Tolling Of Interest Against Lenders – But Not Here

This is always a potentially scary outcome which can befall foreclosing mortgage holders: Courts halting interest accrual upon mortgage obligations when the foreclosing party unduly delays progress of the case.

It is reasonable to observe that this weighty subject remained obscure, not really the subject of mortgage foreclosure litigation, until some attention was given to it in the 1970’s, accelerated a bit in the 1990’s, becoming more noticeable in the aughts.  The concept – not surprisingly broader than will be addressed here – is explored in depth at 1 Bergman On New York Mortgage Foreclosures, § 2.20[3], LexisNexis Matthew Bender (rev. 2024) and was the subject of our article “The Cat is Out of the Bag: Elimination of Interest Slams Lenders Again”, NYLJ, December 19, 2018, at 5, col. 2.  It is apparent, then, that by 2018 borrowers were well versed in recognizing the defense to a mortgage calculation that a plaintiff may have delayed sufficiently to toll interest.

While foreclosing parties generally sought to prosecute mortgage foreclosure actions with dispatch, there are any number of unexpected or unfortunate circumstances which can elicit delay in the part of the foreclosing party.  Without listing what should be obvious, a source of danger would be an instance where an answer is received in January, but a lender refrains from moving for summary judgment until perhaps December, or into the spring or summer of the following year.  It is that variety of delay which can readily lead a court to eliminate interest for the period beyond what would be “normal” for a plaintiff to have moved for summary judgment.  To be sure, there are innumerable other examples applying to each stage of the foreclosure case in New York, exposing the many occasions upon which foreclosing parties might stumble.

The recent case which is the source of this discussion [US Bank Trust, N.A. v. Frankfurter, 228 A.D.3d 904, 214 N.Y.S.3d 117 (2d Dept. 2024)] addresses the apparently untested situation of a mortgage holder not beginning a foreclosure for years after default.  Is that variety of delay censurable by a court?  Specifically in the action, the borrower was in default and an attorneys letter in April of 2012 informed the borrower accordingly, reciting the total sum owed. (This was not denominated as an acceleration but that was not a factor)  It was not until late June of 2018 that the successor in interest to the original mortgage holder initiated a foreclosure action – a period (delay?) of more than six years.

The borrower cross-moved against summary judgment seeking to toll the interest from August 1, 2012 through June 28, 2018 based upon “unnecessary delay in prosecuting this action”.

Legal principles contemplated by the court, actually the standard ones, were as follows:

• A foreclosure action is equitable in nature and triggers the equitable powers of the court.
• Once equity is invoked the court’s power is as broad as equity and justice require.
• In an action of an equitable nature – which includes mortgage foreclosure – the recovery of interest is within the court’s discretion.
• The exercise of that discretion will be governed by the particular facts in each case including any wrongful conduct by the other party.

All of the foregoing is a matter of established case law and in particular arises from CPLR § 5001(a) which gives the court the power to compute interest in an equitable action.

This kind delay appears on its face to be an area of concern.  However, both the trial court and the Second Department ruled that the action was timely (no statute of limitations issue) and in particular that any delay attributable to the plaintiff’s predecessor in interest prior to commencement of the foreclosure action did not warrant the tolling of interest that accrued on the mortgage note after August 1, 2012.  Precisely how this conclusion was reached was unstated although the court was quite affirmative in making the point.  It can be speculated that the foundation for the holding was the maxim that if a statute of limitations has not expired, then laches (undue delay) cannot apply; hence no need to interfere with the calculation of interest.

In any event, it now appears established that so long as the statute of limitations has not expired, a mortgage holder is free to refrain from initiating a mortgage foreclosure action for years without fear that interest will be reduced or eliminated during that time period.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2024), is a partner with Berkman, Henoch, Peterson & Peddy, P.C. in Garden City, New York. He is also a member of the The American College of Real Estate Lawyers, a fellow of 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.