Daily Development for
Friday, September 26, 1997

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

MORTGAGES; ACCELERATION; WAIVER; TAX DEFAULTS: Mortgagee's acceptance of late monthly payments of principal and interest from purchaser, although constituting waiver of time-of-the-essence clause with respect to such payments, did not act as waiver with respect to purchaser's failure to pay property taxes if mortgagee did not accept late payments after learning of the tax defaults.

Alderman v. Davidson, 933 P.2d 365 (Or. Ct. App. 1997).

Plaintiff sold property to the defendant and took a deed of trust as security for the purchase price. The defendant quickly developed a pattern of late payments, and the plaintiff developed a pattern of accepting them. But when the defendant fell 135 days behind in her payments and the plaintiff also learned that the defendant had failed to pay property taxes, the plaintiff paid the delinquent taxes and filed a foreclosure action on those grounds. The defendant subsequently brought the account current, including payment of the taxes, but the plaintiff did not negotiate any of the checks until after filing and service of the suit.

At trial, the defendant asserted that the plaintiff had waived the time-of-the-essence clause in the deed of trust, and thus her right to accelerate. The trial court ruled in favor of the defendant on the foreclosure claim and denied attorneys' fees to either party. The defendant appealed the denial of attorneys' fees, and plaintiff cross-appealed the denial of foreclosure based on the defendant's failure to pay taxes.

The court of appeals reversed the denial of foreclosure, noting in passing that by accepting the defendant's late payments, the plaintiff had waived the time of the essence clause and her right to accelerate the balance due, and her notice of default and immediate acceleration to the defendant had not provided a reasonable time for defendant to cure. However, because the time-of-the-essence clause applied both to monthly payments and to the performance of other obligations but distinguished between them, the plaintiff had not waived the clause with respect to the defendant's other obligations, including the payment of property taxes.

The court distinguished Staats v. Praegitzer, 679 P.2d 334 (Or. Ct. App. 1984), and Auernheimer v. Metzen, 783 P.2d 1027 (Or. Ct. App. 1989), on the grounds that both of those cases found waiver of the time-of-the-essence clause based on the plaintiffs' acceptance of payments after learning of the defendant's failure to pay taxes and before filing the foreclosure action. Here, once the plaintiff learned of the defendant's failure to pay taxes, she did not negotiate the defendant's subsequent checks until after she filed suit.

Comment 1: It is hard to know what significance the court sees in the wording of the "time of essence" clause. It states as follows:

"Upon default by grantor in payment of any indebtedness secured hereby or in his performance of any agreement hereunder, time being of the essence with respect to such payment and/or performance, the beneficieary [may accelerate and foreclose]."

The court makes much of the separate reference to time being of the essence regarding performance of covenants. But so long as the time of essence clause does not apply only to the monthly payments, how critical is the wording of the clause? If the editor was practicing in Oregon, he now would asssume that it was critical enough to take care to refer separately to the covenants as well as the payments, but generally speaking a grammatical construction that indicates that time is of essence with respect to all of the mortgagor's duties ought to be enough.

Comment 2: Note the court's distinction of other cases on the grounds that the mortgagee in those cases accepted late payments after having knowledge of the tax default. Here, the mortgagee in fact did cash all those checks prior to foreclosure, and in fact cashed a refund check from the tax authorities after the mortgagor paid taxes that the mortgagee had already paid. But she did this after formally filing a foreclosure action. The court views this conduct as having no bearing on the waiver argument, apparently because by this time there the mortgagor clearly knew that the mortgagee was intending to stand by her acceleration.

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