What’s The Interest Rate On Your Foreclosure Judgment?

Obviously, it is important to know the rate of interest borne by the foreclosure judgment; it is part of calculating either the mortgage payoff or the upset price at the foreclosure sale.  The quick answer is 9% – or some other rate if the mortgage itself so provides.  But this is all best understood in context and so here is a brief review of the different levels of mortgage interest calculation in the New York foreclosure action with some clarification of the interest on the judgment question.

• From the moment of a borrower’s default until the mortgage balance is declared due (acceleration), interest accrues at the contract rate – the rate in the note.
• From acceleration through the referee’s calculation and up until entry of the judgment of foreclosure and sale, interest accures at 9%, unless, the mortgage provides for some other default rate of interest.
• A default rate of interest will be enforced in New York and because usury cannot apply to default interest, it can be at any rate: 10%, 12%, 16%, 18%, 24% – whatever the mortgage documents may provide.
• This default rate likewise continues up until entry of the foreclosure judgment.
• Once the judgment is entered, interest accrues at the noted “judgment” rate of 9%, regardless of what the default rate of interest may have been.

The rate of interest borne by the judgment is vital to know not only because it must be understood to calculate what is due, but because delay is possible until a foreclosure sale is conducted, thereby increasing the duration of interest buildup at the 9% rate.  Experienced servicers immediately recognize that such borrower assaults as orders to show cause and bankruptcy filings can readily postpone foreclosure sales, thereby extending the time, often considerably, from date of judgment to date of sale.

Having noted the judgment interest rate, it should be emphasized that the mortgage itself can change this if it clearly recites that the mortgage shall not merge into the judgment and that some other specified interest rate shall apply.  A case from 1999 which clarifies this point has recently caught our attention and will provide enlightenment on this point. [C&M Air Systems v. Custom Land Dev. Group II, 262 A.D.2d 440, 692 N.Y.S.2d 146 (2d Dept. 1999)]

There, the mortgage provided that the plaintiff was entitled to interest on the judgment either at the rate in the note (12%), or the highest rate permitted to be charged to an individual by a lender for a loan in the subject amount, whichever is higher.  Because the maximum interest rate to a natural person for a loan is 16%, and because 16% was of course higher than the 12% note  rate, the judgment in this case yielded that 16%,  not the usual 9% judgment rate.

The final concepts of interest here: (1) There is nuance to the judgment interest rate well worth knowing and (2) A well drafted mortgage can be of great help to a lender in this regard.

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.