Couple owes bank 525K, Judge gets pissed, erases entire debt

[Darth Wong]

If judges can just arbitrarily decide to effectively fine a plaintiff hundreds of thousands of dollars for being unreasonable and dishonest, why don't they do this to all of the frivolous lawsuit people?

He isn't arbitrarily fining them, if the determination was made that the loan was offered and serviced in bad faith then predatory lending, as mentioned above, comes in to play...which gives the judge the right to erase the loan.

How is it predatory? Unless the story is horribly misleading, they got the loan with both eyes open. The problem, as far as I can tell, was that the bank refused to let them renegotiate it, lied about offering to let them do so, and generally treated them like shit. Is that not the case?

In the article, the judge said that the bank "must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against [the couple]." It seems to me that it was intended as a punitive measure, not as a method of rectifying a loan that was somehow wrong in the first place.

[Teebs]

How is it predatory? Unless the story is horribly misleading, they got the loan with both eyes open. The problem, as far as I can tell, was that the bank refused to let them renegotiate it, lied about offering to let them do so, and generally treated them like shit. Is that not the case?

In the article, the judge said that the bank "must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against [the couple]." It seems to me that it was intended as a punitive measure, not as a method of rectifying a loan that was somehow wrong in the first place.

As I understand it from the quotes used and statements about the case made in this thread, the bank tried to rely on equity to get the couple in court. I'm not sure why they'd do that, since I'd have thought they have a perfectly good beach of contract claim, but if that is what they did then the verdict is firmly within established legal principles (as far as I understand them anyway - I'm a relatively new law student and I do English not any form of US law). The whole point of equity is to get fair decisions when the common law would produce a grossly unfair result. If you try to make a claim for equitable remedies when you have acted in a dishonest fashion then the court will not give them to you and if you go to and lie to the court then the court will stamp on you.

Basically, if you want the court to rule in your favour out of fairness, you'd better make sure that you haven't done anything unfair and make especially sure that you don't turn up and make it look like you're such dicks that it would be fair to penalise you.

[CmdrWilkens]

I'll quote Wiki since I don't want to dig in to New Jersey' specific statue (though I will if you require) as to what encompasses predatory lending:

the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against.

The actions taken and the nature of the loan (a principal balance well in excess of the borrower's ability to repay) all indicate that the loan originator and thereafter the servicer attempted to milk the borrower for all they were worth to the point of crafting terms which made defense against foreclosure difficult if not impossible. should the couple have better assessed their risks and not taken this crazy of a mortgage? Probably not, medical bankruptcy would probably have been the better course as they most likely would have retained the house and been able to restructure their debt under protection...but the lender does have the duty to properly asses the ability to repay the loan. Knowingly entering in to such a loan with a payee who has demonstrated high risk of financial insolvency then attempting to trap them in that insolvency certainly seems to fall under the aegis of being predatory.

[Desdinova]

How timely. We just discussed unconscionability in my Contracts class this morning.

[Darth Wong]

I wonder if anyone could go after health insurance companies for equitable relief. If anyone needs a judicial boot up the ass, it's them.

[aerius]

I don't know much about law, but I'd think it's possible to go after the health insurance industry using the RICO act. Fraud, embezzling, extortion, bribery, those bastards are running a racket and then some. But it'll never happen since they've got all the right people bought off.

[wolveraptor]

From an ethical standpoint, the whole "it's your fault for giving it to me in the first place!" argument doesn't make much sense to me. If I ask for 1000 dollars from one of my friends, and he gives it to me against his better judgement, aren't I still the asshole if I don't pay him back in a timely manner? Do the rules really change depending on scale?

[D.Turtle]

Well, if he knows you can't pay it back, should he be surprised when you can't?

And what if he is the one who convinces you to borrow that money from him? Is he then not also culpable?

It isn't a matter of scale, but of knowingly giving out bad loans or, even worse, convincing people to take bad loans.

[Darth Wong]

I would argue that if someone takes out a loan he knows he might not be able to pay back and uses his house as collateral, he is knowingly agreeing to the possibility that the bank will foreclose. If he should scream "injustice" when the bank does come to foreclose on his house, that quite frankly strikes me as utter bullshit.

Honestly, it makes a mockery of the entire concept of collateral to say that foreclosure is some kind of inherent injustice. The whole point of collateral is to allow you to borrow money that you would not ordinarily be trusted to pay back reliably. In effect, it seems that people think the concept of collateral itself is inherently predatory.

[CmdrWilkens]

I would argue that if someone takes out a loan he knows he might not be able to pay back and uses his house as collateral, he is knowingly agreeing to the possibility that the bank will foreclose. If he should scream "injustice" when the bank does come to foreclose on his house, that quite frankly strikes me as utter bullshit.

Honestly, it makes a mockery of the entire concept of collateral to say that foreclosure is some kind of inherent injustice. The whole point of collateral is to allow you to borrow money that you would not ordinarily be trusted to pay back reliably. In effect, it seems that people think the concept of collateral itself is inherently predatory.

