It’s Saturday morning and I can’t wait to pen this story. This week has seen a flurry of behind the scenes activity after a Dutchess County Judge issued rulings not once but twice that seem to turn New York State's banking law on its ear, and clear the way for a wild west mentality among private hard money lenders. Indeed, the decision seems to declare open season on anyone who has borrowed private money from a lender bent on circumventing the law in Dutchess County.
One upstate Judge has confounded the New York State Banking Department, in a decision where it appears that she refused to apply the law as it applies to mortgage loan servicers.
Judge Christine Sproat, sits on the bench in the Dutchess County Supreme Court and according to Banking Department Officials seems to have completely ignored the fact that the lender in this case is acting as a servicer and that NY CLS Bank § 590 (b-1) is clear.
While the private lender in this case carefully conducts its business so that it can sidestep any requirement to register with the NYS Banking Department, the law anticipates this and provides that any exempt person or entity must notify the Banking Department superintendent that it is acting as a mortgage loan servicer in this state and complies with any regulation applicable to mortgage loan servicers, promulgated by the superintendent.
The judge’s decision has puzzled the mortgagor, her attorney and raised eyebrows at the New York State Banking Department.
The Banking Department is now investigating the matter; in ongoing conversations this week a confidential source at the Banking Department stated “it is clear that the Judge in this case gave little regard to the language of the law.”
The identity of the parties involved in this case has been reserved until such time as the investigation is complete.
In New York State there is an underbelly of ‘hard money’ lenders who lend money at higher than normal rates to people who for one reason or another can’t borrow through traditional channels. In recent years banks have tightened lending standards and getting a mortgage is almost impossible for anyone who has a blemish on their credit report thereby giving rise to an increase in hard money lending.
Occasionally these hard money lenders step over the line and violate the laws that apply to them. The case mentioned in this article is one where the lender initiated a foreclosure without complying with New York State notice requirements, and boldly declares that they are not subject to the law. The family that owns the corporation in this case makes mortgage loans over a period of decades under a number of corporate identities in what appears to be a purposeful attempt to skirt the law that would require them to register with the Banking Department.
If this activity goes unchecked, as it has thus far in this Dutchess County Courtroom under the eyes of a New York State Judge, it will become a how to lesson for those who seek to rob equity from homeowners by lending money to those who can ill afford to do so, only to steal the home from the borrower later in foreclosure. Surprisingly, the Judge in this case rejected the defense request for discovery and ignored the fact that this particular lender made a 2nd loan to the homeowner while she was in default on the 1st mortgage in what can only be described as a sure fire path to the homeowners equity at a discount.
A source who asked to remain anonymous said "Dutchess County has put out the welcome mat for hard money lenders looking for an expedited path to foreclosure" and "It seems that local businessmen have an 'in' when they want to skirt the law".
This reporter will keep an eye on the case and report back with updates.
Photo by Daniel Case