Is The Forbearance or Settlement Agreement Enforceable?

This is a question understandably often asked by lenders and servicers and the answer is generally “yes”, although that is not quite the full story.  A new case perfectly invites a visit to this particularly important subject.  [Maspeth Fed. Sav. & Loan Association v. Sloup, 123 A.D.3d 672, 998 N.Y.S.2d 409 (2d Dept. 2014).]

Even if attempts to settle foreclosure cases were not as common as they are, a lender or servicer needs to know the extent to which it can rely upon the force of the agreement or stipulation.  Of course, what the terms might be will vary from case to case, situation to situation, and will depend upon the context and the stage of the action when the stipulation is entered into.  So the goal here cannot be to examine every conceivable form of settlement – obviously far beyond the mission at hand.

But there are helpful basic principles: stipulations of settlement which put an end to litigation are favored by the courts and are rarely set aside absent fraud, collusion, mistake or other grounds which typically void a contract.  [For readers wanting an in depth review of this subject, attention is invited to 3 Bergman on New York Mortgage Foreclosures, §24.09, LexisNexis Matthew Bender (rev. 2014).]  There are some rights which cannot be waived as a matter of public policy – such as a borrower’s right to redeem – so those exceptions would not be subject to enforcement.

Generally, though, beyond that, a borrower is indeed bound to the terms of a settlement stipulation or agreement and the lender or servicer should assume that the terms will control.  All this presupposes, though, that the agreement was carefully and clearly prepared so there is no dispute about what the words mean to intercept enforcement.

So what does the new case confirm?  After the judgment of foreclosure and sale was entered, circumstances elicited the need for a stipulation of settlement wherein the borrower defendants agreed that they were properly served, that they had no defense to the action, and that they would not move to vacate the foreclosure judgment or otherwise contest its validity.

Anyone can predict that the stipulation notwithstanding, later the defendants did move to vacate the judgment of foreclosure and sale.  Based upon the stipulation wherein the defendants bound themselves not to assail the judgment, the motion was denied.

The final instruction of the case: yes, lenders and servicers should be comfortable relying upon the terms of any properly drafted stipulation or agreement of settlement.  This does not mean, though, that a borrower (or other signer of the settlement document) cannot nonetheless ignore the promises and make motions or seek stays thereby creating some delay and expense.  Rather, it suggests that the lender or servicer will ultimately prevail.

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.