Tolling Interest: Time Between Foreclosures


15 March, 2024


Mortgage Lender and Servicer Alerts

This may just be on the cusp of portending something new, although even if the concept was actually hiding in plain sight, it is for lenders a disturbing eye-opener.  But then perhaps it is just emphasis of a recognized concept.  The concern derives from a recent case:  Deutsche Bank National Trust Company v. Armstrong, 218 A.D.3d 738, 195 N.Y.S.3d 8 (2d Dept. 2023).  The peril is real, likely seen not so rarely, but in the end, self-inflicted by lenders who may be less than sedulous.

Proceeding immediately to a nutshell summary of the recent case (context and explanation then to follow), a lender commenced a foreclosure on January 2008 and after apparently doing little or nothing to prosecute the case, assigned the mortgage to assignee which then began a new foreclosure on February 7, 2013. (As an aside, the first foreclosure was dismissed for want of prosecution on June 5, 2014.)  The court halted interest – that is, would not award it to the foreclosing party – for the five year period between initiation of the first foreclosure action and the starting of the second foreclosure action.

Just as a refresher as to why the court was empowered to do what it did,  a foreclosure action is equitable in nature, thereby triggering the equitable powers of the court which in turn are as broad as equity and justice require.  The key maxim emerging from the general thought is that recovery of interest in an equitable action is within the discretion of the court which will always be governed by the particular facts in each case, significantly including wrongful conduct by either party.  Further, as the court noted, a cancelation of interest may also be warranted where there is an unexplained delay in prosecution of a mortgage foreclosure action.

That certainly happened here.  What was somewhat different about this case, and which gives pause, is that the delay was between the beginning of one foreclosure action and the starting of another, albeit the first foreclosure remaining in place during that period.  The tolling of interest typically results when a foreclosing plaintiff moves too slowly, for example, an answer is received and a motion for summary judgment is not made for a year or two or three.  Again, the difference here was that, delay notwithstanding, a foreclosure was begun, followed by a later action.

The five year delay between the two actions, without an excuse for the neglect to prosecute the action, lead the court to deny that very substantial amount of interest.  Had the lender or servicer paid closer attention to the status of its initial foreclosure, this loss of interest would have been avoided.  The end result is draconian, but preventable.  Lender beware.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), 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.