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New York: Monthly Bank Statements Defeat the Foreclosure

Posted By USFN, Tuesday, August 8, 2017
Updated: Monday, July 31, 2017

August 8, 2017

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

Lenders are, of course, aware of their own computer-generated statements that go to borrowers (usually) monthly. What sometimes can happen is that these statements reflect different sums due or some other interest rate. If this occurs, borrowers would want to use such a discrepancy to defend against a foreclosure. While (traditionally) New York case law was comforting to lenders on this point, a recent decision ruled the other way and presents a sobering lesson. [See 2390 Creston Holdings LLC v. Bivins, 149 A.D.3d 415, 51 N.Y.S.3d 61 (1st Dept. Apr. 4, 2017).] The fact pattern here presented must be avoided.

Background — A mortgage loan was seriously in default with considerable default interest due. An acceleration letter was sent, which particularly emphasized that acceptance of any lesser sums would not be a waiver and that any changes had to be in writing. 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 of interest. Thereafter, the bank sent the borrower twenty consecutive invoices consistent with the original loan terms; that is, reflecting 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. In granting summary judgment to the borrower, the court determined that the “adjustment” in the bank’s statement and the twenty consecutive invoices were inconsistent with demand for full payment of principal and interest — namely, 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 found to have expressly reversed the default interest rate and the default interest charges.

Conclusion — In sum, the bank was held to have intentionally waived its right to acceleration with interest at the default rate and the foreclosure was dismissed.

Editor’s Note: The author’s firm represented the appellants in the summarized case.

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