Often called stipulations, forbearance agreements are very common loss mitigation tools and we need not explore their advantages here. But the question always lurks, will the court enforce the provisions of the agreement against a borrower who does not honor the terms?
Mindful that courts tend to be sympathetic to apparently strapped borrowers and try generally to be compassionate, there is always room to ease the effect of clauses in these stipulations. Nonetheless, a recent case highlights yet another instance where the stipulation was indeed upheld and protected the lender. [Cadlerock Joint Venture v. Rubenstein, 26 A.D. 3d 219, 812 New York ‘ 469 (1st Dept. 2006) ]
The facts are really very close to what servicers often encounter. Here the action was on a note upon which some $54,000 was due. An action was begun and the case was settled with a stipulation (forbearance agreement) whereby the lender agreed to accept the reduced sum of $27,500. This was to be paid in two installments on dates certain.
The relevant clause in the agreement was that if the defendants failed to make full and timely payments of any sum, and failed upon seven days written notice to cure any default, then defendants consented to entry of judgment without any further notice in the full sum of $54,000 (less any payments made by defendants).
Surprise, the defendants-borrowers failed to make the first payment and were notified in writing of the default that they had seven days to cure. It was only on the eighth or ninth day after notification that the borrowers wired a payment to the lender although the forbearance agreement required payment by certified or official bank check. The second required payment was timely made. Nevertheless, the lender plaintiff moved without notice to enter a judgment in accordance with its terms of the stipulation for the full sum due less the payments made.
Of course, the borrowers later challenged the judgment – for obvious reasons – but the court would have none of it. (The trial court agreed with the borrower, but the lender was vindicated on appeal.) The key ruling was that the stipulation of settlement was clear and literal enforcement of its terms was deemed to be just. In failing to make the first scheduled payment on time and then neglecting to cure the default in the seven-day period, the defendant was not in substantial compliance with the stipulation by sending in the late payment.
There was room here for the court to be overly sympathetic but it did not happen that way. Chalk up another encouraging win for lenders.
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.