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New York: More on Enforcing Forbearance Agreements

Posted By USFN, Tuesday, April 17, 2018
Updated: Monday, April 16, 2018

April 17, 2018

by Bruce J. Bergman
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. – USFN Member (New York)

Must a borrower scrupulously adhere to the requirements of a forbearance agreement to derive benefit from it? A concise appellate decision and order confirms that, indeed, punctilious performance is required. [Interaudi Bank v. Moorgate Investments Limited, 145 A.D.3d 549, 44 N.Y.S.3d 35 (1st Dept. 2016)].

Because it seems that courts tend to be liberal in finding breaches to be de minimis, lenders and their counsel may often be skeptical that settlement agreements or forbearance agreements will be strictly enforced. Interestingly, though, and certainly gratifyingly from the point of view of a lender or servicer, such agreements are enforced with regularity according to their very terms. Such is the lesson of the subject case, and the story is but a short one.

A defaulted mortgage elicited a mortgage foreclosure action, which in turn led to a forbearance agreement whereby an extension of the loan maturity date was granted — specifically conditioned, however, upon the plaintiff’s receipt of $1,000,000 towards reduction in the principal sum. The source of this $1,000,000 was to be from proceeds of certain art sales by the loan payment guarantor at two auctions (to be conducted on a denominated date in November 2015). Importantly, the agreement stated that time was of the essence for this compliance.

The borrower-defendants, however, failed to comply with the terms of this condition. The monies were not paid and, thus, the loan maturity date was not extended.

While the trial court under these circumstances declined to grant summary judgment to the foreclosing plaintiff, the Appellate Court (the First Department) reversed, concluding that the agreement was clear and the failure to perform by the borrower (guarantor, actually) meant that the loan maturity was not extended and the foreclosure could proceed.

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