Waiver Of Defenses Ruled Valid Again – Bars Borrower Counterclaim


1 December, 2018


Mortgage Lender and Servicer Alerts

Too many of our alerts bemoan the difficult path of foreclosures In New York, albeit for good reason:  this is a tough state for such actions and the pitfalls seem endless.  We advise of these entanglements as an aid to avoiding them – if possible.  So, it is pleasing indeed when we can report on a positive case which supports the foreclosure process.

One such recent example reaffirmed the potency of a mortgage provision whereby a borrower waives defenses and counterclaims.  [Rugg v. O’Donnell, 159 A.D.3d 1606, 73 N.Y.S.3d 853 (4th Dept. 2018)]. It will be immediately apparent why this is so meaningful.

Foreclosing lenders recognize that the desperation of the situation encourages borrowers to interpose any number of defenses, whether apparently legitimate or not.  It is not anecdotal to observe that many a defaulting borrower’s answer can contain up to twenty five affirmative defenses, or more.  Is it possible that the foreclosing party has committed so many gaffes?  The answer is obvious – no – but this is the way the game is played.

Many a well written mortgage, however, will have a provision whereby a borrower waives the right to interpose defenses, set-offs and counterclaims.  This does not mean that a foreclosing lender is excused from notices required by statute or that the statute of limitations is waived, among others.  But it does mean that fanciful claims can be stricken and rejected by the court for the very reason that the borrower waived the right to have such things heard.

An immediate thought, not surprisingly, is whether public policy supports such a waiver.  The answer is that it does – pleasing for lenders – and case law is consistent in taking this position.  So it is always welcome when the point is litigated and the courts recite anew that indeed, a borrower can efficaciously waive defenses and counterclaims.

The circumstances in the new cited case were slightly different, but still very enlightening.  Here, a CEMA contained the waiver of defenses provision and a defaulting borrower decided that its answer had been insufficient and thereupon moved to amend that answer to present fraud claims against the lender.  However, because the waiver of defenses provision was valid and enforceable, that rendered the counterclaim for fraud to be of no merit.  In turn, where a proposed cause of action is without merit, that alone is a basis to deny any amendment of a pleading. So, the borrower’s defense was rejected and could not appear in the case.

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.