More On Enforcing Forbearance Agreements – Yes, The Borrower Needed To Pay


1 May, 2018


Mortgage Lender and Servicer Alerts

Must a borrower scrupulously adhere to the requirements of a forbearance agreement to derive benefit from it?  A recent case confirms that indeed, punctilious performance is required. [Interaudi Bank v. Moorgate Investments Limited, 145 A.D.3d 549, 44 N.Y.S.3d 35 (1st Dept. 2016)].

Because it seems that courts tend to be liberal in finding borrower breaches to be de minimis, lenders and their counsel may often be skeptical that settlement agreements or forbearance agreements will be strictly enforced.  Interestingly, though, and certainly gratifyingly from the point of view of a lender or servicer, such agreements are enforced with regularity according to their very terms. Such is the lesson of the new case mentioned and the story is but a short one.

A defaulted mortgage elicited a mortgage foreclosure action which in turn led to a forbearance agreement whereby an extension of the loan maturity date was granted, specifically conditioned however upon the plaintiff’s receipt of $1,000,000.00 towards reduction in the principal sum.  The source of this $1,000,000.00 was to be from proceeds of certain art sales by the loan payment guarantor at two auctions to be conducted on a denominated date in November 2015.  Importantly, the agreement stated that time was of the essence for this compliance.

The borrower defendants, however, failed to comply with the terms of this condition, the monies were not paid and therefore the loan maturity date was not extended.

While the trial court under these circumstances declined to grant summary judgment to the foreclosing plaintiff, the Appellate Court (the First Department) reversed, concluding in essence that the agreement was clear and the failure to perform by the borrower (guarantor actually) meant that the loan maturity was not extended and the foreclosure could proceed.

Chalk this one up for the lender.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2018), 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.