RESTATEMENT OF THE LAW THIRD

THE AMERICAN LAW INSTITUTE

RESTATEMENT OF THE LAW

PROPERTY
Mortgages
As Adopted and Promulgated
BY
THE AMERICAN LAW INSTITUTE
AT WASHINGTON, D.C.
May 14, 1996

1 -End
Tables and Index

ST. PAUL, MINN.

AMERICAN LAW INSTITUTE PUBLISHERS
1997
COPYRIGHT 0 1997 By THE AMERICAN LAW INSTITUTE
All rights reserved
Printed In the United States of America
Ubrry of Congress Cataloging-In-Publicatlon Data
Restatement of the law, third, property.mortgages / by the American
Law Institute.
p. cm.
Includes index.
ISBN 0-314-22626-5
1. Mortgages-United States. I. American Law Institute.
KF695.R49 1997
346.73041364-dc2l 97-33191
CIP
ISBN 0-314-22626-8

@ TEXT ISPRINTED ON 10%

POST
CONSUMER RECYCLED PAPER
 MORTGAGES Ch. 8

Section 8.4 incorporates the rule followed by most states that

gives the mortgagee the right to a deficiency judgment when the
foreclosure process fails fully to satisfy the mortgage obligation. In so
doing, it rejects the approach of some states that prohibit deficiency
judgments after power of sale foreclosure or after any foreclosure of a
purchase money mortgage. On the other hand, it also adopts the "fair
market value" limitation on deficiency judgments mandated by statute
or judicial decision in over 30 states. Under this approach, the fair
market value of the real estate, rather than the foreclosure sale price,
is used to calculate the deficiency. This enables the mortgagee to be
made whole where the real estate is insufficient to satisfy the mort-
gage obligation, but also protects against the mortgagee unfairly
profiting by purchasing the real estate at a sub-market price, obtain-
ing a deficiency judgment, and later reselling the real estate at a
profit.
Section 8.5 specifies that the merger doctrine is inapplicable to
the law of real estate mortgages and the obligations they secure. In a
formal sense, this section marks a sharp break with the past. This
centuries-old doctrine, which was not initially intended to apply to
mortgage law, has created innumerable conceptual and practical prob-
lems in land finance transactions. Importantly, eliminating merger
analysis from mortgage law changes virtually no substantive result.
This is largely because courts often find a way to honor the merger
doctrine only in the breach. The comments to this section demonstrate
that in virtually every mortgage law context, the application of non-
merger principles produces the same result, but with a conceptually
clearer and more satisfying analysis, than would follow from the use of
merger. Ultimately, freeing mortgagees of merger should not only
simplify the law of land finance and make it more efficient, but should
significantly reduce frivolous litigation.
Section 8.6 deals with marshaling, the doctrine that requires
foreclosure of a senior mortgage on multiple parcels in an order that is
least likely to damage the claims of holders of subordinate interests in
the parcels. It adopts both the "two funds" rule, under which parcels
without junior encumbrances must be foreclosed before parcels having
junior encumbrances, and the "inverse order of alienation" rule, under
which parcels with more recent junior encumbrances are foreclosed
before parcels with older junior encumbrances. These rules are widely
accepted.

