A recent case denied a borrower’s motion to toll all mortgage interest as a condition of discontinuing the action. [Citimortgage, Inc. v. Salko, 179 A.D.3d 1009, 119 N.Y.S.3d 241 (2d Dept. 2020).] The significance of this comforting outcome for lenders will be more apparent when we briefly review the underlying concept.
The notion that interest due to foreclosing lender can be reduced or eliminated had once upon a time been a little known subject.. The principle is derived from statute (CPLR 5001), supported by extensive case law [see citations at 1 Bergman On New York Mortgage Foreclosures §2.20 , LexisNexis Matthew Bender (rev. 2020)]. The rule is that in an action at equity – and foreclosure is an equity action – the court retains authority to award interest; it can reduce or eliminate it. So as a practical matter, if a foreclosing lender unduly and volitionally delays the progress of a foreclosure action, the borrower should not bear the burden of that delay. Rather, the plaintiff should suffer reduction or elimination of interest for the period of the delay.
When a foreclosing plaintiff has actually without justification delayed can be a question of fact, as can measuring the period of delay, but the possibility of loss to a lender in this regard looms. It has long been our view that lenders may not have been as aware of this maxim as they should be. But increasing recognition by borrowers has to led to many more such claims and many more victories for borrowers. In the end, lenders must be careful with the pace of their foreclosure actions to the extent they control them, lest they suffer a successful borrower claim to expunge interest.
Having become understandably more emboldened with this seemingly new weapon added to the borrower arsenal, the claims in this regard have increased. It is therefore pleasing – from a lender’s point of view of course – to observe that the courts do not simply afford borrowers carte blanche to extend the idea, which returns us to the recent case mentioned.
There, it is true that the lender stumbled, at least it incurred some mishaps. It began a foreclosure in 2011, but it was dismissed for failure to obtain jurisdiction over one of the borrowers. In 2014, the lender brought a new foreclosure hoping to do better. The borrower answered and vigorously opposed. When the lender realized that it could not prove service of the preliminary notice requirement of RPAPL § 1304 (a frequent subject of these alerts), it moved in March 2017 to discontinue the new foreclosure without prejudice. No, said the borrower, who cross-moved to condition a discontinuance upon (among other things not germane to the point here) tolling of all mortgage interest.
Mindful that the lender’s miscues had created a foreclosure process that consumed six years (2011 – 2017), all during which interest was accruing, peril to the lender might have seemed imminent. But the trial court did not believe interest should be halted as a condition of discontinuance – after all, this is not seeking elimination of interest for delay. And the Second Department agreed that the trial court has the discretion to rule as it did.
The conclusion: lenders still need to avoid undue delay in prosecuting their foreclosures. They could lose interest. But the doctrine supporting that has its limits.
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.