Borrower Permitted to Prove Delays and Bad Faith by Lender and Service

New York Real Estate Journal recently published an article authored by Co-Chair of Olshan’s Real Estate Law practice Thomas Kearns entitled “Borrower Permitted to Prove Delays and Bad Faith by Lender and Servicer.” In the article, Tom uses a series of decisions in New York County Supreme Court (Newage Garden Grove LLC v. Wells Fargo Bank, N.A.) involving a California hotel to highlight the risks to lenders and their servicers when they delay negotiations over defaulted loans. “The borrower still has a long road ahead to prove the claims, and the extent of the damages if the claims are proven,” he writes, “but the case underscores the litigation risks lenders face when they delay or obstruct negotiations with borrowers.” Tom goes on to explain, “The delays seemed to trouble the court primarily due to the continued accumulation of default interest and servicing fees. As practitioners know, the accrual of default interest is a potent weapon in the hands of a lender, but courts occasionally see the injustice of extended accrual periods.” He concludes: “Parties involved in loan workouts and their counsel should review the Newage series of decisions carefully. While lenders have much power in these situations, courts will apply guardrails when they sense inequitable conduct.”