8.1 Accrual of the Right to Foreclose-Acceleration

(a) An acceleration provision is a term in a mortgage,
or in the obligation it secures, that empowers the mort-
gagee upon default by the mortgagor to declare the full
Ch. 8 FORECLOSURE 8.1
mortgage obligation immediately due and payable. An
acceleration becomes effective on the date specified in a
written notice by the mortgagee to the mortgagor deliv-
ered after default.
(b) Prior to the date an acceleration becomes effec-
tive, the mortgagor may cure the default and reinstate the
mortgage obligation by paying or tendering to the mort-
gagee the amount that is then owing on the mortgage
obligation or performing any other duty the mortgagor is
obligated to perform under the terms of the mortgage
documents.
(c) After an acceleration has taken place and subject
to Subsection (d), a mortgagor may prevent foreclosure
only by paying or tendering to the mortgagee the full
accelerated mortgage obligation.
(d) A mortgagor may defeat acceleration and rein-
state the mortgage obligation by paying or tendering to
the mortgagee the amount due and owing at the time of
tender in the absence of acceleration and by performing
any other duty in default the mortgagor is obligated to
perform in the absence of acceleration if:
(1) such an action is authorized by statute or the
terms of the mortgage documents; or
(2) the mortgagee has waived its right to acceler-
ate; or
(3) the mortgagee has engaged in fraud, bad
faith, or other conduct making acceleration uncon-
scionable.
Cross-References:
Section 6.4, Rcdemption from Mortgage by Performance or Tender; 7.1,
Effect of Mortgage Priority on Foreclosure; 8.2, Mortgagee's Remedies
on the Obligation and the Mortgage.
Comment:
a. Introduction. Virtually all mortgages today contain accelera-
tion clauses. In the event of mortgagor default, such a clause gives the
mortgagee the right to declare the entire mortgage obligation due and
payable. The general validity of these provisions is universally accept-
ed. An acceleration provision is effective to make the entire mortgage
obligation due and payable so long as it is contained in either the
mortgage or the obligation it secures. Equally important, acceleration
is not only permitted for failure to pay the mortgage debt promptly,
 8.1 MORTGAGES Ch. 8
but also for defaults in mortgage covenants to pay taxes, to maintain
insurance, to keep buildings intact, to maintain an adequate financial
condition, to avoid the commission of waste, and the like.
The mortgagee's acceleration based on the mortgagor's commis-
sion of common-law waste is permissible only when the waste impairs
the mortgagee's security under 4.6(b)(1). On the other hand, where
the mortgagee's acceleration stems from the mortgagor's violation of
specific covenants, impairment of security need not be shown. Thus,
for example, if the mortgage requires the mortgagor to care for an
improvement in a certain manner, to insure the premises, or to pay
real estate taxes, defaults on these covenants are the proper basis for
acceleration even though they also constitute waste under 4.6(a)(4)
and do not impair security. See 4.6, Comment g.
Mortgage documents commonly contain "cross-default" provisions
that authorize a mortgagee to accelerate the mortgage obligation if
any other mortgage on the real estate goes into default. Such provi-
sions are enforceable under this section.
This section deals only with acceleration provisions that give the
mortgagee the option to accelerate in the event of mortgagor default.
While this "option" type provision is almost universally used, on rare
occasion mortgage documents may contain language that makes accel-
eration automatic on mortgagor default or on the basis of a specific
event, such as the mortgagor's filing a bankruptcy petition or entering
into a general assignment for the benefit of creditors. While such
automatic acceleration provisions may be effective, a mortgagee is
well-advised to avoid their use because they circumscribe the mortgag-
ee's discretion in dealing with mortgagor default and may have a
variety of unintended consequences for both parties.
The absence of an acceleration provision can have profoundly
negative consequences for mortgagees. In this setting, the mortgagee
must either foreclose for each installment as it comes due or wait until
the amortization period expires to foreclose for the full accrued
obligation. Both alternatives are cumbersome and impractical in most
cases. However, in some rare instances acceleration may be undesir-
able because the full mortgage obligation cannot yet be ascertained or
because it represents an on-going business relationship that the mort-
gagee does not wish to disturb.
This section does not deal with either "due-on-sale" or "due-on-
encumbrance" provisions. These are specialized types of acceleration
clauses that enable the mortgagee to make the full principal amount of
the mortgage obligation due and payable if the mortgagor transfers or
encumbers an interest in the real estate without the mortgagee's
consent. Congress preempted the law governing these provisions when
Ch. 8 FORECLOSURE 8.1
it enacted 341 of the Garn-St. Germain Depository Institutions Act
of 1982, codified at 12 U.S.C.A. 1701j-3. Under that Act, both types
of "due-on" provisions, with minor exceptions, are enforceable.
This section also does not deal with demand instruments or other
obligations whose nature permits call at any time or without reason.
Nor does it deal with language in obligations that empowers the holder
to accelerate "at will" or "when he deems himself insecure." See
U.C.C. 1-208 (1995).
b. When accelerationbecomes effective. An acceleration becomes
effective on the date specified in a written notice delivered by mort-
gagee to mortgagor after the latter's default. The notice may provide
that the acceleration is effective immediately or at some future speci-
fied date. See Illustrations 1-3. The acceleration is effective without
further notice of any kind. Language in the mortgage documents or
other agreement under which mortgagor waives the written notice
required by Subsection (a) is ineffective. However, language in the
mortgage documents that requires additional notice to that required
by Subsection (a) is enforceable.
The delivery referred to in Subsection (a) may be accomplished by
personal service, the United States Mail, or any other means reason-
ably calculated to afford the mortgagor actual notice. These other
means include, for example, electronic facsimile, computer networks,
electronic mail, and courier and commercial delivery services.
Illustrations:
1. Mortgagor delivers to Mortgagee a promissory note se-
cured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. Thereafter Mortgagor defaults
by failing to pay an installment of principal and interest. Mortgag-
ee then delivers a notice to Mortgagor that states that the
mortgage obligation has been accelerated effective immediately.
The acceleration is effective upon delivery of the notice.
2. The facts are the same as Illustration 1, except that the
notice states that the mortgage obligation will be accelerated 10
days after the date of the notice. Ten days after that date the
acceleration is effective, provided that Mortgagor does not cure
the default prior to that time.
3. The facts are the same as Illustration 1, except that
Mortgagor defaults by failing to pay the real estate taxes on
Blackacre when they become due. The acceleration is effective
upon delivery of the notice.
 8.1 MORTGAGES Ch. 8
c. Tender or payment of arrearagesprior to acceleration. If the
mortgagor fails to pay the mortgage obligation promptly, the mortga-
gor may cure the default and reinstate the mortgage by tender or
payment of arrearages prior to the effective date of the acceleration.
For purposes of this section it is assumed that tender is unconditional
and is kept good. See 6.4, Comment d. In addition, for purposes of
this section "arrearages" include not only past due installments of
principal and interest and any accrued interest thereon, but also, to
the extent allowed by local law, late charges, attorneys' and trustee's
fees, and publication and court costs. See Illustration 4. Similarly, if
the mortgagor defaults by failing to pay real estate taxes, assessments,
obtain insurance coverage, or to perform any other obligation imposed
by the mortgage documents, the mortgagor may cure that default and
reinstate the mortgage by performing that obligation prior to accelera-
tion. See Illustrations 5 and 6.
Illustrations:
4. Mortgagor delivers to mortgagee a promissory note se-
cured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. Mortgagor thereafter defaults
by failing to pay several installments of principal and interest.
Prior to an acceleration by Mortgagee, Mortgagor tenders pay-
ment of the arrearages. The default is cured and acceleration
based on that default is impermissible.
5. The facts are the same as Illustration 4, except that
Mortgagor defaults by failing to pay real estate taxes on Black-
acre, as required by the mortgage documents. Prior to an acceler-
ation by Mortgagee, Mortgagor pays the real estate taxes and any
penalty imposed for late payment. The default is cured and
acceleration based on that default is impermissible.
6. The facts are the same as Illustration 4, except that
Mortgagor defaults by failing to maintain casualty insurance on
the improvement on Blackacre, as required by the mortgage
documents. Prior to an acceleration by Mortgagee, Mortgagor
obtains the requisite insurance coverage and pays the premium
for it. The default is cured and acceleration based on that default
is impermissible.

