More than 20 years ago, a New York appellate court observed, “The law is clear that when a mortgagor defaults on loan payments, even if only for a day, a mortgagee may accelerate the loan, require that the balance be tendered or commence foreclosure proceedings.” Thousands of New York borrowers face these possibilities every month when circumstances force them to make late payments on their mortgage loans. But that does not mean borrowers have no defense or recourse when a lender comes after them. In the same opinion quoted above, the court went on to say a borrower is still entitled to his or her day in court if they assert “a valid defense, including tender of the entire amount then due, bad faith on the part of the mortgagee or an unconscionable act.”
BNH Caleb 114 LLC v. Mabry
What does this mean in practice? Here is an illustration from a case now pending before Queens Supreme Court. In this case, a woman owned a mortgaged property in St. Albans. Under the mortgage note, the woman was required to make a monthly payment on the first day of each month. Her payment for April 1, 2014, was made seven days late, the result, she claimed, of a mistake made while balancing her checking account. The lender accepted the late check on April 14.
The following month, the woman again paid late, this time on May 10. This time the lender declared the woman in default, not only for paying late a second time but also failing to include a $118 late fee for the late April payment. The lender subsequently filed a foreclosure action in the Supreme Court, immediately moving for summary judgment.
In a June 25 opinion, Judge Martin E. Ritholtzdenied summary judgment, holding that while the lender had made its case for foreclosure, the woman presented a viable defense and was at least entitled to a hearing. Specifically, she argued the lender's actions were “unconscionable” in that her late payments in no way “prejudiced” the lender. Given that the lender accepted the late April payment without declaring a default, Judge Ritholtz said the borrower “had been lulled into a sense of belief” that her late May payment would also be accepted without incident. And while the lender may technically be entitled to foreclosure if payment is even one day late, the judge said the court “will not lend its imprimatur to a stratagem designed to accelerate an entire loan balance and deprive the mortgagor of her real property for the failure to include a late fee of $118.15.”
This is not to say every judge will be as lenient towards borrowers or as harsh with lenders. Mortgage notes are ultimately contracts enforceable according to their terms. Whether you are the borrower or the lender, it is therefore important you understand all of your legal rights and responsibilities. If you need the assistance of a qualified New York real estate attorney in dealing with any mortgage-related issue, contact our offices right away.