Daily Development for
Thursday, July 18, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; ACCELERATION: Mortgage language authorizing mortgagee to accelerate entire remaining mortgage debt upon mortgagor's default without necessity of further notice or demand for payment is valid. Long Island Savings Bank v. Denkensohn, 635 N.Y.S.2d 683 (App. Div. 1995).

The case does not make clear whether New York statutory law would require notice before acceleration absent a mortgage provision. The common law of some states, such as Texas, imposes a duty of notice but permits waiver. Many other states have statutory requirements that cannot be waived. In the editor's experience, however, most such states also use the more severe non-judicial foreclosure. New York hasn't yet adopted a non-judicial foreclosure statute that practitioners are willing to use, although a new effort to do so now is afoot.

Comment: It is often said that harsh doctrines in law beget broad exceptions in equity. Although many mortgagees try to bargain for "no-notice" defaults, the editor generally advises against this, even from the standpoint of the mortgagee, since it invites dispute and litigation in many cases and creates the possibility of liability for wrongful foreclosure. A brief notice can clarify misunderstandings before they ripen into disputes.

Other lawyers who have appeared on panels with the editor disagree. They contend that a "no-notice" acceleration is necessary to avoid giving a debtor time to gear up for bankruptcy or to hide assets, squander the rents, or otherwise mess up the security when it appears - through the acceleration notice - that the creditor is "getting serious" and is about to foreclose.

The editor would respond first that acceleration should be an early act in the workout negotiation process, not the last act. It tends to bring an air of reality to the discussions, and can always be dissolved if the parties reach some agreement. As to the "bad actors" who will use the notice of acceleration as a pivot point at which they will engage in fraud - the editor believes that they are out there, but that their presence should not justify an overly harsh contract provision in every mortgage note.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.