d. Tender or payment after acceleration. Subject to the limita-

tions on acceleration described in Comment e, once a mortgage
obligation is validly accelerated, only payment or tender of the acceler-
ated amount will be sufficient to avoid foreclosure. Even where the
mortgagee accepts mortgagor's tender of arrearages, the only effect is
Ch. 8 FORECLOSURE 8.1
to reduce the amount of the accelerated obligation; the acceleration
itself is unaffected. See Illustration 7. The same principle applies to
non-debt-related defaults in the performance of mortgage covenants,
such as the failure to pay taxes, to maintain casualty insurance, or to
keep the premises in reasonable repair. In the latter settings, simply
curing the default that triggered the acceleration will not reinstate the
mortgage. See Illustrations 8 and 9. Similarly, where a mortgage
obligation is accelerated pursuant to a "cross-default" provision (see
Comment a), the mortgagor may avoid foreclosure of that mortgage
only by tendering the accelerated amount. This is the case even
though the default in the other mortgage has been cured to the
satisfaction of its mortgagee.
Illustrations:
7. Mortgagor delivers to Mortgagee a promissory note se-
cured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. Mortgagor then defaults by
failing to pay several installments of principal and interest. Mort-
gagee thereafter validly accelerates the mortgage obligation.
Mortgagor then tenders payment of the arrearages and Mortgag-
ee accepts the tender. The mortgage obligation is reduced by the
amount of the payment, but the acceleration remains effective.
8. The facts are the same as Illustration 7, except that
instead of defaulting in paying principal and interest on the
mortgage obligation, Mortgagor defaults by failing to pay when
due the real estate taxes on Blackacre, as required by the
mortgage. Mortgagee thereafter validly accelerates the mortgage
obligation. Mortgagor then pays the delinquent real estate taxes.
The acceleration remains effective.
9. The facts are the same as Illustration 7, except that
instead of defaulting in paying principal and interest on the
mortgage obligation, Mortgagor defaults by failing to maintain
casualty insurance on the improvements on Blackacre as required
by the mortgage. Mortgagee thereafter validly accelerates the
mortgage obligation. Mortgagor then obtains and pays for ade-
quate insurance coverage. The acceleration remains effective.

e. Limitations on acceleration. Once acceleration has occurred,

the mortgagor's only normal recourse is to redeem by paying the
accelerated obligation prior to foreclosure. See 6.4. However, the
potential harshness of acceleration on the mortgagor may be amelio-
rated in a variety of ways. Increasingly, provisions in commonly
used residential mortgage forms place substantial limitations on ac-

561
 8.1 MORTGAGES Ch. 8
celeration. For example, the Federal National Mortgage Associa-
tion-Federal Home Loan Mortgage Corporation (FNMA-FHLMC)
mortgage--deed of trust form, which is widely used for home loan
transactions, affords the mortgagor the right to defeat acceleration
by tendering arrearages or curing any nonmonetary default until
five days prior to the foreclosure sale (in a power of sale foreclo-
sure) or the foreclosure decree (in a judicial foreclosure). "Arrearag-
es" statutes in many states permit the mortgagor to "de-accelerate"
by curing the default that existed prior to acceleration. Moreover,
broad rights to "de-accelerate" by curing arrearages are available to
mortgagors who file pre-foreclosure petitions under Chapter 11, 12,
or 13 of the Bankruptcy Code.
In addition, under Subsection (d)(2), a court may relieve a mortga-
gor from the consequences of acceleration and permit reinstatement of
the mortgage by payment of arrearages where it determines that the
mortgagee waived its right to accelerate. However, because mortgagee
forbearance should not be discouraged, a waiver will not be easily
established. Thus, a mere failure to accelerate after one or two
payment defaults will not operate as a waiver of the mortgagee's right
to accelerate because of later defaults. See Illustration 10. Moreover,
even where a mortgagee accepts a late payment without accelerating
after notifying mortgagor that it will foreclose in the event of future
defaults, that will be insufficient to establish waiver of the right to
accelerate for a subsequent default. See Illustration 11. On the other
hand, waiver is appropriately found where there has been a consistent
prior pattern of acceptance of late payments by the mortgagee. See
Illustration 12. Even where the mortgagee has engaged in a course of
conduct that would otherwise constitute waiver of the right to acceler-
ate, the mortgagee may reestablish that right by notifying the mortga-
gor that late payment will no longer be tolerated and that acceleration
and foreclosure will occur in the event of future defaults. See Illustra-
tion 13.
Illustrations:
10. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage contains an
acceleration provision. Mortgagor pays monthly installments of
principal and interest 15 days late in both June and July, 1995.
Mortgagee accepts both late payments and does not accelerate.
Mortgagor then fails to pay the August, 1995 installment when it
becomes due. Mortgagee then accelerates the mortgage obli-
gation. Mortgagor tenders the August, 1995 installment. Mortgag-
ee refuses the tender. The acceleration is effective.
Ch. 8 FORECLOSURE 8.1
11. The facts are the same as Illustration 10, except that
after accepting the late payment for July, 1995, Mortgagee noti-
fies Mortgagor that acceleration and foreclosure will occur in the
event of future defaults. When the December, 1995 payment is 15
days late, Mortgagee accepts the payment and does not acceler-
ate. Mortgagor fails to pay the March, 1996 installment when it
becomes due. Mortgagee then accelerates the mortgage obli-
gation. Mortgagor tenders the March, 1996 installment. Mortgag-
ee refuses the tender. The acceleration is effective.
12. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage contains an
acceleration provision. During 1995, Mortgagor pays 7 out of 12
installments of principal and interest an average of 15 days late.
Mortgagee accepts these payments and raises no objection to
Mortgagor concerning the tardiness in payment. Mortgagor fails
to pay the January, 1996 installment when it is due. Mortgagee
then accelerates the mortgage obligation. Mortgagor tenders the
January, 1996 installment. The acceleration is ineffective and the
default is cured.
13. The facts are the same as Illustration 12, except that on
December 1, 1995, Mortgagee notifies mortgagor that, effective
with the January, 1996 payment, there will no longer be forbear-
ance and that acceleration and foreclosure will occur in the event
of future defaults. The acceleration is effective.

