New Look At Late Charges – Who Can Challenge And When?


15 September, 2018


Mortgage Lender and Servicer Alerts

While late charges are seldom a large component of any mortgage debt, although they can mount up in more substantial commercial case, they most often are an aspect and so understanding them can be meaningful.  For a comprehensive review of the subject, which therefore need not be restated here, see 1 Bergman on New York Mortgage Foreclosures §1.10, LexisNexis Matthew Bender.

Two basic aspects of the subject are addressed in a recent case, but from a new perspective. [Landau v. Hallstead, 159 A.D.3d 1095, 71 N.Y.S.3d 714 (3d Dept. 2018)].

One of these is that a late charge cannot be excessive, a penalty.  Generally, a late charge is to partially compensate for lost money and the cost of pursuing a tardy remittance.  Two-percent is the amount mandated by statute for a one-to-six family dwelling; five-percent is usual for commercial mortgages, although not a directive of statute.

Another concept is that late charges apply only up to acceleration – no computation is to be made for any period after acceleration.

Now to the new case:  As is typical with any litigation, a party contesting or opposing (for our purposes, late charges) must have standing to assume such a posture and must do so on a timely basis.  For example, in the new case, a grantee of property in foreclosure from the owner-borrower is not a party to the note and mortgage and therefore cannot challenge the negotiated terms of those documents – even if the late charge was $500 on a $300 installment. (Were the mathematical calculations alone at issue however, those could be assailed.)

Regarding timeliness, an argument that late charges were improperly assessed after acceleration would be a valid point, but it cannot be raised for the first time on appeal as it was in the reported case.  Thus, the argument was rejected.

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.