by Calculated Risk on 8/16/2009 03:54:00 PM

Jim Dwyer at the NY Times brings us the tale of WaMu pushing for foreclosure, even though the owner of the small multi-tenant building kept trying to pay in full after missing two payments in May and June 2008: Banks Help Small Debt Become a Big One (ht Edward)

Here is the order vacating the default from Judge Emily Jane Goodman:

"The facts in this case, in their simplicity, illustrate the state or property foreclosures in New York and the economic relationship and their borrowers, as well as the surrounding ironies."

An interesting read.

WaMu actually had a strong incentive to push for foreclosure or payment in full (the entire amount of the note) or even to delay the proceedings. In the July 2008 Summons and Complaint, WaMu's attorney wrote:

As of the date hereof, (unless a different date is indicated) there is due the plaintiff upon said Note and Mortgage the following:
Principal balance : $460,283.26
Interest rate : 6.60%
Interest due from : April 1, 2008
Default interest : 11.60%
Default Interest due from : May 16, 2008
Late charges due as of : $150.09
May 1, 2008

Obligor shall also pay any prepayment, recapture and other fees as
set forth in the Note.

So the note required 11.6% interest once the loan went into default (5% above the original rate). Since the building was worth more than the amount owed, by pushing for foreclosure, WaMu could collect this higher interest rate, legal fees, and other fees.

Since the default is vacated, the interest rate on late payments goes back to 6.6%, and I hope the Judge rules for WaMu's successor to pay the borrower's legal fees (usually a separate motion) - especially since she suggested WaMu had acted in bad faith.

A couple of excerpts from the Order:

"Even if the bank had no duty to alert defendant to the possible litigation, and even if their service methods are permissible, they clearly elected not to affect the most reliable available service - personal service - suggesting bad faith by Washington Mutual, especially when taken with their refusal to accept payment after only two months of lateness, as well as their decision to accelerate the entire loan."

And from the footnotes:

The Court admonishes the Bank's counsel for submitting papers, referring to the oppositions papers of Owner's principal, a lawyer, as containing "fraud and deceit" and that his seeking to vacate the default and protect his property as "frivolous". These charges are not only disrespectful to another member of the bar, it is not supported by his or her papers.