BNH Caleb 14 LLC v. Mabry
11 N.Y.S.3d 844, 49 Misc. 3d 402 (2015)
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Rule of Law:
In New York, while a mortgagee generally has the right to accelerate a loan and foreclose upon default, courts may deny summary judgment for foreclosure when the mortgagor raises a meritorious defense of unconscionability, particularly where the default caused no prejudice to the mortgagee and the mortgagor was previously led to believe late payments would be accepted.
Facts:
- On August 22, 2005, Karen C. Mabry signed a mortgage note with Greenpoint Mortgage Funding, Inc., which required payments on the first of each month and allowed for a 5% late charge if a payment was overdue for more than 10 days.
- Prior to April 2014, Mabry had a history of making tardy mortgage payments, which were accepted by the mortgagee without explicit warning that future late payments would result in default, thereby leading Mabry to believe late payments would be accepted, albeit with late fees.
- A mortgage payment was due from Mabry on April 1, 2014.
- Mabry wrote a check for the April payment on April 8, 2014, but did not include the $118.15 late fee.
- BNH Caleb 14 LLC's counsel, Harry Zubli, Esq., allegedly received Mabry's April payment check on April 14, 2014, and subsequently endorsed it to another entity on April 24, 2014, after which it was accepted and deposited.
- A mortgage payment was due from Mabry on May 1, 2014.
- Mabry wrote a check for the May payment on May 10, 2014 (incorrectly dated May 10, 2013).
- On May 13, 2014, BNH Caleb 14 LLC, through its counsel, rejected Mabry's May payment, deeming her in default under the mortgage note due to the alleged lateness and the prior month's failure to include the late fee, and consequently accelerated all future payments.
Procedural Posture:
- BNH Caleb 14 LLC (plaintiff) initiated a mortgage foreclosure litigation against Karen C. Mabry (defendant mortgagor) in Supreme Court, Queens County, New York (a trial court of first instance).
- BNH Caleb 14 LLC filed a motion for summary judgment in this foreclosure litigation, seeking a ruling in its favor without a full trial.
- BNH Caleb 14 LLC also filed a motion to amend the caption of the case to formally add Maxine on the Boulevard, Inc., who had previously been served as John Doe No. 1, as a named defendant.
- Karen C. Mabry (defendant mortgagor) opposed BNH Caleb 14 LLC's motion for summary judgment.
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Issue:
Does a mortgagee's acceptance of a late mortgage payment and a history of accepting tardy payments create a valid defense of unconscionability against a motion for summary judgment in a foreclosure action, particularly when the default is for a minor late fee and caused no prejudice to the mortgagee?
Opinions:
Majority - Martin E. Ritholtz, J.
No, a mortgagee's acceptance of a late mortgage payment and a history of accepting tardy payments can create a valid defense of unconscionability against a motion for summary judgment in a foreclosure action, especially when the default is for a minor late fee and caused no prejudice to the mortgagee. The court acknowledged the general principle that a mortgagee has the right to accelerate a loan and foreclose for even a minor default, and that equity generally will not intervene, citing New York Guardian Mortgagee Corp. v Olexa and Home Sav. of Am. v Isaacson. However, the court emphasized that summary judgment should be denied when a mortgagor asserts a valid defense such as unconscionable conduct or opportunistic bad faith by the mortgagee, referencing Grand Pac. Fin. Corp. v 97-111 Hale, LLC and Di Matteo v North Tonawanda Auto Wash. In the present case, defendant Mabry established a meritorious defense of unconscionability, primarily because BNH's attorney accepted and deposited the April 2014 check, even though it was late and lacked the late fee. The court found that Mabry had been 'lulled into a sense of belief' that her tardy payments would be accepted, as no prior warning had been given that future late payments would result in default. Crucially, BNH failed to demonstrate any prejudice from the late payment or the missing $118.15 late fee. The court concluded that it would not sanction a 'stratagem designed to accelerate an entire loan balance and deprive the mortgagor of her real property for the failure to include a late fee of $118.15'.
Analysis:
This case significantly reinforces the equitable power of New York courts to prevent unconscionable outcomes in mortgage foreclosure proceedings, even against strict contractual rights. It serves as a crucial check on lenders who might opportunistically exploit minor, non-prejudicial defaults to accelerate loans. The decision highlights that a mortgagee's past conduct, such as accepting late payments without explicit warning of future strict enforcement, can create an expectation that gives rise to an unconscionability defense. This case encourages lenders to maintain consistent and transparent communication regarding default consequences and to consider the broader equitable implications of their actions, potentially influencing future cases involving similar 'technical' defaults without actual harm to the lender.