Mortgagees sometimes seek to avoid the waiver defense to accel-

eration by including an "anti-waiver" provision in the mortgage docu-
ments. While such a provision may, in close cases, tip the balance
against a finding of waiver (see Illustration 14), it usually will not be
dispositive on the waiver issue. For example, its effect will be negated
where the pattern of accepting late payments is sufficiently continuous
and prolonged to justify the conclusion that the mortgagee has aban-
doned or waived the protection of the provision. See Illustration 15.
Illustrations:
14. The facts are the same as Illustration 12, except that the
mortgage documents contain the following provision: "Even if, at
a time when I am in default, the Mortgagee does not require me
to pay immediately in full, Mortgagee will still have the right to
do so if I am in default at a later time." The acceleration is
effective.
15. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage documents
 8.1 MORTGAGES Ch. 8

contain an acceleration provision. They also contain an anti-waiver

provision identical to that in Illustration 14. The documents call
for payment of monthly installments of principal and interest on
the first day of each month. During the first 18 months after the
loan is made, Mortgagor makes each monthly payment on the
14th or 15th day of the month. In the 19th month, Mortgagor fails
to pay that month's installment when it is due. Mortgagee then
accelerates the mortgage obligation. Mortgagor then tenders the
past due installment. Mortgagee refuses the tender. The accelera-
tion is ineffective and the default is cured.

Even though the mortgagee does not engage in a prior pattern of

forbearance, a single transaction may sometimes be an appropriate
basis for defeating acceleration. For example, a mortgagee may grant
a short oral extension to the mortgagor for the latter to cure a default,
and may then attempt to accelerate in spite of the extension. See
Illustration 16. Similarly, a mortgagee may attempt to accelerate
notwithstanding a prior oral assurance to the mortgagor in default
that acceleration and foreclosure will be delayed while the mortgagor
makes a good-faith effort to sell the property. To the extent that the
mortgagor detrimentally relies, and absent withdrawal of the exten-
sion by the mortgagee by reasonable notice, there is a defense to
acceleration. See Illustration 17. In both situations estoppel, fraud, or
bad faith provide appropriate theories for defeating acceleration.
Illustrations:
16. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. An installment of principal and
interest is due 'on Monday, June 15. After Mortgagor informs
Mortgagee that funds for payment of that installment will not be
available until June 17, Mortgagee orally assures Mortgagor that
"so long as you get the money to my office by 5 PM this Friday,
there will not be a problem." Mortgagor arrives at Mortgagee's
office on 3 PM Friday to make the payment, but the office is
closed. On the following Monday morning, Mortgagee accelerates
the obligation. That afternoon Mortgagor tenders the late pay-
ment to Mortgagee, but the latter declines the tender. The
acceleration is ineffective and the default is cured.
17. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. Mortgagor fails to pay several
monthly installments of principal and interest and mortgagee
threatens acceleration and foreclosure. Mortgagor meets with the
Ch. 8 FORECLOSURE 8.1
mortgagee, explains that because he has lost his job he is unable
to make the mortgage payments, and requests a delay in accelera-
tion and foreclosure to enable him to sell the real estate. Mortgag-
ee replies: "Go ahead and try to sell. I'll wait for a couple of
months to see if you are successful before I do anything." A few
days thereafter, Mortgagor lists Blackacre for sale with a real
estate broker. The property is marketed aggressively for several
weeks. Mortgagee, without giving mortgagor reasonable notice
withdrawing the extension, then notifies mortgagor in writing that
the mortgage obligation has been accelerated. The acceleration is
ineffective.
While mortgagee misconduct of the type described in Subsection
(d) is an appropriate basis for relief from acceleration, mortgagor's
negligence, mistake, or improvidence are not. This is the case even
where the default is caused by circumstances beyond mortgagor's
control and where acceleration will cause extreme hardship. See
Illustrations 18 and 19. Under this Restatement, a mortgagee who is
guilty of no misconduct is ex ante permitted to rely on its contract
acceleration right without being subject to the vagaries of mortgagor's
financial and personal situation, a matter over which mortgagee usual-
ly has little control. This approach avoids difficult and time-consuming
judicial inquiries into such matters as the degree of mortgagor's
negligence, the relative hardship that acceleration imposes, and other
subjective concerns.
Illustrations:
18. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. On October 3, 1995, two days
prior to the due date of an annual installment of principal and
interest, Mortgagor contacts Mortgagee and requests that he be
permitted to pay half the payment that is due on October 5.
Mortgagee responds on October 4 that the full amount of the
payment must be made when due. Mortgagor then borrows the
additional money and puts a check for the full amount in the mail
on October 4. When Mortgagee does not receive the check on
October 5, Mortgagee accelerates the mortgage obligation. On
October 7, Mortgagee receives the check and returns it to the
Mortgagor. The acceleration is effective.
19. Mortgagor delivers to Mortgagee a promissory note
secured by a mortgage on Blackacre. The mortgage documents
contain an acceleration provision. On July 1, 1995, a quarterly
installment of principal and interest is due. There is a three-week
 8.1 MORTGAGES Ch. 8

grace period for each installment. Prior to leaving on a business

trip to Europe on June 10, 1995, Mortgagor requests her book-
keeper to make out a check for the July 1 payment. Through an
error in arithmetic, the bookkeeper computes the interest as
$4,219, which is $401 short of the correct amount. Mortgagor
signs the check. After Mortgagor departs, the bookkeeper discov-
ers the mistake, informs Mortgagee of the error, and forwards the
incorrect check to Mortgagee with a promise that the balance will
be paid when Mortgagor returns from her trip on July 5. When
Mortgagor returns, the bookkeeper forgets to infori. her about
the error. One day after the grace period expires on July 21, 1995,
Mortgagee accelerates the full mortgage obligation. When Mort-
gagor receives notice of the acceleration, she immediately tenders
the full amount of the installment. Mortgagee refuses the tender.
The acceleration is effective.

