While lenders generally pursue foreclosures with dispatch, all may not be aware of the severe consequences lurking if the action is unduly delayed by the foreclosing party: elimination of interest for the period of delay. Three recent cases highlight this increasingly common peril.
Lest lenders despair for the wrong reason, let us immediately emphasize that delay occasioned by a recalcitrant borrower or by pursuit of settlement avenues is not the variety of detainment which can lead to the mentioned draconian punishment. Rather, it is volitional tarrying by the foreclosing party, unexplained or inexcusable delay, which elicits the cancellation of interest.
To some extent, the danger upon which we report is perhaps slightly hidden. There is no statute which says that “a delay in prosecuting a mortgage foreclosure action leads to elimination of interest”. But there is a section of New York’s practice statute which provides that in an action at equity (foreclosure is an action in equity) computation of interest is within the court’s discretion (CPLR §5001). In turn, case law interpreting this language states pointedly that the delay of a foreclosing lender can lead a court to reduce or eliminate interest for the period of delay found. Thus, although in a sense obscure, the principle is very real.
While once upon a time this remedy was only rarely invoked, it has become better known over the years with the rise in the contention and volume involving foreclosure cases. The three matters mentioned at the inception here are striking examples of the trend.
In one case [Greenpoint Mtge. Corp. v. Lamberti, 155 A.D.3d 1004, 66 N.Y.S.3d 32 (2d Dept. 2017)] a foreclosing lender waited three years after defendant’s answer was served to move for summary judgment. That unexplained delay lead to a court declaration that interest for that period could not be computed for the lender.
In another case [Citicorp Trust Bank, FSB v. Vidaurre, 155 A.D.3d 934, 65 N.Y.S.3d 237 (2d Dept. 2017)] a full four years of interest was tolled for an unwarranted delay from an appellate affirmance of summary judgment for the foreclosing plaintiff until the date of a referee’s computation.
Finally, in the most recent decision on the point [BAC Home Loans Servicing, L.P. v. Jackson, 159 A.D.3d 861, 74 N.Y.S.3d 59 (2d Dept. 2018)] a foreclosing lender suffered the penalty when interest was extinguished for a four year unexplained delay, beginning with 60 days after an initial (albeit rejected) RJI was filed through the date a subsequent RJI was filed – a period during which a borrower would otherwise be entitled to a settlement conference.
While the underpinnings of all of this may be a bit recondite, the lesson of the noted cases is readily understandable and worthy of emphasis. While a lender is free to pursue settlements and compromises, it cannot allow a foreclosure to linger without reason for undue periods of time. If a case will be forgotten or neglected, a borrower aware of applicable law may attack the delay period and may secure an elimination of interest for that hiatus. Care is certainly in order.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.