Judge Recuses From Foreclosure Involving His Lender

Published in New York Law Journal: December 21 2011 – By Andrew Keshner

A judge whose widely publicized decision to cancel the mortgage of a Long Island homeowner was overturned has now recused himself from the case, with public records showing he holds a mortgage through the same lender.

Acting Supreme Court Justice Jeffrey Arlen Spinner in Suffolk County recused himself from IndyMac Bank v. Yano-Horoski, 17926-2005, the day after the lender’s attorney asked him to step aside. The lawyer referred to “a commercial relationship” between the judge and the lender, OneWest Bank, which had acquired the assets of IndyMac Bank from the FDIC, the receiver. IndyMac was the original plaintiff in the action.

Justice Spinner wrote that he was taking the action “[u]pon the court’s own initiative, for reasons which are dehors the record” but provided no other details.

A review yesterday of the Suffolk County clerk’s online database shows IndyMac Bank is listed as the mortgagee for a residence listing the justice as one of the mortgagors. The mortgage was filed on Jan. 31, 2004.

Justice Spinner, through a court spokesman, declined to comment because the case is pending.

Justice Spinner canceled Diana Yano-Horoski’s $292,500 mortgage and judgment of foreclosure on her East Patchogue home in November 2009, faulting lender officials for their “harsh, repugnant, shocking and repulsive” treatment of Ms. Yano-Horoski during settlement conferences over which he presided (NYLJ, Nov. 23, 2009).

The canceled mortgage was reinstated when the Appellate Division, Second Department, held the “severe sanction was not authorized by any statute or rule nor was the plaintiff given fair warning that such a sanction was even under consideration” (Nov. 22, 2010).

With the mortgage reinstated, the homeowner’s new pro bono attorney, Ivan E. Young of the Young Law Group in Bohemia, sought a vacatur of a default judgment obtained by the bank against his client. Mr. Young claimed improper service, extrinsic fraud and newly discovered evidence.

OneWest countered with a dismissal motion and the case was scheduled for oral arguments on Dec. 7 before Justice Spinner.

In a faxed Dec. 6 letter, an attorney representing IndyMac Bank, Allan J. Arffa, a partner with Paul, Weiss, Rifkind, Wharton & Garrison, wrote, “Our client has informed us of certain developments, relating to a commercial relationship that exists between Your Honor and OneWest, that reasonably call into question Your Honor’s impartiality in this matter, or at the very least clearly create an appearance of partiality, and that we respectfully require Your Honor’s recusal in this matter. Although we are reluctant to raise this issue, after careful research and consultation, we have concluded that, as a matter of professional responsibility, we have no choice but to pursue the matter, initially by calling the issue to the attention of the parties and the Court. “

Mr. Arffa was one of three Paul Weiss attorneys handling the Second Department appeal in 2009, along with McGlinchey Stafford in Albany.

The Dec. 6 letter does not specify the judge’s “commercial relationship” with the bank. Mr. Arffa referred questions to his client OneWest, which declined to comment.

In any case, it is unclear whether Justice Spinner was required to recuse himself if his mortgage was the relationship to which Mr. Arffa was referring.

Under Section 100.3(E)(1) of the Rules of the Chief Administrative Judge, judges must disqualify themselves “in a proceeding in which the judge’s impartiality might reasonably be questioned.”

Under §100.3(E)(1)(c), one of those instances includes where “the judge knows that he or she, individually or as a fiduciary, or the judge’s spouse or minor child residing in the judge’s household has an economic interest in the subject matter in controversy or in a party to the proceeding or has any other interest that could be substantially affected by the proceeding.”

Here, there is no indication that the judge has an economic interest in the Yano-Horoski house or that his own mortgage could have been affected by his actions in the case.

With foreclosure cases flooding the courts in recent years, several decisions by Justice Spinner—including the Yano-Horoski ruling—have gained media attention. Lenders have taken notice too, apparently deciding against sending junior associates to handle cases before the judge (NYLJ, July 15, 2010).

Nevertheless, Mr. Young said Justice Spinner was “quite capable” of fairly handling each case.

“There is no doubt in my mind that he could be fair and impartial. If you look at his record, he decided against banks and with banks,” Mr. Young said.

The case has been reassigned to Suffolk County Supreme Court Justice Jerry Garguilo and next court date is scheduled for Jan. 12.

Meanwhile, Mr. Young has raised new claims in an effort to allow the Yano-Horoskis to stay in their home.

Firm Accused of Deception

In October court papers, Mr. Young contended the January 2009 default judgment of foreclosure against his clients had to be vacated due to the lack of personal service and the “extrinsic fraud” committed by the lender and Steven J. Baum P.C., its counsel before Paul Weiss entered the case.

In one “instance of deception,” Ms. Yano-Horoski’s husband, Gregory, allegedly contacted Mr. Baum after the complaint was served.

Mr. Baum, according to the defendant’s filings, told the husband it was not necessary to file an answer because the foreclosure would be dismissed if a modification could be achieved or the outstanding balance was paid. Mr. Baum also allegedly told him the homeowners had time to make the mortgage current.

In a second incident, Ms. Yano-Horoski claims she spoke with an unnamed woman lawyer at the Baum firm three days after her bankruptcy petition had been dismissed.

The attorney allegedly told Ms. Yano-Horoski it was too late to file an answer. The homeowner’s court papers, however, argue the bankruptcy triggered an automatic stay of the foreclosure and the Baum firm misrepresented that fact in filings to obtain the foreclosure.

Mr. Young also argued the foreclosure action was fatally flawed owing to standing deficiencies; the plaintiff lender did not own the mortgage and note; and “true and obvious discrepancies” existed between the mortgage and note filed with the clerks’ office, the court and given to the defense, the attorney said.

Mr. Young’s motion seeks the caption be amended to include Deutsche Bank, in its capacity as a trustee of a particular home equity mortgage loan asset-backed trust.

In court papers, Mr. Arffa rejected Ms. Yano-Horoski’s motion as “palpably deficient.”

He rejected claims of improper service and said extrinsic fraud allegations were insufficient and unsupportable. In affirmations, Mr. Baum and the two attorneys at the firm who handled the case said they never spoke with either Mr. Horoski or Ms. Yano-Horoski.

Once the largest foreclosure law firm in New York, the Baum firm has been heavily criticized for its practices and recently announced that it was shutting down. Mr. Baum declined to comment on the litigation for this article.

Mr. Arffa called the lack of standing claims “unfounded speculation as to the ‘true’ owner of the note and mortgage relating to the loan that fails to furnish competent evidence of any meritorious defense.”

Noting in court papers that during the course of the action OneWest has paid approximately $160,000 in principal and interest, plus $64,000 in insurance and taxes, Mr. Arffa said, “Having lived in her home for free for the past five years and more, it is more than time for defendants to cease trying to postpone the inevitable. If ever a borrower in a foreclosure proceeding had her day in court, Ms. Yano-Horoski is that borrower.” User must subscribe to read at Law.com