REPORTERS'NOTE
Introduction, Comment a. See trigger acceleration of the obligation.
generally G. Nelson & D. Whitman, See, e.g., 2140 Lincoln Park West v.
Real Estate Finance Law 7.6-7.7 American National Bank and Trust
(3d ed. 1994); Rosenthal, The Role Company of Chicago, 410 N.E.2d 990
of Courts of Equity in Preventing (Ill. App. Ct. 1980).
Acceleration Predicated Upon a
For consideration of the remedies
Mortgagor's Inadvertent Default, 22
available to a mortgagee where there
Syracuse L. Rev. 897 (1971). Every
jurisdiction recognizes the general is no acceleration provision, see G.
validity of mortgage acceleration Nelson & D. Whitman, Real Estate
clauses. See, e.g., Ciavarelli v. Zim- Finance Law 7.8 (3d ed. 1994).
merman, 593 P.2d 697 (Ariz.Ct.App. Numerous cases support the propo-
1979); David v. Sun Federal Savings sition that acceleration is permissible
& Loan Association, 461 So.2d 93 for defaults other than the failure to
(Fla.1984); Carle's Motorcycle Shop, make prompt payment of principal
Inc. v. Johnson, 301 A.2d 335 (N.H. and interest. As to failure to pay real
1973); Long Island Savings Bank v. estate taxes, see, e.g., Lunn Woods v.
Denkensohn, 635 N.Y.S.2d 683 Lowery, 577 So.2d 705 (Fla.Dist.Ct.
(N.Y.App.Div.1995); Trustco Bank App.1991); Parrott v. Wallace, 900
New York v. Drake, 599 N.Y.S.2d P.2d 214 (Idaho.CtApp.1995); Saun-
763 (N.Y.App.Div.1993); Phipps v. ders v. Stradley, 333 A.2d 604 (Md.
First Federal Savings & Loan Ass'n, Ct.App.1975); Chapman v. Nation,
438 N.W.2d 814 (S.D.1989); Green- 388 S.E.2d 744 (Ga.Ct.App.1989); Jen-
berg v. Service Business Forms In- kins v. Thyer, 760 S.W.2d 932 (Mo.Ct.
dustries, Inc., 882 F.2d 1538 (10th App.1988); Eisen v. Kostakos, 282
Cir.1989) (Oklahoma law). A.2d 421 (N.J. Super. Ct. 1971); Bar-
This section rejects the view that clay's Bank of New York v. Smitty's
an acceleration provision contained Ranch, Inc., 504 N.Y.S.2d 295
only in the mortgage is ineffective to (N.Y.App.Div.1986); Phillips v. Al-
Ch. 8 FORECLOSURE
lums, 882 S.W.2d 71 (Tex. Ct. App.
1994); Chapa v. Herbster, 653 S.W.2d
594 (Tex. Ct. App. 1983). As to failure
to maintain insurance, see, e.g., Pezzi-
menti v. L.R. Cirou, 466 So.2d 274
(Fla.Dist.Ct.App.1985); Benton v. Pa-
tel, 362 S.E.2d 217 (Ga.1987). Cf.
Strong v. Merchants Mutual Insur-
ance Co., 309 N.E.2d 510 (Mass.App.
Ct.1974), modified, 322 N.E.2d 765
(Mass.1975). As to violating a cove-
nant against destruction of improve-
ments, see Laber v. Minassian, 511
N.Y.S.2d 516 (N.Y.Sup.Ct.1987) (ac-
celeration and foreclosure permissible
for violation of a covenant not to de-
molish buildings without mortgagee's
consent even though value of remain-
ing real estate substantially exceeded
the mortgage obligation). As to violat-
ing a covenant that additional funds
would not be required to complete
the improvements and to maintain an
adequate financial condition, see Eu-
ropean American Bank v. Village
Square Associates Limited Partner-
ship, 623 N.Y.S.2d 296 (N.Y.App.Div.
1995).
A few cases, however, hold that
impairment of security is needed to
justify acceleration based on the fail-
ure by the mortgagor to pay taxes or
to maintain casualty insurance on the
mortgaged real estate. See Vonk v.
Dunn, 775 P.2d 1088 (Ariz.1989) (real
estate taxes); Mid-State Trust II v.
Jackson, 854 S.W.2d 734 (Ark.Ct.App.
1993) (insurance); Freeman v. Lind,
226 Cal.Rptr. 515 (Cal.Ct.App.1986)
(insurance). This section and 4.6,
Comment g reject this position.
When acceleration becomes effec-
tive, Comment b. Courts use a wide
variety of rules to determine when an
acceleration becomes effective. Many
courts simply require that the mort-
gagee "perform some affirmative,
overt act evidencing his intention to
8.1
take advantage of the acceleration
provision." Spires v. Lawless, 493
S.W.2d 65, 73 (Mo.Ct.App.1973). See
United States Savings Bank of New-
ark, New Jersey v. Continental Arms,
Inc., 338 A.2d 579 (Del.Su-
per.Ct.1975); Pici v. First Union Na-
tional Bank of Florida, 621 So.2d 732
(Fla.Dist.Ct.App.1993); Central Home
Trust Co. v. Lippincott, 392 So.2d 931
(Fla.Dist.Ct.App.1980); First Fede ql
Say. & Loan Ass'n v. Stone, 467
N.E.2d 1226 (Ind.Ct.App.1984); But-
ter v. Melrose Savings Bank, 435
N.E.2d 1057 (Mass.App.Ct.1982);
Jenkins v. Thyer, 760 S.W.2d 932
(Mo.Ct.App.1988); Jeferne, Inc. v. Ca-
panegro, 452 N.Y.S.2d 236 (N.Y.App.
Div.1982). For some courts, the "affir-
mative action" requirement is satis-
fied by a letter to the mortgagor
stating that acceleration has oc-
cuned. See, e.g., Butter v. Melrose
Savings Bank, 435 N.E.2d 1057
(Mass.App.Ct.1982). Moreover, the
