M & T Mortgage Corp. v. Foy
858 NYS2d 567, 20 Misc. 3d 274 (2008)
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Rule of Law:
In an equitable foreclosure proceeding, a mortgage granted to a minority buyer for a property in a minority neighborhood with an interest rate exceeding nine percent creates a rebuttable presumption of unlawful discriminatory lending. The burden of proof then shifts to the lender to demonstrate by a fair preponderance of the evidence that the mortgage was not the product of such discrimination.
Facts:
- Major Jahn K. Foy, a minority individual and a reserve officer, purchased property located at 517 Rogers Avenue in Brooklyn, a minority neighborhood.
- In July 2000, Foy obtained a 30-year mortgage for the property which carried a 9.5% interest rate.
- Foy was subsequently engaged in several tours of active military duty.
- Her lengthy military absences made it difficult for her to maintain the property, keep tenants, and collect rents.
- As a result of these difficulties, Foy was unable to make her mortgage payments.
Procedural Posture:
- M&T Mortgage Corp. initiated a foreclosure proceeding against Major Jahn K. Foy in the Supreme Court of Kings County, a New York trial-level court.
- Foy moved to reform the mortgage pursuant to the New York Military Law, claiming her active duty service materially affected her ability to comply with the mortgage terms.
- The court granted a hearing on Foy's motion.
- After the initial hearing, the court suspected the loan was a product of 'reverse redlining' and scheduled a continued hearing.
- The court initially ruled that the burden was on Foy to demonstrate she was a victim of discriminatory lending.
- The court is now issuing this opinion to modify its prior ruling regarding the burden of proof.
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Issue:
Does a mortgage granted to a minority buyer for property in a minority area with an interest rate exceeding nine percent create a rebuttable presumption of discriminatory lending, thereby shifting the burden of proof to the lender in an equitable foreclosure action?
Opinions:
Majority - Herbert Kramer, J.
Yes. A mortgage granted to a minority buyer in a minority area with an interest rate over nine percent creates a rebuttable presumption of discriminatory practice, shifting the burden to the lender to prove the loan was not discriminatory. The court's reasoning is grounded in principles of equity, which abhor discrimination and will not enforce unconscionable results. A lender seeking the equitable remedy of foreclosure must come to court with 'clean hands.' The court adopts the Home Mortgage Disclosure Act's (HMDA) definition of a 'higher priced loan'—one with an interest rate spread three percentage points above comparable Treasury securities—as a screen for potential discrimination. Since the 9.5% rate in this case qualifies as a 'higher priced loan,' and was made in a minority neighborhood to a minority borrower, a presumption of 'reverse redlining' arises. Shifting the burden is necessary because borrowers are in a disadvantaged position and placing the burden on them to prove complex discrimination claims would render their legal redress illusory. Courts are not 'automatons' and must intervene to prevent injustice, especially in the context of widespread foreclosures in minority neighborhoods.
Analysis:
This decision represents a significant judicial intervention into mortgage foreclosure proceedings by using the court's inherent equitable power to combat predatory and discriminatory lending. By creating a rebuttable presumption of discrimination based on specific, objective loan characteristics, the court shifts the evidentiary burden from the vulnerable borrower to the more powerful lender. This ruling makes it procedurally easier for defendants to raise 'reverse redlining' as a defense and forces lenders to affirmatively justify high interest rates in minority communities. The decision was prescient, addressing the emerging subprime mortgage crisis and signaling a more activist judicial role in policing loan origination practices within the context of foreclosure actions.
