David Grill and Evan Schieber win in commercial foreclosure action
December 27, 2013 | | |David Grill and Evan Schieber achieved a significant win for a lender in a commercial foreclosure action entitled Regency Ventures LLC v Elaine Lelekakis. Unlike the majority of foreclosures, this action arose out of a non-monetary default involving a borrower who, one day after taking out a loan transferred the property to herself and her brother. The mortgage contained a provision commonly known as a due on sale clause, which makes it a default if the borrower transfers the property or any part of it to another. The addition of the brother to the deed went unnoticed for the next eight years as the borrower remained on the deed and continued to make full payments. When the lender discovered that the borrower added her brother to title, it issued a default and accelerated the loan balance. The plaintiff took the mortgage by assignment and proceeded to foreclose the mortgage based solely on the 2004 transfer.
Against this backdrop, that the Court would grant the lender summary judgment marks an extremely significant victory for the plaintiff and lenders generally. The remedy of foreclosure is an equitable remedy, which when contested, permits courts to consider a wide variety of equitable defenses. As such, it is often very difficult to foreclose a mortgage based on a non-monetary default that creates no prejudice to the lender.
The Court focused on a little-known Federal Statute called the Garn-St. Germain depository Institutions Act of 1982 (“Act”). The Act provides that “due on sale” clauses, like the one at issue here, are fully enforceable according to their terms. Based on the Act, the Court was persuaded to ignore the borrower’s equitable arguments such as waiver and laches and, instead relied on the Act in granting the plaintiff summary judgment.
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