commencement of a judicial foreclo-
sure proceeding often constitutes suf-
ficient evidence of an election to ac-
celeration. See, e.g., United States
Savings Bank of Newark, New Jer-
sey v. Continental Arms, Inc., 338
A.2d 579 (Del.Super.Ct.1975); Pizer v.
Herzig, 105 N.Y.S. 38 (N.Y.App.Div.
1907); Swearingen v. Lahner, 61 N.W.
431 (Iowa 1894); Jacobson v. McCla-
nahan, 264 P.2d 253 (Wash. 1953).
Where power of sale foreclosure is
used, some courts have held that evi-
dence of an election to accelerate is
provided by a letter to the mortgagor
threatening foreclosure unless arrear-
ages are promptly paid, coupled with
an oral expression to the mortgagor
of an intention to foreclose. See Low-
ry v. Northwestern Sav. & Loan
Ass'n, 542 S.W.2d 546 (Mo.Ct.App.
1976). Texas courts require both no-
tice of an intent to accelerate and, in
addition, separate notice of the accel-
 8.1 MORTGAGES
eration itself. "Notice of intent to ac-
celerate is necessary in order to pro-
vide the debtor an opportunity to
cure his default prior to the harsh
consequences of acceleration and
foreclosure. Proper notice that the
debt has been accelerated ... cuts off
the debtor's right to cure his default
and gives notice that the entire debt
is due and payable." Ogden v. Gibral-
tar Say. Ass'n, 640 S.W.2d 232, 234
(Tex.1982). See also Shumway v. Ho-
rizon Credit Corp., 801 S.W.2d 890
(Tex.1991) (note provision allowing
mortgagee to accelerate "without pri-
or notice or demand" was effective to
waive mortgagor's right to present-
ment and notice of acceleration, but
not to notice of intent to accelerate);
McLemore v. Pacific Southwest
Bank, FSB, 872 S.W.2d 286 (Tex. Ct.
App. 1994) (separate waiver of notice
of intent to accelerate and notice of
acceleration required). In taking yet
another approach, Oregon focuses on
whether time is of the essence in
determining the nature and extent of
notice required:
When time is of the essence, the
failure to make a payment at the
time required by the agreement
would permit the mortgagee ...
without notice, to accelerate the
balance due and to foreclose the
mortgage. When time is not of the
essence, either by express agree-
ment or by the nature of the con-
tract, failure to make payment on
time, although it would give the
mortgagee ... a cause of action for
payment, does not, without more,
permit foreclosure. The mortgagee
must give notice of its intention to
foreclose if payment is not made on
a certain date.
Smith by Coe v. Piluso, 719 P.2d 33,
34-35 (Or.Ct.App.1986).
Ch. 8
This section represents an attempt
to identify and define the affirmative
"overt" act that evidences an intent to
accelerate. Thus, under this section,
once default occurs, a mortgagee has
two options with respect to accelera-
tion. First, acceleration may be effec-
tive immediately upon delivery of a
written notice to mortgagor if that
notice so provides. Alternatively, if
the written notice specifies some
post-delivery acceleration date, then
acceleration will be effective on that
date. Of course, to the extent that the
language of the mortgage documents
requires additional notice to the
mortgagor as a precondition to accel-
eration, such language will be en-
forceable.
Tender or payment of arrearages
prior to acceleration, Comment c.
Prior to acceleration, either tender or
payment of arrearages by mortgagor
will reinstate the mortgage and de-
feat foreclosure. See, e.g.. Bisno v.
Sax, 346 P.2d 814 (Cal.Ct.App.1959);
Pici v. First Union National Bank of
Florida, 621 So.2d 732 (Fla.Dist.Ct.
App.1993); Redmoid v. Merrill Lynch
Relocation Management, Inc., 294
S.E.2d 575 (Ga.Ct.App.1982); First
Federal Say. & Loan Ass'n v. Stone,
467 N.E.2d 1226 (Ind.Ct.App.1984);
Dunfee v. Waite, 439 N.E.2d 664
(Ind.Ct.App.1982); Sindlinger v. Paul,
404 N.W.2d 212 (Mich.1987); Kent v.
Pipia, 462 N.W.2d 800 (Mich.Ct.App.
1990); Jeferne, Inc. v. Capanegro, 452
N.Y.S.2d 236 (N.Y.App.Div.1982);
Rosselot v. Heimbrock, 561 N.E.2d
555 (Ohio.Ct.App.1988); Overholt v.
Merchants & Planters Bank, 637
S.W.2d 463 (Tenn.Ct.App.1982); Hil-
ler v. Prosper Tex, Inc., 437 S.W.2d
412 (Tex. Ct. Civ. App. 1969); 1 G.
Nelson & D. Whitman, Real Estate
Finance Law 473 at n.7 (3d ed.
1993).
Ch. 8 FORECLOSURE
Tender or payment after accelera-
tion, Comment d Once a valid accel-
eration takes place, only tender or
payment of the full accelerated obli-
gation will be sufficient to dcfeat
foreclosure. See, e.g., City Savings
Bank of Bridgeport v. Dessoff, 491
A.2d 424 (Conn. Ct. App. 1985); Bank
of Honolulu v. Anderson, 654 P.2d
1370 (Haw.Ct.App.1982); La Plant v.
Beechley, 165 N.W. 1019 (Iowa 1918);
Jenkins v. Thyer, 760 S.W.2d 932
