R.I.P. Rule of Law

An attention-seeking New York trial court judge decided this week that the rule of law is for suckers. You know, like creditors seeking to recover obligations voluntarily entered into by borrowers.

It seems OneWest, a privately held bank, acquired a mortgage debt from failed bank IndyMac. The debtors, Mr. and Mrs. Horoski, borrowed more than $291,000 in a subprime refi, using a portion to pay off their original mortgage debt, and the remainder to finance Mr. Horoski's part time gig selling dolls. Really. (Mr. Horoski's day job is as a professor of English and cognitive reason, seemingly incompatible fields of study).

It appears the judge is upset because OneWest insisted on collecting the full amount of the debt, or liquidating the collateral, as is its right under mortgage documents and, more importantly, New York law. The judge ordered a settlement conference (a new pre-trial statutory requirement in New York), and OneWest refused to settle, insisting on resort to its collateral. The article unhelpfully states that the judge lambasted OneWest for repeatedly refusing to work out a deal, for misleading him about the dollar amounts at stake in the case, and for its treatment of the couple over months of hearings," without further elucidation. The judge in a fit of pique not only refuses to permit the bank to foreclose, but citing the fact that OneWest received federal bailout cash, discharged the borrowers' obligation altogether. WTF?!?

So, let's get this straight. Borrowers borrow money from bank, pledging their house as security for the loan. Borrowers default on the obligation. Bank sued to foreclose its mortgage pursuant to the terms of the voluntary, arms-length transaction between bank and borrowers. There is no dispute the debt has not been paid. There is no dispute that the mortgage is valid. A judge (probably citing the fact that mortgage foreclosure is an equitable proceeding) determined 200 some odd years of settled New York law should be ignored, because the bank is bad and mean and JUST DOESN'T UNDERSTAND AND THE BORROWERS ARE SICK AND ITS A RECESSION AND SUFFOLK COUNTY HAS BEEN SLAMMED AND ANYWAY THE BANK GOT BAILOUT MONEY AND IT'S ALL BUSH'S FAULT!!11!!1! ZOMG!11!

Upsetting creditors' reasonable expectations that the rule of law will be followed is a one-way ticket to financial Armageddon. No lender is going to put capital at risk if he believes courts will arbitrarily apply the law. Here's hoping the Appellate Division will right this wrong, reinstate the debt, foreclose the mortgage and discipline Justice Jeffrey Spinner for overstepping his authority.