Which, to a great degree, is the Mortgage industry trade association's argument BUT there are limits. While it certainly would seem unlikely in the current loan/housing environment it does not strain credulity that banks in 2004 would happily have lent to customers who couldn't pay back confident that they could milk a half dozen years of fees before foreclosing and reaping the reward from the rising housing prices. In other words banks who have access to significantly greater data than the consumer have them at a natural disadvantage and should they chose to do so it would be child's play for them to use loans as instruments to strip valuable property from their current owners to flip for a profit. Predatory lending laws are designed to stop this (and similar practices), now I don't know if this case is a perfect fit but certainly the bank should have known that the risks associated with this plan were beyond reasonable means and denied the loan, since they didn't the intent was clearly to milk it for fees and interest, now to a point that is fine (Caveat Emptor and such) but when they act so blatantly in their attempt to exploit the terms of the agreement for their gain at the customer's expense then it certainly seems to be a case of being predatory rather than a good faith lender.

[Teebs]

I would argue that if someone takes out a loan he knows he might not be able to pay back and uses his house as collateral, he is knowingly agreeing to the possibility that the bank will foreclose. If he should scream "injustice" when the bank does come to foreclose on his house, that quite frankly strikes me as utter bullshit.

Honestly, it makes a mockery of the entire concept of collateral to say that foreclosure is some kind of inherent injustice. The whole point of collateral is to allow you to borrow money that you would not ordinarily be trusted to pay back reliably. In effect, it seems that people think the concept of collateral itself is inherently predatory.

I tend to agree, but if the bank then acts in bad faith during negotiations and then tries to sue the borrowers for equitable remedies and lies to the court then they deserve what they get for using such an inappropriate method, if nothing else.

[D.Turtle]

I would argue that if someone takes out a loan he knows he might not be able to pay back and uses his house as collateral, he is knowingly agreeing to the possibility that the bank will foreclose. If he should scream "injustice" when the bank does come to foreclose on his house, that quite frankly strikes me as utter bullshit.

Well, it then becomes a question of how much expertise/knowledge you can expect from the people taking out the loan. Here in Germany, there are for example a lot of people (mostly older folks) who sued their banks (mostly unsuccessful IIRC), because they told their bank/financial manager that they want to safely and securely invest their money, as that money was their life-savings that they needed for retirement. The bank told them, no problem, we have these Lehman Brothers certificates that are completely safe and secure. However, the fine print said differently, which meant that when Lehman went down, they were fucked.

In such a case, it becomes very, very difficult, because you can say that they should have read the paperwork more carefully, but can you really expect >60 year old people, who still had the (now defunct) expectation of bankers being bankers and not banksters, to make that distinction?

[aerius]

From an ethical standpoint, the whole "it's your fault for giving it to me in the first place!" argument doesn't make much sense to me. If I ask for 1000 dollars from one of my friends, and he gives it to me against his better judgement, aren't I still the asshole if I don't pay him back in a timely manner? Do the rules really change depending on scale?

You're an asshole for not paying him back, and he's a moron for giving you the money. It's not an either/or situation, everyone's guilty.

I would argue that if someone takes out a loan he knows he might not be able to pay back and uses his house as collateral, he is knowingly agreeing to the possibility that the bank will foreclose. If he should scream "injustice" when the bank does come to foreclose on his house, that quite frankly strikes me as utter bullshit.

Honestly, it makes a mockery of the entire concept of collateral to say that foreclosure is some kind of inherent injustice. The whole point of collateral is to allow you to borrow money that you would not ordinarily be trusted to pay back reliably. In effect, it seems that people think the concept of collateral itself is inherently predatory.

Sure, there's a ton of people who did that during the housing bubble and got cornholed starting a couple years back. I've said that all those people who took out questionable loans along with the bankers and real estate agents who enabled all that fraud so that everyone could flip houses and pocket a quick buck should be investigated, prosecuted, and tossed in jail. The dumbass who takes out a HELOC to buy a luxury car and plasma TVs should get his shit repo'd and the bank gets to eat all the losses.

But that assumes the bank has all the papers to prove its case and that all the numbers actually work out. If the bank can't prove how much it's owed, is missing half the papers and can't get the numbers straight, they should get their case tossed out of court. That's like me printing up some papers on my computer and scribbling a signature on it, then using that to sue you for $50,000. It would get laughed at so hard it wouldn't be funny.

And that's the case here. The bank couldn't prove what it was owed, pulled numbers out of thin air, and got caught doing so multiple times. A reasonable person would conclude that the bank is full of shit and that the loan is fraudulent, which would be a reasonable basis for voiding the entire thing. You can't enforce an illegal contract, which is what a fraudulent loan would fall under.

[wolveraptor]

You're an asshole for not paying him back, and he's a moron for giving you the money. It's not an either/or situation, everyone's guilty.

I know it's a technical point, but being a moron isn't unethical. He isn't morally in the wrong for making a stupid decision. Of course, it's irrelevant because my analogy was flawed. As D.Turtle pointed out, banks want people to take loans out, and actively attempt to convince them to do so. Also, they're in it for a profit, unlike my friend, who'd be doing it as a favor.