This continues to be one of the genuinely thorny and confusing issues for mortgage servicers, although another case in New York offers clarification and answers the question “yes.” But it needs some exploration – the point of this alert.
First, let’s not confuse this issue with accepting payment after sending the breach/cure letter. That is a different situation which we have addressed in other alerts. As a reminder, if a borrower responds to a breach letter by sending less than all the past due sums, the servicer can accept the payment because it does not cure the default.
The instance of acceleration, however, is somewhat different. Recall that acceleration is an act which occurs only after the breach letter has been sent and the cure period has expired. (This assumes that a breach letter is required by the mortgage documents. Absent such a clause in the mortgage, in New York there is no obligation to send a cure letter as a prerequisite to acceleration.) Once an acceleration has been declared, what the servicer in essence has said to the borrower is that “we require that you pay now the full amount of the mortgage (which would have come due 10 or 15 or 20 or 30 years from now) and we will not accept periodic installments as we had in the past.”
After acceleration, law in New York provides that anything inconsistent with that declaration could be a waiver. So, is it inconsistent to accept some payments after acceleration (assuming those payments do not cure the default)?
Lenders and servicers have understandably been wary about taking such post-acceleration payments lest they give rise to a waiver. Perhaps the most practical problem is that a borrower could argue that the reason partial payments were sent (and accepted) was because an arrangement had been made with the lender or servicer to accept this and forego foreclosure. While the lender or serivcer would counter that no such understanding ever arose, courts could be sympathetic to borrowers making this argument and, absent clear written proof that there was never such an agreement, it could be surmised that there would be some jeopardy to the mortgage holder.
On the other hand, some servicers welcome receipt of sums of money (representing considerable amounts across a broad portfolio of loans), willing to take the occasional protest (and possible loss) when a wily borrower makes the argument.
But the legal answer to the question posed is, no, post-acceleration acceptance of a sum which doesn’t cure all arrears should not give rise to a defense to continuation of the foreclosure. [This was recited in a New York case in 1997; CME Group Ltd. v. Cellini, 173 Misc.2d 404, 661 N.Y.S.2d 740 (1997)] And a newer case bolsters that position, ruling that acceptance of additional payments towards a mortgage after default and acceleration is not inconsistent with the mortgage holder’s insistence that the entire debt immediately be paid. [Lavin v. Elmakiss, 302 A.D.2d 638, 754, N.Y.S.2d 741 (3d Dept. 2003)].
So, whether a lender or servicer will choose to accept post-acceleration checks is a business decision. As far as the law is concerned in New York, taking those checks is not a waiver.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.