This story, in slightly different form, originally appeared in the New York Law Journal.
NEW YORK CITY-A Brooklyn judge has rejected a borrower's contention that a mortgage company should be precluded from pursuing a foreclosure because the company may have received funds from the federal Troubled Asset Relief Program.
"If this Court were to accept this defense, it would call into question the entire federal structure put in place by the Congress to respond to what defendants have described as the 'international economic catastrophe,'" Brooklyn Supreme Court Justice Robert J. Miller wrote in Bayview Loan Services v. Avery Enterprises. "This Court declines to do so."
Plaintiff Bayview Loan Servicing, a Delaware-based mortgage company, initiated the foreclosure action in March 2009 against Stanley Henry and Henry's construction company, Avery Enterprises. According to court records, the defendants had defaulted on a $1-million mortgage.
The defendants opposed the loan company's motion for summary judgment on several grounds, including that because Bayview may have been the "beneficiary of an unconstitutional Act of Congress"—namely, the Emergency Economic Stabilization Act of 2008—enforcement of Bayview's loans would constitute discrimination.
Bayview has benefitted from "federal capital infusions," the defendants wrote, while the defendants "have been left to hold the ashes left from this international economic tragedy."
Justice Miller called the issue of federal funds irrelevant. "Defendants appear to argue that plaintiff (assuming it was the beneficiary of TARP funds) is estopped from maintaining this action because of their receipt of federal funding and that since defendants have not received federal TARP funds they have been subjected to unlawful discrimination," Justice Miller wrote. "Without commenting on the wisdom of the TARP program, Congress in response to the economic crisis had broad powers to fashion a legislative solution without including the defendants in the TARP program."
It is not clear from the court records or government Web sites whether Bayview has in fact received government funds. The company's general counsel did not return a call for comment.
The defendants filed a similar action in Brooklyn federal court in January 2009, which named Treasury Secretary Henry Paulson and the Office of the US Attorney General as co-defendants. That action, Henry Builders v. United States, was dismissed sua sponte by Judge Eric N. Vitaliano.
The defendants were represented in both actions by Brooklyn solo-practitioner Emanuel A. Towns. He said the outcome of the federal action, which is on appeal, will impact whether his clients appeal the state action. Oral arguments before the US Court of Appeals for the Second Circuit are scheduled for tomorrow, Towns said.
Samit Patel of Fein, Such, Kahn & Shepard, appeared on behalf of Bayview. Patel declined to comment.
Mark Fass can be reached at [email protected]
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