Judge voids mortgage for exceeding COAH

by: Jason Springer

Tue Jan 06, 2009 at 01:15:00 PM EST

This seems like a pretty significant decision and apparently the first of its kind: (Behind a NJ Law Journal Firewall)

In a ruling that should serve as a cautionary tale for lenders, a Somerset County judge has voided a $192,000 mortgage because it exceeded COAH's ceiling for loans on affordable housing.
A rule adopted by the Council on Affordable Housing in 2004 voids mortgage loans on such properties that exceed 95 percent of the maximum resale price set by deed restrictions.
Though the rule states that any loan that violates the provision "shall be void as against public policy," the Dec. 26 ruling in NovaStar Mortgage v. Koerne r, F-5085-07, appears to be the first to use the proscription as a remedy in foreclosure proceeding.

I didn't even know the court was able to take this action and it sets a new precedent going forward:

Under the COAH rule, N.J.A.C. 5:80-26.18(e), Novastar Mortgage was not allowed to lend more than $73,150 on a condominium owned by Susan Koerner in Bridgewater, for which the maximum selling price was $77,000.
When Koerner defaulted on the loan, NovaStar began foreclosure proceedings and obtained a default judgment. But before the sheriff's sale, Bridgewater move to intervene on the ground that it had an interest in the property. NovaStar had not named Bridgewater in the action, apparently unaware the property was under affordable-housing restrictions.
Presiding General Equity Judge Harriet Derman granted the motion, finding Bridgewater had presented "a compelling policy argument" that mortgage lenders who - evenly unwittingly - advance credit beyond what COAH allows are contributing to the financial burden on towns from foreclosure litigation.

The Judge said if NovaStar would have done their proper due diligence, they would have realized the home fell under COAH obligations and learned the appropriate maximum resale value:

NovaStar tried to cut its losses, asking for a declaration that the mortgage was valid up to the $73,150 cap and that only the amount above that was void. But Derman said the rule, which NovaStar had not shown to be unconstitutional, contrary to legislative policy or the product of agency error, unambiguously voided the entire loan.
Though she had equitable power to modify the mortgage to make it conform, Derman said she would not do so because the mistake was not mutual: It was NovaStar's duty to conduct a diligent inquiry when it made the loan.

If this isn't a warning to companies to scrutinize their practices closer, I don't know what is. The mortgage bankers say this might deter lending to those living in affordable housing. Time will tell if that is the message sent and received from the ruling.

Jason Springer :: Judge voids mortgage for exceeding COAH

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Judge voids mortgage for exceeding COAH | 1 comments

In Plain Engish... (0.00 / 0)

**** the "mortgage bankers! (I'm sure everyone reading that knows what **** means, eh?) The trillion dollar mess we are in re "Fanny" and "Freddy" etc is the cumulative result of sheer corrupt greed.
The provision of affordable housing mortgages should be taken out of the commercial realm. The temptations to abuse the pools of "capital" associated with this business are too great for the greedy to resist.

The interest rates charged should only reflect the actual costs of the service. No one should make money off of the provision of affordable decent housing. The "rental market" should be, pretty much, reserved for high end and transitional housing......Lotsa "shoulds" in there! lol But if we really want to live in a country where there are no poor/disenfranchised victims we need to make some serious changes. We can't do it "overnight"; but transformational change is possible.

by: Nick Lento @ Tue Jan 06, 2009 at 19:30:19 PM UTC