(Mo.Ct.App.1988); Dime Savings
Bank of New York v. Glavey, 625
N.Y.S.2d 181 (N.Y.App.Div.1995);
Centerbank v. D'Assaro, 600
N.Y.S.2d 1015 (N.Y. Sup. 1993); Dime
Savings Bank of New York v. Dooley,
444 N.Y.S.2d 148 (N.Y.App.Div.1981);
Bell Federal Sav. & Loan Ass'n of
Bellevue v. Laura Lanes, Inc., 435
A.2d 1285 (Pa. Super. Ct. 1981); 1 G.
Nelson & D. Whitman, Real Estate
Finance Law 7.6 at n.8 (3d ed.
1993). Post-acceleration acceptance of
arrearages will serve only to reduce
the amount of the mortgage obli-
gation and will not defeat the acceler-
ation. See, e.g., Ryder v. Bank of
Hickory Hills, 165 Ill.Dec. 650, 585
N.E.2d 46 (Ill. 1991). Of course, un-
less the mortgagee makes its intent
clear, post-acceleration acceptance of
arrearages may under some circum-
stances constitute a waiver of its
right to accelerate. See Comment e
and accompanying Reporters' Note;
Centerbank v. D'Assaro, 600
N.Y.S.2d 1015 (N.Y. Sup. 1993).
Once acceleration has occurred be-
cause of a non-debt-related defadlt,
this section follows the prevailing
view that it cannot be defeated by
simply curing that default by, for ex-
ample, paying the past-due real es-
tate taxes or by reinstating the casu-
alty insurance; only tendering the full
accelerated obligation will suffice.
8.1
See, e.g., Jeffery v. Seven Seventeen
Corp., 461 A.2d 1009 (Del.1983); Par-
rott v. Wallace, 900 P.2d 214 (Ida-
ho.Ct.App.1995); Benton v. Patel, 362
S.E.2d 217 (Ga.1987) (mortgagor's
submission of insurance binder a day
after receiving notice of acceleration
does not defeat acceleration); Saun-
ders v. Stradley, 333 A.2d 604 (Md.
Ct.App.1975); Jenkins v. Thyer, 760
S.W.2d 932 (Mo.Ct.App.1988), There
are several decisions, which this sec-
tion rejects, that payment of delin-
quent real estate taxes prior to the
commencement of a foreclosure pro-
ceeding defeats acceleration and fore-
closure. See Clark v. Equitable Life
Assur. Soc., 281 A.2d 488 (Del.1971);
Balducci v. Eberly, 500 A.2d 1042
(Md.1985); Eisen v. Kostakos, 282
A.2d 421 (N.J. Super. Ct. 1971); Nich-
ols v. Evans, 401 N.Y.S.2d 426
(N.Y.Sup.Ct.1978).
Limitations on acceleration, Com-
ment e. Many commonly used mort-
gage forms place substantial limita-
tions on the acceleration process. For
example, the most commonly used
residential mortgage form in the
United States provides:
18. Borrower's Right to Rein-
state. If borrower meets certain
conditions, Borrower shall have the
right to have enforcement of this
Security Instrument discontinued
at any time prior to the earlier of:
(a) 5 days (or such other period as
applicable law may specify for rein-
statement) before sale of the Prop-
erty pursuant to any power of sale
contained in this Security Instru-
ment; or (b) entry of a judgment
enforcing this Security Instrument.
Those conditions are that Borrow-
er: (a) pays Lender all sums which
then would be due under this Secu-
rity Instrument and the Note as if
no acceleration had occurred; (b)
8.1 MORTGAGES
cures any default of any other cov-
enants or agreements; (c) pays all
expenses incurred in enforcing this
Security Instrument, including, but
not limited to, reasonable attor-
neys' fees; and (d) takes such other
action as Lender may reasonably
require to assure that the lien of
this Security Instrument, Lender's
rights in the Property and Borrow-
er's obligation to pay the sums se-
cured by this Security Instrument
shall continue unchanged. Upon re-
instatement by Borrower, this Se-
curity Instrument and the obli-
gations secured shall remain fully
effective as if no acceleration had
occurred.
Federal National Mortgage Associa-
tion-Federal Home Loan Mortgage
Corporation (FNMA-FHLMC)-
Uniform Mortgage-Deed of Trust
Covenants-Single Family, Clause
18.
In addition, "arrearages" legisla-
tion permitting the mortgagor to "de-
accelerate" prior to foreclosure by
curing the default that existed prior
to acceleration is increasingly com-
mon. See, e.g., West's Ann. Cal. Civ.
Code 2924(c); Colo. Rev. Stat.
38-39-118(1)(a); D.C. Code 45-
715.1 (Repl. 1990); Ill. Rev. Stat. Ch.
95, 57; 14 Me. Rev. Stat. Ann.
6111; Minn. Stat. Ann. 580.30;
Mo. Rev. Stat. 408.555(4) (certain
junior mortgages only); 41 Pa. Stat.
404; Utah Code Ann. 57-1-31.
Some states confer such rights only
on residential mortgagors. See, e.g.,
D.C. Code 45-715.1 (Repl. 1990); 41
Pa. Stat. 404. On the other hand,
many of the statutes benefit all rath-
er than merely residential mortga-
gors. See, e.g., West's Ann. Cal. Civ.
Code 2924(c); Minn. Stat. Ann.
580.30; Utah Code Ann. 57-1-31.
Ch. 8
Moreover, mortgagors who file
bankruptcy petitions have broad
