This continues to be one of the bugaboos of mortgage servicing, the timorousness in deciding whether to accept a partial payment after acceleration. The answer remains “yes” and a fairly recent case confirms this again [UMLIC VP, LLC v. Mellace, 19 A.D.3d 684, 799 N.Y.S.2d 61 (2d Dept. 2005)].
The confusion for servicers – which is understandable – relates to the fear that acceleration (the declaration that the full mortgage balance is due) could be waived by accepting a partial payment after the acceleration has been declared due. This is a well-placed concern, in part because there has always been decisional law in New York stating that any act inconsistent with a declaration of acceleration could be a waiver of that acceleration. It could be argued that there is indeed some inconsistency in accepting a partial payment when a lender or servicer has declared due the entire balance.
That said, case law does affirmatively state – as confirmed by the new ruling – that the mere acceptance of partial payment after acceleration is not a revocation of that acceleration. While the recent case certainly made that point clearly, it also observed that the borrower’s claim of revocation of acceleration was refuted because the lender advised the borrowers they would remain liable for the balance of the accelerated debt even after the partial payment was accepted. Had there been some question about that – which is precisely what borrowers try to foist upon the courts – then there might have been some danger to the lender. And it is that peril which always does make this a cautious subject.
A borrower could try to defeat a foreclosure saying that there was some “understanding or agreement” with the servicer that partial payments would be accepted and the foreclosure would be halted or discontinued. While this would rarely be true, the door might be opened for a sympathetic view from the court. That doesn’t change the law that acceptance of partial payment is not a waiver, but it provides a possible arena for contention, fully banished by a protective letter to the borrower saying that the debt remains due and owing.
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.