In a case before Magistrate Judge Lois Bloom in the Eastern District of New York (a Federal Court) a borrower named McLaughlin had borrowed $184,000 and provided a note and mortgage to the financial institution regarding the mortgage. The financial institution brought an application for summary judgment claiming there were no issues of fact.
In the summary judgment motion, the attorneys for the financial institution cited a portion of the promissory note which said “in the event of default of the note specified that a 24% per annum ‘default rate’ should remain in effect until such time as all events regarding default were cured.”
Statutory Interest Rate in New York 9%
McLaughlin argued to the court the bank’s calculation of interest at the rate of 24% was improper. He claimed when judgment was granted on the summary judgment motion to the financial institution, they should have used the default rate of interest under New York statutory law of 9%.
Magistrate Bloom considered McLaughlin’s arguments. However, she found the 24% default rate of interest in the note would apply in this situation. She rejected McLaughlin’s argument the New York rate of interest of 9% on judgments was appropriate. She took this position because the contract clearly stated the interest would accrue at the rate of 24% per annum in the event of default until such time as the entire amount of the note was fully paid. She found even after a judgment was entered in the bank’s favor, they would continue to be entitled to an interest rate of 24%.
Conclusion
I find a 24% interest rate of a mortgage is outrageous. Most people do not carefully read mortgage notes when they enter into them. Often, attorneys who represent clients at closings on real estate transactions don’t go into detailed explanations concerning the potential for an interest rate raising from a reasonable rate to 24%. I disagree with this court’s decision. However, Judge Bloom’s decision is now the law of this case.
Elliot Schlissel is a foreclosure lawyer. His office has represented scores of New Yorkers successfully in bank foreclosure proceedings. Elliot strives to keep his clients in their homes!
