MORTGAGE FORCLOSURE

I am still focusing one what is happening in mortgage foreclosure proceedings and about another case in which a mortgage agreement was voided. The following is from an article from the January 8, 2010 New York Law Journal which was forwarded to me from the Nassau County Bar Association:

"NYLJ

Judge Faults Lack of Counseling to Homeowner, Saying She Lacked Capacity to Enter Into Mortgage

Mark Fass

01-08-2010

A Queens judge has voided a mortgage agreement between a mortgage company and an elderly homeowner suffering from chronic paranoid schizophrenia, ruling that the company failed to uphold its obligation to counsel the woman regarding the loan as required under the National Housing Act of 1996.

"There is no evidence that [Hermina] Brunson understood the terms of the mortgage or the Counseling Certificate that she signed," Supreme Court Justice Charles J. Thomas (See Profile) wrote in Matter of Doar, 31393/07. "Under the circumstances of this case any responsible counselor would have unearthed Ms. Brunson's mental illness and her delusions regarding her house and determined that [she] lacked the capacity to enter into the mortgage, or, at the very least, that further counseling was needed." (The decision appeared on page 42 of the print edition of yesterday's Law Journal.)

Justice Thomas voided the $375,000 mortgage agreement between Ms. Brunson and Financial Freedom Senior Funding Corp., a California-based specialist in reverse mortgages.

However, the judge ordered Ms. Brunson's Article 81 guardian to reimburse the loan company for expenses it paid related to her ownership rights, such as taxes and water charges.

The action was initiated in 2007 by New York City's Commissioner of Social Services, Robert Doar, who sought to block a foreclosure action initiated by Financial Freedom.

At the time, Financial Freedom was a subsidiary of IndyMac Bank, the Southern California bank seized by the FDIC in 2008. The company is now owned by IndyMac's successor, OneWest Bank.

Ms. Brunson, who purchased the eastern Queens single-family home in 1974, entered into two mortgage agreements with Financial Freedom, a $300,000 reverse mortgage in 2001 and a $375,000 reverse mortgage in 2003. The second mortgage paid off the first, leaving only the second mortgage outstanding.

A "reverse mortgage" is a home loan that does not require payments until the borrower moves out of the mortgaged property, thereby enabling the borrower to pull out maximum equity while retaining the property.

In the present motion, Ms. Brunson's guardian contended that she has lacked legal capacity since at least 2000, when she was treated at Queens' Creedmore Psychiatric Hospital for chronic schizophrenia.

Ms. Brunson also signed the agreements under physical and emotional duress from her brother, the guardian contended.

Justice Thomas agreed and, citing the National Housing Act, voided Ms. Brunson's outstanding debt.

Justice Thomas found that Financial Freedom failed to establish that it had satisfied the act's counseling provision, which requires a lender to advise a prospective mortgagor regarding her rights and responsibilities under a Housing and Urban Development-guaranteed reverse mortgage.

"This [counseling] certification was not meant to be perfunctory or a mere rubber stamp for the banking and mortgage industry," Justice Thomas wrote. "It was intended to secure that the rights of elderly homeowners were protected. The mortgagee is entrusted with the responsibility of conducting an inquiry of the applicant's understanding of the mortgage agreement."

Here, however, Financial Freedom's counseling was indeed, at best, a "rubber stamp," the judge concluded.

"While the certificate indicating that a Rosa Colarte certified that the homeowners had received counseling was submitted into evidence, there was no evidence as to the qualifications of Ms. Colarte or the counseling itself. The certificate states that the counseling was not face to face but over the phone and that the total time was 45 minutes," Justice Thomas wrote.

"Under these circumstances the court finds that Hermina Brunson was incapable of understanding the agreements that she signed on April 21, 2003 and that Financial Freedom is charged with the responsibility to determine, and were in a position to know of her incapacity."

Thomas J. Rossi of Rossi & Crowley in Douglaston represented Financial Freedom.

"I respectfully disagree with Judge Thomas," Mr. Rossi said. "There was no proof elicited at the trial that the mortgagor had any notice of any alleged incompetency with the borrower. I will discuss with my client their appellate rights."

Robert A. Isler of Isler & Isler in Syosset represented the guardian. He did not return a call for comment.

Barbara J. Monroe of the city's Human Resources Administration appeared on behalf of the Commissioner of Social Services.

@|Mark Fass can be reached at mfass@alm.com."