This is a case that is liable to stir up heated debate.  A New York couple couldn’t get their lender to modify their mortgage–so the judge wipes out the debt:

The $527,437 mortgage of a couple in Long Island, N.Y., has been canceled by a judge who criticized their lender’s "unconscionable" lack of good will in refusing to help them avoid foreclosure.

Thanks to the judge, the couple now owes nothing, at least until their bank appeals.

Diana Yano-Horoski and her husband Greg Horoski, struggling to make their monthly payments, had tried to get their loan with California-based OneWest Bank — formerly IndyMac — modified since February, but according to the judge, OneWest, instead, kept insisting that they foreclose.

The couple has "assiduously attempted to resolve this controversy in an amicable fashion, only to be callously and arbitrarily turned away" by OneWest, Judge Jeffery Spinner wrote in his ruling. "This has been so, even in spite of the court’s continuing, albeit futile, endeavors at brokering a settlement."

In general I find completely setting aside a contract like this to be concerning.  But as Paul Harvey used to be fond of saying, here’s the rest of the story:

Yano-Horoski, appearing pro se, requested a conference in February to seek a deal with IndyMac Bank on the $292,500 mortgage she took out in August 2004 on her East Patchogue home.

Following a series of hearings attempting "to obtain meaningful cooperation" from the bank, Spinner ordered that a bank representative attend a conference in September.

Karen Dickinson, regional loss mitigation manager for IndyMac, appeared and "made it abundantly clear that no form of mediation, resolution or settlement would be acceptable" to the bank, Justice Spinner wrote.

Notably, the judge wrote, the bank asserted that the borrower had previously defaulted on a forbearance agreement when in fact the agreement had not even been sent out until after it was due.

"Defendant, through Plaintiff’s duplicity, found herself to be in unique and uncomfortable position of being placed in default of the ‘agreement’ even before she had received it," Spinner wrote.

The bank also rejected an offer Yano-Horoski’s daughter to buy the house at fair market value.

"It was evident from Ms. Dickinson’s opprobrious demeanor and condescending attitude that no proffer by Defendant (short of consent to foreclosure and ejectment of Defendant and her family) would be acceptable to Plaintiff," the judge wrote, adding that even a "desperate" offer of a deed in lieu of foreclosure was "met with bland equivocation."

Spinner ordered another hearing last week at which discrepancies surfaced about how much was actually owed.

The bank claimed a balance of $527,437 was due, but Yano-Horoski gave a much lower figure –according to two bank letters, she owed around $285,000 as of August 2009.

Spinner pointed out that a prior affidavit by a bank representative, "presumably one with knowledge of the account," tabbed the principal balance at $290,687.

The large disparity, coupled with Dickinson’s conduct, swung "the pendulum of credibility" heavily to the homeowner, the court held.

So why not just order a loan modification?

If the case was simply dismissed, he wrote, the court "cannot be assured that Plaintiff will not repeat this course of conduct."

Also Spinner said that monetary sanctions were "not likely to have a salubrious or remedial effect" and, in any case, would not benefit the homeowner.

Imposing sanctions would bring little benefit to the homeowner, the judge wrote, leaving the "appropriate equitable disposition" of canceling the debt and discharging the mortgage.

Thus, he concluded that the original principal amount of $292,500 "should be cancelled, voided and set aside," the mortgage be discharged and the bank barred from any attempt to collect on the note.

The ruling is subject to appeal, but this could make for an interesting precedent.