In a recent foreclosure action, Carver Federal Savings Bank v. The Redeemed Christian Church of God, International Chapel, et al., No. 19753-11, 2012 WL 1877316 (Sup. Ct. Suffolk Co. 2012), a New York state court granted the plaintiff bank’s motion for summary judgment against a defaulting mortgage holder. The mortgage holder, The Redeemed Christian Church of God, International Chapel, HHH Parish, Long Island New York Inc. (the “Church”), had borrowed $1.34 million from plaintiff Carver Federal Savings Bank on August 29, 2007 which it secured with a mortgage. In addition, defendant Michael Oluwafemi executed a guaranty on behalf of defendant Church in the amount of $500,000, equal to the value of a life insurance policy.

The Bank’s Position

The Bank claimed that the defendants defaulted on the mortgage in failing to make the monthly payment due on March 1, 2011. In a letter dated April 28, 2011, the bank advised defendants that, as a result of that default, the entire loan was accelerated and that all amounts were due and owing on or before May 3, 2011. Payment was not made on that date, and the bank commenced this action in June 2011. Under these facts, the bank moved for summary judgment in its favor and for a dismissal of the defendants’ counterclaims and affirmative defenses.

The Defendants’ Position

The defendants counterclaimed, alleging that the bank engaged in predatory lending practices and violations of Section 349 of the New York Banking Law and General Business Law. The defendants asserted that the bank refused to accommodate the Church’s request in 2009 for a loan modification that would have reduced the interest rate and provided for a period of interest only payments. Defendants asserted that the bank’s refusal to enter into this modification was unconscionable and reeked of bad faith, and it should therefore be estopped from enforcing its rights to foreclose and owed defendants money damages.

The defendants admitted that they defaulted in mortgage payments due March 1, 2011 through July 2011. But in July 2011, the Church paid all past due principal and interest on the mortgage (but not the full accelerated amount), under the impression that this would cure the default and would place the Church in a position to seek a loan modification. The defendants asserted that they had been current in payments since July 2011 and that the bank induced them to bring the mortgage current on the premise that it would reinstate the loan. Prior to the July 2011 payment, defendants admitted that they were informed that the loan had been accelerated, but they claimed that their bank account officer assured them that the issue would be resolved and the foreclosure would be put on hold since they were then current with the loan.

Summary Judgment Standard in Foreclosure Actions

A prima facie case is made in an action to foreclose a mortgage by the presentation of the note and mortgage and proof that there was a default in payment or any other material terms of the mortgage. Here, this standard was met by the bank, and it was the defendants’ burden to submit proof raising an issue of fact or that supported an affirmative defense. For a defendant to defeat a motion based on an affirmative defense, it must show a “bona fide defense,” one that has a plausible ground or basis which is fairly arguable and of substantial character.

Under New York law, once a mortgagor defaults on loan payments and the bank accelerates, a bank or lending institution generally is not required to accept less than the full payment demanded, even where there was a mere one day default. In addition, the mere acceptance of a partial payment is not an affirmative act of revoking the acceleration where the provisions of the loan documents expressly disavowed such waiver.

The Court’s Decision

The court found that the bank had met its burden in establishing that summary judgment should be granted in its favor, but it then had to evaluate the defendants’ defenses. The court found defendants’ assertions that there was an enforceable oral loan modification or promise to modify the loan by the account officer to be unavailing. The court found that where a contract is unambiguous and contains a clause prohibiting an amendment other than in writing, alleged oral modifications cannot preclude enforcement of the contract. The mortgage documents contained such a clause. An oral agreement may be enforceable, however, if there is partial performance that is unequivocally attributable to the oral agreement and the party that performed detrimentally relies on the partial performance. Conclusory allegations concerning the terms of the oral modification are insufficient to establish a modification. The court found that the defendants’ claims regarding the issuance of oral assurances by their bank account officer lacked the required specificity to overcome the requirement of a writing.

Similarly, the court deemed the defense of promissory estoppel to be unavailing. To plead the affirmative defense of promissory estoppel sufficiently, defendant must show a clear promise, reasonable and foreseeable reliance by the party to whom the promise is made, and an injury sustained in reliance on the promise. The court found that there was no clear promise, as defendants’ references to assurances given by a bank account officer were not clear and unambiguous. Additionally, the conduct relied upon must not be otherwise compatible with a written agreement. Here, the Church’s conduct in beginning to pay the mortgage loan once again in July 2011, after its default, was compatible with the terms of the original mortgage loan. In addition, the defendants did not show that they were misled or that they significantly and justifiably relied on the alleged oral assurances of the account officer.

The defendants’ remaining claims were dependent on theories of equity, and essentially argued that because of the financial disparity between the parties and the difficult economic times, the court should alter the terms of the relevant contract to come to a fair and just conclusion. These claims in essence sought to protect defendants from foreclosure based on their circumstances. The court, however, declined to exercise its powers of equity, as there is no obligation on the part of a mortgage-lender to renegotiate the terms of a loan, even a home loan. This is particularly the case where the borrower has already defaulted in making payments. Unless the defendant can show that the lender engaged in unconscionable conduct, the lender is entitled to enforce the rights that both of the parties bargained for. As a New York appellate court stated, “stability of contract obligations must not be undermined by judicial sympathy.” Emigrant Mortgage Co., Inc. v. Fisher, 90 A.D.3d 823 (2d Dep’t 2011). The court noted that New York law provides that when parties set down an agreement in writing, that agreement should be enforced pursuant to its terms. This is particularly true in the context of real property agreements where the necessity for certainty by all parties is of the utmost importance and the agreement was negotiated at arms length. The regrettable fact that defendants struck a bad bargain did not excuse the default. The court stated explicitly that it would be inappropriate to resort to equitable defenses in cases involving property rights, as it has “long been understood that secure property rights are an important pillar in the foundation of a free society.”

The court not only emphasized the need to enforce contracts as written, but also found the defendants’ equitable defenses to be unavailing. The court wrote that the equitable defense of unclean hands applies to proceedings related to the person, in personam, not proceedings dealing with property, in rem. Further the court also found that the defense of unconscionability was not satisfied because defendants failed to show that the terms of the underlying mortgage note were such that no reasonable person would accept them and so inequitable as to shock the conscience.

For these reasons, the court found that the plaintiff was entitled to a dismissal of all of defendants’ affirmative defenses and to summary judgment in its favor. The defendants’ opposition papers failed to raise any questions of fact requiring trial. The court found that the plaintiff was entitled to an order appointing a referee to compute the amount due under the mortgage and related note.