When A Settlement Agreement Does Not End The Foreclosure


15 May, 2011


Mortgage Lender and Servicer Alerts

As it is with more than a few subjects in the mortgage foreclosure arena, lenders and servicers could inquire as to why the minutia of procedure might be of particular interest to them.  One reason is that when courts impose unexpected requirements, or misapprehend the law, the lender and servicer is then banished to further litigating points which should have already been disposed of, thereby incurring the odious time and expense in continuing the foreclosure.

This preliminary observation is apt regarding this subject as to when a settlement does or does not conclude a foreclosure action.  And it is particularly important nowadays because the requirement of the settlement conference in all home loan cases also demands that the settlement agreement, if it concludes the case, be filed with the court.  However, so many foreclosure settlement agreements – primarily forbearance agreements – do not end the foreclosure action, which is precisely the point of a new case, Church Extension Plan v. Harvest Assembly of God, 70 A.D.3d 787, 913 N.Y.S.2d 717 (2d Dept. 2010).

This was really a usual situation.  The lender plaintiff had made a loan to a church for construction and default followed.  This led to a foreclosure action settled by a settlement stipulation, then changed by an amendatory settlement stipulation.  This new agreement restructured the debt by extending the payment period and providing for a detailed payment schedule, then allowing the foreclosure to proceed should there be another default – all quite typical of a forbearance agreement.

As may be surmised, there was a default on the amended agreement and after sending a notice to cure, the plaintiff moved to the next stage of the case.  Even though unopposed, this next stage was denied by the court on the ground that the prior settlement and the passage of time required the commencement of a new foreclosure action!

That, of course, was not what the settlement agreement said and was certainly not what was intended.  The plaintiff was nonetheless required to incur the time and expense of an appeal and there, fortunately, it was successful.  The appeals court ruled that a settlement agreement in a lawsuit does not terminate an action unless there is an express stipulation of discontinuance or actual entry of a judgment in accordance with the terms of the settlement.  Without that termination, the court retains its supervisory power over the action and may lend aid to a party who had moved for the enforcement of the settlement – precisely the plaintiff’s position.   So, it was found on appeal that the plaintiff’s motion to proceed to the next stage of the foreclosure was inappropriately denied by the trial court.  Thus, the settlement agreement was enforceable by the court and there was no obligation on the part of the foreclosing plaintiff to begin a new action.

To conclude the thought, while the decision on the appellate level should be viewed as a restatement of accepted law, that a lower court did not understand the principle is one of the unfortunate vicissitudes of foreclosure practice in the Empire State.  At least the ultimate result here was favorable.

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.