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In Re Makris

2011 WL 499948 (U.S. Dist. Ct. D. N.J.) (Unpublished)

FORECLOSURE; MORTGAGES — Where a loan agreement plainly provides that the lender can collect all costs and expenses incurred in enforcing a note, the lender can be reimbursed for a range of legal actions, provided those actions seek to give force or effect or compel obedience of the obligations including costs attributable to unsuccessful litigation with a guarantor.

A bank agreed to make a loan for the purchase of a home. This resulted in a mortgage note where the borrower agreed to be liable for any reasonable costs or fees – including attorneys’ fees – the bank might incur in enforcing the note in the event of default. The borrower defaulted, and the bank agreed to a modification of the note on the condition that the borrower provide additional security for the debt. In satisfaction of that requirement, the borrower’s employer issued a personal guaranty making him liable for the debt in the event of default.

The borrower again defaulted, and the bank sought payment from the guarantor. The bank then commenced foreclosure proceedings against the mortgagee’s property, and the borrower filed for bankruptcy. As part of the claim against the bankruptcy estate, the bank sought reimbursement for fees arising out of both the foreclosure and the guaranty action. The lower court agreed and issued an order declaring that the bank had a first mortgage lien against the borrower’s property, and charged the debtor with the bank’s fees and costs. In a later appeal, the fees attributable to the litigation with the guarantor were reversed, but the borrower was charged with fees resulting from the litigation to determine whether the borrower was responsible for the fees resulting from the guarantor litigation.

The borrower appealed, but the Appellate Division found that the loan agreement’s plain language provided for all costs and expenses incurred by the bank in enforcing the note. Enforcement encompasses a range of legal actions, provided those actions seek to give force or effect or compel obedience to the obligations. The fees were proper here, because they were incurred in enforcing the note.

The Court found that the lower court’s fee findings were justified because they were supported by the fact that the bank had not engaged in aggressive motion practice and did not persist in a completely unjustified defense. The fee award was not clearly unreasonable simply because it amounted to about fifty percent of the principal debt.

Finally, the Court found that the bank was entitled to recover its attorney’s fees even for motions on which the bank was not ultimately successful. Actions which may ultimately be unsuccessful may still be reasonable at the time they are taken.

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