Condominium’s Motion to Reduce Interest Owed on Unit Mortgage Granted Where Lender Delayed in Foreclosing for Seven Years
It is a familiar scenario: the owner of a condominium unit runs into financial trouble and stops paying both the mortgage on the unit and the condominium’s common charges. As the arrears increase, the condominium finds itself in an increasingly untenable situation, because the condominium’s lien has a lower priority than the first mortgage, making it difficult for the condominium to foreclose on its lien to collect the past-due common charges. Meanwhile, the amount of interest due to the lender on the mortgage continues to increase, making it less and less likely that the proceeds from an eventual foreclosure sale will be sufficient to cover the common charge arrears once the lender has collected all sums due to it.
Citimortgage, Inc. v. Gueye, 2016 N.Y. Misc. LEXIS 2316, 2016 N.Y. Slip Op. 50972(U) (Sup. Ct. N.Y. Co. June 21, 2016), involved an extreme example of this problem. In this case, a condominium unit mortgage went into default and the lender filed a mortgage foreclosure action in March 2009. The unit owner failed to answer the complaint. The lender waited three years before making the next required filing in the foreclosure action, and continued allowing years to elapse before taking each step of the foreclosure process. Even though the unit owner never appeared in the case or offered any defense, it was not until April 2016 that the lender obtained a judgment of foreclosure. Throughout this period, interest was continuing to accrue on the lender’s mortgage, and common charges totaling more than $30,000 were not paid.
The court agreed with the condominium that the mortgage interest should be reduced. The court found that “[t]his foreclosure action has dragged on for over seven years despite the fact that the borrower has never appeared. Plaintiff has delayed the case throughout…. Plaintiff offers no justification for its delay and expects to recover $98,472 in interest on a principal of $260,114. This substantial amount of interest has accumulated almost entirely due to plaintiff’s failure to prosecute its case in a timely fashion. Although there are no time limits placed on a plaintiff prosecuting an unopposed mortgage foreclosure action, it is inappropriate to abuse the foreclosure process in order to make an extra hundred thousand dollars off the loan. By all accounts, seven years is certainly too long to justify plaintiff’s recovery of interest during that time.” The court continued, “[w]hether [the lender’s] inaction was due to a desire to accrue substantial interest on a valuable property or for more benign reasons, the fact is that plaintiff has spent over seven years prosecuting a case which had no opposition.” The court decried a situation in which a lender could “delay as long as [it] wishes while collecting the accumulated interest as the case sits on the court’s docket.”
The decision reflected the court’s understanding of the dilemma that confronts condominiums in this situation: “Instead of providing a reason for its delay, plaintiff suggests that [the condominium] would have recovered the outstanding common charges if it had started its own foreclosure action. Implicit in this suggestion is that [the condominium] should have sprung into action because [it] should have known that plaintiff was asleep at the wheel and incapable of pursuing a case against a defaulting borrower. However, this alternative route presents [the condominium] … with an expensive and difficult choice. If [the condominium] started its own action to recover its relatively small amount of common charges, this would not transform [the condominium] into the senior lien holder. At any time plaintiff could arise from its deep slumber and complete the mortgage foreclosure action, which, as stated above, is uncontested. By then, [the condominium] would have expended legal fees in pursuit of [a] case now rendered moot by the plaintiff’s foreclosure case. Or, if plaintiff did nothing and [the condominium] completed its own foreclosure action, [it] would have to hope that there would be surplus money left over after plaintiff, the senior lien holder, recovers first. Essentially, plaintiff suggests that [the condominium] bear all the expenses of the plaintiff’s case with the hope that [it] might recover some of its outstanding common charges.”
The court found that the periods in which the lender unreasonably delayed in pursuing the foreclosure action represented about 75% of the seven years it took for the lender to obtain its foreclosure judgment. Therefore, the lender was awarded $25,110 in interest rather than the $98,472 it had claimed.
This case is a reminder that condominium boards with unit owners who have mortgages and are in arrears should discuss the matter with their legal counsel. The condominium’s counsel can then push the lender’s counsel to pursue the lender’s foreclosure action diligently and take appropriate steps if the lender fails to do so. Ganfer & Shore, LLP has pursued a variety of litigation tactics in these types of cases, including suing the lender and getting it to pay the common charges while the foreclosure is pending, suing the unit owner in a separate damages action and recovering a judgment, and in situations in which there were subtenants, obtaining through court proceedings the right to collect the rent directly from the subtenants.