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Don’t Let Undue Delay Cause You to Lose Your Interest in Interest

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  • Posted on: Jan 14 2022

By Jonathan H. Freiberger

A significant part of a mortgage foreclosure action is the calculation of the sums due and owing to the lender.  The task of computing the amount due is typically performed by the referee appointed by the court for that purpose.  What the referee is permitted to include in the calculations, which is generally governed by statute and the underlying loan documents, includes, among other things, outstanding principal, advances for taxes, insurance and other necessities to protect the mortgaged premises, reasonable legal fees and expenses and outstanding interest.  The focus of today’s article is the calculation of interest.

CPLR 5001(a) provides, in relevant part that “in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.”  See also U.S. Bank, N.A. v. Peralta, 191 A.D.3d 924, 925 – 26 (2nd Dep’t 2021).  In that regard, a “foreclosure action is equitable in nature and triggers the equitable powers of the court.”  U.S. Bank Nat. Ass’n v. Williams, 121 A.D.3d 1098, 1101 – 02 (2nd Dep’t 2014) (numerous citations and internal quotation marks omitted).  “Once equity is invoked, the court’s power is as broad as equity and justice require.”  Onewest Bank, FSB v. Kaur, 172 A.D.3d 1392, 1394 (2nd Dep’t 2019) (citation and internal quotation marks omitted).  The court, in exercising its discretion, “is governed by the particular facts in each case.”  Peralta, 191 A.D.3d at 926 (citations omitted).

One thing that the court may consider in evaluating the interest due to a lender in a mortgage foreclosure action is any delay that may be occasioned by lender’s lack of diligence in prosecuting the action.  For example, in Peralta, lender commenced a foreclosure action in May 2008 and an order of reference was entered in November 2009.  Lender took no action until October 2013, at which time it moved to vacate the prior order of reference and for a new order of reference. The motion was granted by order dated December 13, 2013, and a judgment of foreclosure and sale was entered on November 3, 2014.  The property was to be sold at auction on May 7, 2015, but borrower’s bankruptcy filing stayed the foreclosure proceedings until the stay was lifted on October 23, 2015.  In May of 2017, lender moved for leave to file a late notice of sale and for an extension of time to sell the property.  Borrower cross-moved, inter alia, “to reduce or eliminate the amount of accrued interest due to [lender’s] delay in the action.  Lender’s motion was granted, and borrower’s cross-motion was denied.  

On appeal, the Court found that supreme court “improvidently exercised its discretion in denying that branch of [borrower’s] cross-motion which was to reduce the accrued interest due to the [lender’s] delay in the action” and held that:

Here, in view of the lengthy, unexplained delays by [lender] in prosecuting this action, [lender] should recover no interest for the approximately 64–month period from May 2008, when this action was commenced, until October 3, 2013, when [lender] moved to vacate the prior order of reference and for a new order of reference. In addition, [lender] should recover no interest for the approximately 19–month period from October 23, 2015, when the bankruptcy stay was lifted until May 8, 2017, when [lender] moved for leave to file a late notice of sale and for an extension of time to sell the premises.

Peralta, 191 A.D.3d at 926 (citations omitted). 

Similarly, in Greenpoint Mort. Corp. v. Lamberti, 155 A.D.3d 1004 (2nd Dep’t 2017), the Second Department reversed a judgment of foreclosure and sale and remitted the matter to supreme court to have the referee recompute the amounts due to lender.  The Court found that significant “delay[s] by [lender]’s predecessor in interest in prosecuting [the] action” required a recalculation of interest.  Greenpoint, 191 A.D.3d at 1005.  Thus, the Court held that lender “should recover no interest for the roughly three-year period of time from when the action was commenced in 2005 to when [borrower] filed a request for judicial intervention in 2008.”  Id.

On January 12, 2022, the Second Department decided Deutsche Bank Nat. Trust Co. v. Ould-Khattri, amortgage foreclosure action addressing interest calculation issues with a bit of a twist.  The subject property in Deutsche Bank was subject to a first and second mortgage.  First lender, in March 2009, commenced an action to foreclose the first mortgage and named, inter alia, borrower and second lender as defendants.  In August 2011 supreme court denied first mortgagee’s motion for an order of reference due to its “fail[ure] to comply with an administrative order.”  In February 2013, first lender moved again for an order of reference, which motion was denied in September 2013 for failure to annex copies of the note and mortgage to its motion papers.  A third motion was filed in February 2014, the motion was granted by order of reference entered in April 2014, notice of entry of the order of reference was served in September 2015 and, in November 2017, the order was vacated due to first lender’s failure to serve one of the defendants.  In January 2018, second lender “moved to toll the accrual of interest on the first mortgage loan due to [first lender’s] delay in attempting to obtain a judgment”. First lender argued that “the second mortgage would be extinguished if [first lender] succeeded in foreclosing on the first mortgage [because] [first lender]’s motions for an order of reference inexplicably delayed the action for four years and that [first lender]’s delay prejudiced it ‘by draining any possible equity that may be left in the Subject Premises.’”  

In its resulting order, supreme court found that first lender’s failure to succeed on its first two motions for an order for reference was not “indicative of improper delay,” but the one-and one-half year delay in serving notice of entry of the granting of the third motion “constituted an excessive delay.”  Nonetheless, supreme court only tolled one year’s worth of interest.   Second lender appealed on the ground that the toll should have been for a longer period.  In modifying supreme court’s order, the Second Department held:

Here, the Supreme Court properly found that the nearly 17-month delay in the plaintiff’s service of the notice of entry of the order of reference entered April 30, 2014, was excessive. However, it improvidently exercised its discretion in tolling the accrual of interest for only one year, as it should have been tolled for the entire period from April 30, 2014, through September 9, 2015. In addition, the court should have also tolled the accrual of interest for the time periods in which the [first lender] made two motions for an order of reference after its initial motion for an order of reference was denied for administrative reasons. The tolling of the accrual of interest during these time periods is not, as reasoned by the court, penalizing [first lender] for losing its motions, but is instead a response to the [first lender]’s unexplained delay in prosecuting the action by failing to promptly move for relief after the denial of its first and second motions. Notably, after the [first lender]’s first motion for an order of reference was denied in August 2011, it failed to move again until February 2013. After the second motion was denied in September 2013, the [first lender] did not make its third motion until February 2014.


Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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