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GE Capital Business Asset Funding Corp. v. Bank Building Associates, L.P.

A-6909-00T2 (N.J. Super. App. Div. 2002) (Unpublished)

MORTGAGES; FORECLOSURE; ATTORNEYS FEES— When the default interest rate in a loan is justified as being reasonable because it makes up for the lender’s legal fees, a court may deny a separate award for legal fees to the mortgagee.

A borrower failed to repay its mortgage loan at maturity and a foreclosure action was commenced. The borrower then obtained replacement financing, but argued that the default interest rate of fifteen percent in the original loan was too high. The matter was litigated and testimony was entered regarding the reasonableness of the default interest. Part of the testimony was that the rate was reasonable “because it was intended to make up the additional costs incurred in collecting the loan as a result of the legal fees.” As a result, the lower court only awarded a limited amount of attorney’s fees to the lender, as the prevailing party, pursuant to the attorney fees provision of the mortgage. On appeal, the lender sought to recover additional attorney’s fees, but the Appellate Division agreed with the lower court that if the default interest rate was to compensate the lender for legal fees, the lender should not be entitled to collect its actual legal fees on top of the default interest rate.

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