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Siegelman v. Weinstein

A-0738-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

LOANS; DEFAULT — A lender’s acceptance of late payments on a note does not necessarily constitute a cure of its borrower’s obligation to make timely payments because if that were the case, the default provisions in the loan agreement would be meaningless.

A borrower defaulted on a handwritten promissory note. The note holder sued. The parties then entered into a settlement agreement that required the borrower to pay pursuant to a schedule. To secure the payments, the borrower gave the lender a mortgage on a property. The settlement agreement also provided that: (a) the lender had the right to enter a default judgment against the borrower if the borrower was more than five days late in making any installment payment; (b) in the event of default, the lender could enter a default judgment for the amount of the note, less any payments made to the date of default, plus interest at the judgment rate. The borrower was also given a discount on the amount originally due, provided certain terms and conditions were met. The borrower was late in making the initial two payments. The lender moved to enter a default judgment. When the default was entered, the borrower moved to vacate the judgment.

The Law Division declined to enforce the settlement agreement finding “substantial compliance” by the borrower. The parties entered into an amended settlement agreement wherein the borrower agreed to continue making payments as set forth under the original settlement agreement together with an additional payment that was to compensate the lender for late payments and legal expenses. The borrower also gave the lender the deeds to property he owned, and, in the event of default, authorized the lender to sell the property to pay off the debt. After the parties entered into the supplemental settlement agreement, the lender accepted late payments on numerous occasions. When payments were not received for several months, the lender’s attorney sent the borrower a notice demanding payment, stating that the lender would proceed with his available remedies without further notice. The notice did not declare the borrower to be in default. Instead, the parties entered into yet another agreement whereby the borrower agreed to cure the defaults and pay another late fee. When the borrower was late with the next payment due, the lender, without notice to borrower, had his attorney remove the deeds that were held in escrow and record them. The borrower tendered payment on the late installment two weeks after they were due, and the lender accepted payment. The borrower then brought an action to invalidate the transfer of the deeds seeking: (a) reimbursement for all costs and fees associated with the filings necessary to invalidate the deeds; (b) the imposition of sanctions against lender for its actions; and (c) imposition of sanctions against the escrow agent for breach of duty. Ten days later, the borrower delivered to lender another payment under the settlement agreement. The lender did not deposit the check because he claimed there were insufficient funds in the borrower’s account to cover the check. The lender made an application to enter judgment by default based on the late payments. While both actions were pending, the lender accepted payments from the borrower for the last installment payments under the loan.

The Law Division held that the borrower was late in making payments and breached the supplemental agreement. It noted that the settlement agreement provided for a discount to the borrower if he complied with the agreement. The supplemental agreement required the full amount of the loan to be repaid, including the discounted amount, if there was a default. It entered a default judgment against the borrower for the amount still owed on the original loan. The borrower appealed.

On appeal, the Appellate Division affirmed the lower court’s ruling that the borrower had defaulted and that it was entitled to the default remedy. Here, it held that the settlement agreements specifically stated that the borrower would have a five-day grace period and that the lender could record the deeds if any of the monthly payments were not received by the end of the grace period. It ruled that since the borrower defaulted by not making the payments on or before the grace periods expired, no additional notice was required before the lender could record the deeds. It rejected the borrower’s contention that it was the parties’ course of dealing for the lender to accept late payments. It found that the lender was not tolerant of the borrower’s making late payments, noting that it entered default judgments against the borrower following late payments and only accepted late payments after the borrower agreed to pay substantial late fees in addition to the monthly payments and promised that future payments would be timely. Further, it rejected the borrower’s claim that the lender, by accepting and depositing late payments, agreed that the default was cured. It found that the payments served to reduce the debt and held that if the borrower’s defaults were cured by his late payments, it would have made the default provisions meaningless. As to the requirement that the borrower repay the entire loan amount, without applying the discount, the Court rejected the borrower’s argument that it was an impermissible penalty. It found that the borrower executed a note, which was later discounted, provided certain terms were met. Since the borrower did not comply with those terms, it was not entitled to the discount. Further, the Court did not find the acceleration provision in the agreement to be unreasonable since it was expressly agreed to by the parties. It also noted that prior case law did not view such provisions as being in violation of the law as an improper penalty. The Court also determined that, here, the agreements did not need to say that time was of the essence because they stated a time for payment and the consequences of not paying on time, necessarily implying that prompt performance was essential.

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