We speak here of those computer generated statements which go out (usually) monthly. If for some reason they reflect different sums due or some other interest rate, is it possible that a borrower can successfully rely on that? Traditionally in New York case law was comforting – there was no danger to the lender if a billing invoice was in error. [For a discussion of fact patterns with case citations see 1 Bergman On New York Mortgage Foreclosures §5.034[a], LexisNexis Matthew Bender (rev. 2017).]
A new case, however, rules the other way and presents a sobering lesson. [See 2390 Creston Holdings LLC v. Bivens, 149 A.D.3d 415, 51 N.Y.S.3d 61 (1st Dept. 2017).] The fact pattern here presented must be avoided.
A mortgage loan was seriously in default with considerable default interest due. An acceleration letter was sent which particularly pointed out that acceptance of any lesser sums would not be a waiver and that any changes had be in writing, the latter also provision found in the mortgage. When the borrower submitted all the principal in arrears but with interest at the note rate, the bank inexplicably generated a statement showing an “adjustment” to the account with a credit for the difference between default interest and the note rate. Thereafter, the bank sent the borrower twenty consecutive invoices consistent with the original loan terms, that is, note rate interest.
The loan was assigned and the assignee, after making a demand, began a foreclosure based upon the continuing arrears in default interest. (After all, default interest as demanded in the acceleration letter had never been paid.) In granting summary judgment to the borrower, the court ruled that the “adjustment” in the bank’s statement and the twenty consecutive invoices were inconsistent with demand for full payment of principal and interest – that is, counter to an acceleration. Moreover, even if the waiver asserted by the borrower was to be deemed a loan modification, and therefore required to be in writing, the bank was deemed to have expressly reversed the default interest rate and the default interest charges.
In sum, the bank was held to have intentionally waived its right to acceleration with interest at the default rate. While previous cases had in essence said that erroneous monthly statement would not change the actual borrower’s obligation, the particular adjustment statement here followed by twenty invoices not seeking default interest were enough for the court to conclude that the lender had indeed waived default interest.
Concededly, these are rather extraordinary circumstances. Nonetheless, they do urge that care in issuing monthly statements is very much in order. At some point, prior case law notwithstanding, the court may indeed find such statements to rise to the level of a waiver.
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.