In reversing Justice Jeffrey Spinner in IndyMac Bank, F.S.B. v. Yano-Horoski, 17926/05, the Appellate Division, Second Department has obliviated (see Harry Potter1) CPLR 3408 requiring mandatory settlement conferences (“Panel Upsets Ruling That Cancelled Mortgage,” NYLJ, Nov. 22) The appellate division has now provided ammunition to all lenders not to attempt any modification of mortgages since, as the court stated, “The reasoning of the Supreme Court that its equitable powers included the authority to cancel the mortgage and note was erroneous, since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank.” Now, all lenders will argue that there is never an acceptable basis for relieving a homeowner of its “contractual obligations” and thus, the lenders can refuse to modify any loans.

Moreover, Justice Spinner had hearings “over the course of some six substantive appearances in seven months” and thus, it is factually incorrect that “the plaintiff [was not] given fair warning that such a sanction was even under consideration.” Justice Spinner, as any justice of the Supreme Court, has the equitable powers to cancel a mortgage at least under the inherent powers of the court. This case is an example of what happens when a large law firm argues for reversal and no attorney appeared for the pro se defendants. On the court’s own motion, leave should be granted to the Court of Appeals or the decision should be recalled and vacated. Otherwise, CPLR 3408 is doomed and the housing crisis will continue. The Legislature must enact a new statute to overturn this ruling.

Endnote:

1. A memory charm or spell in the Harry Potter books that makes one forget.

Leon I. Behar
New York, N.Y.