Condo Gets Bank Interest Reduced For Delay
A new case (New York County Supreme Court) relating to delay of a foreclosure action confirms two meaningful principles from the respective viewpoints of a foreclosing lender and a condominium holding a junior common charge lien. [Citimortgage, Inc. v. Gueye, 2016 Misc. LEXIS 2316]
Foreclosing parties need to be aware – a point we have made from time to time in these alerts – that undue delay of a foreclosure action on the part of a plaintiff can result in a court reducing or eliminating the accrual of interest commensurate with the delay. This is an equitable judgment call on the part of a court and it typically does not arise unless delay has been considerable and the borrower pursues the issue. Conceptually, though, it is a matter of statute (CPLR §5001) and a substantial amount of case law that in an equity action (a foreclosure is such an action) the court has the authority to reduce or eliminate interest if the foreclosing party has been the source of delay. It is worth emphasizing for the sake of clarity that if the court holds papers for long durations, or it is the borrower who employs dilatory tactics, such is not chargeable to the foreclosing party.
On the other side of this concept is the condominium holding a condominium common charge lien. The (incorrect) prevailing wisdom on the part of most condos is that because their liens are junior to foreclosing first mortgage holders, there is no point in prosecuting the condo lien; the bank will take care of it with their own foreclosure. But home loan foreclosures impose considerable delays in the process which means that a diligent condominium should be able to get to a foreclosure sale much faster than a foreclosing first mortgage – hence the suggestion that condos are well advised to indeed prosecute their condominium common charge liens. Further explanation as to why that is so has been the subject of prior alerts and articles and need not be restated here, although those who could can benefit from the discussion are invited to consult 4 Bergman on New York Mortgage Foreclosures § 36.11 [a], LexisNexis Matthew Bender (rev. 2016).
Whether or not the junior condominium is foreclosing, should the foreclosing bank be consuming undue time in the foreclosure, the condo is obviously suffering thereby. The damage is in the form of continuously accruing interest which creates a greater debt to the condominium and more money due to the foreclosing lender. This in turn consumes the equity, leaving no surplus for the condominium. Accordingly, there is an incentive for the condominium to assault a foreclosing lender to seek reduction of interest where it is that foreclosing party which caused the delay.
That is precisely what happened in the new case. Remarkably, the foreclosing plaintiff consumed seven years in prosecuting an unopposed mortgage foreclosure action. As part of that, it waited three years to even file an RJI. Faced with this undue protraction, and a cross motion by the condo to eliminate interest for the delay periods, the court did just what the condo asked. It examined each aspect of delay and attributed extinguishment of interest for the appropriate periods. From the foreclosing party’s point of view this is unfortunate and unwelcome, although it must be conceded that the lender brought the consequences on itself.
From the position of the condominium, it buttresses the weapon that if they choose to allow the bank to do the foreclosure, but delay is incurred in that foreclosure, interest on that senior obligation can be subject to reduction or elimination.
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.