After a loan goes into default or matures and payment in full has not been made, some borrowers try to show their good faith by continuing to make payments to the Bank. Occasionally, these payments continue, even after a Notice of Default has been recorded and foreclosure proceedings have started. A question that we often get at the JMBM Special Assets Team™ is whether the lender can accept these partial payments without waiving the default.
The answer to the question is a qualified yes. In most cases, unless the borrower makes a payment that is sufficient to completely cure the default, the default is not waived and the foreclosure can continue. Of course, any payments that are made must be applied against the loan in strict accordance with the loan documents.
California’s foreclosure statutes permit the borrower and junior creditors to cure payment defaults and avoid the foreclosure, if possible. By law, a borrower can make a payment to cure a payment default up to five business days before the foreclosure sale. If a sufficient payment is made, the foreclosure process must stop and the loan must be reinstated.
What happens if the loan has matured? When the loan has matured the borrower cannot cure the default and reinstate the loan, but the borrower can pay-off the loan in full and avoid foreclosure of its property.
If you receive a partial payment on account of a loan that is in default, whether or not it is in foreclosure, it is good practice to acknowledge the payment, state that it will be applied on account of the loan in accordance with the loan documents and point out to the borrower that the payment is insufficient to cure the payment default and does not serve to reinstate the loan. The letter should also state that by accepting the payment and any other payments that are insufficient to cure the default, the lender has not waived the default or any of the other rights of the lender under the loan documents.
This is Dick Rogan, bank lawyer and author of www.SpecialAssetsLawyer.com, signing off for now. Join us again soon to check out what’s new in the World of Workouts.
Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.
Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at RRogan@JMBM.com, or (415) 398-8080.
Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.
JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.
NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]
JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.