal representation — the Shearons fought back.

A judge recently ruled that the owners of this Westport Lane townhouse in New Springville home were victims of predatory lending.They argued through their attorney that brokers aggressively marketed them a high-cost loan and then pressured them to go through with the closing when they could have qualified for a traditional fixed-rate mortgage.

In what is likely to be a precedent-setting decision in New York, state Supreme Court Justice Joseph J. Maltese agreed with the Shearons, recently telling the bank that it could not foreclose on the couple’s New Springville townhouse and that it may have to pay them damages for their troubles and void the $355,000 mortgage on their Westport Lane home…

Judge Maltese determined the original lender violated banking law by failing to check the Shearons’ income and ability to pay the high-cost loan. He said the lender crossed the line again when it financed the home above the $335,000 sale price, using an additional $19,145 to pay the costs and fees associated with securing the high-cost loan. The Shearons’ $5,000 deposit, meanwhile, was never deducted from the ultimate $355,000 in financing.

“This ultimately left Shearon with negative equity in the property,” the judge wrote.

“The mortgage loans may be unenforceable and the homeowner may be entitled to reimbursement of all prior mortgage loan payments, the fees for obtaining the loans and attorney fees,” Maltese added.

At a hearing Feb. 28, the judge is expected to decide whether the mortgage should be voided and damages granted to the Shearons.

Read the entire story here.

I keep reading comments about how there are not enough regulators to adequately oversee state and federal lending laws. With the mortgage lending meltdown continuing into this election year, we are already seeing more proposed state and federal laws.

Question: Would the threat of having the mortgage voided in the courtroom be a more effective way of bringing some rapid order into the mortgage industry?