rights to "deaccelerate" mortgage ob-
ligations that were accelerated pre-
petition. For example, a mortgagor
who files a Chapter 13 petition will
usually be permitted to deaccelerate
a home mortgage obligation so long
as the property has not yet been sold
at a foreclosure sale. In so doing, the
mortgagor need not cure arrearages
immediately, but only over the period
of the Chapter 13 plan. See 11
U.S.C.A. 1322(b)(2), 1322(b)(3),
1322(b)(5); 1 G. Nelson & D. Whit-
man, Real Estate Finance Law 8.15
(3d ed. 1993). There are also broad
deacceleration rights for debtors in
Chapter 11 reorganization proceed-
ings and for family farmers who seek
to reorganize under Chapter 12. See
11 U.S.C.A. 1124(2), 1222(b)(3);
Matter of Madison Hotel Associates,
749 F.2d 410 (7th Cir.1984); 1 G. Nel-
son & D. Whitman, Real Estate Fi-
nance Law 8.14, 8.16 (3d ed. 1993).
This section also recognizes that a
mortgagee's past conduct may result
in a waiver of its present right to
accelerate. Because waiver cases in-
variably are fact-specific, they are dif-
ficult to categorize and clear patterns
are not easily discerned. However,
because waiver cases usually involve
prior forbearance by the mortgagee,
and public policy generally favors
such forbearance, waiver will not be
easily established. Thus, there is case
authority that a mere failure to accel-
erate on the first or second default in
payment will not operate as a waiver
of the option to accelerate because of
later defaults. See Dunn v. Barry, 169
P. 910 (Cal.Ct.App.1917); Caulder v.
Lewis, 338 S.E.2d 837 (S.C.1986);
Bower v. Stein, 177 F. 673 (9th Cir.
1910). Moreover, mortgagee's accep-
tance of one or two late payments
Ch. 8 FORECLOSURE 8.1
without accelerating, after notifying CourL are closely divided on the
mortgagor that acceleration and fore- question of anti-waiver clauses. Some
closure will result, does not result in courts hold that such clauses are en-
waiver of mortgagee's right to accel- forceable. See Federal National
erate for a later default. See, e.g., Mortgage Ass'n v. Cobb, 738 F.Supp.
Caulder v. Lewis, 338 S.E.2d 837 1220 (N.D.Ind.1990) ("Under Indiana
(S.C.1986), upon which Illustration 11 law, a non-waiver clause contained in
is partially based. a mortgage, which provides that the
waiver of the option to accelerate
On the other hand, this section re- note upon default at one time does
flects the numerous cases that relieve not constitute waiver of the right to
mortgagors from acceleration on a exercise such option at any other
waiver theory where courts have de- time, is effective to prevent the ac-
tected a consistent prior pattern of ceptance of late payments from oper-
mortgagee acceptance of late pay- ating as a waiver upon subsequent
ments. See, e.g., Miller v. Uhrick, 706 default"); First Federal Say. & Loan
P.2d 739 (Ariz.App. 1985); Dad's Ass'n v. Stone, 467 N.E.2d 1226 (Ind.
Properties, Inc. v. Lucas, 545 So.2d Ct.App.1984) (anti-waiver clause ef-
926 (Fla.Dist.Ct.App.1989); La Bou- fective, but acceleration defective on
tique of Beauty Academy, Inc. v. Me- other grounds); Van Bibber v. Norris,
loy, 436 So.2d 396 (Fla.Dist.Ct.App. 419 N.E.2d 115 (Ind.1981) (chattel re-
1983); Edwards v. Smith, 322 S.W.2d possession); Hale v. Ford Motor
770 (Mo.1959); Rosselot v. Heim- Credit Co., 374 So.2d 849 (Ala.1979)
brock, 561 N.E,2d 555 (Ohio.Ct.App. (auto repossession); Postal Say. &
1988); Fairfield Financial Group, Inc. Loan Ass'n v. Fred, 698 P.2d 382
v. Gawere, 814 S.W.2d 204 (Tex. Ct. (Kan.Ct.App.1984) (real estate mort-
App. 1991); McGowan v. Pasol, 605 gage acceleration); Metropolitan Life
S.W.2d 728 (Tex. Ct. Civ.App. 1980); Ins. Co. v. Triskett Illinois, Inc., 646
Short v. A.H. Still Investment Corp., N.E.2d 528 (Ohio.Ct.App.1994); Gaul
147 S.E.2d 99 (Va.1966). Cf. Mid- v. Olympia Fitness Center, Inc., 623
State Trust II v. Jackson, 854 S.W.2d N.E.2d 1281 (Ohio.Ct.App.1993) (real
734 (Ark.Ct.App.1993); Massachusetts estate mortgage acceleration). On the
Mutual Life Insurance Co. v. Trans- other hand, a substantial number of
cases take the position adopted by
grow Realty Corp., 475 N.Y.S.2d 418
this section that anti-waiver provi-
(N.Y.App.Div.1984). However, there sions are not automatically dispositive
are cases that refuse to find waiver in and are
themselves capable of being
similar circumstances. See Moseley v. waived by the mortgagee through its
Lathan, 448 So. 2d 341 (Ala. 1984); conduct. See Woods v. Monticello De-
Dorn v. Robinson, 762 P.2d 566 (Ariz. velopment Co., 656 P.2d 1324 (Colo.
Ct.App.1988); Barnes v. Resolution Ct.App.1982) (real estate accelera-
Trust Corp., 664 So.2d 1171 (Fla.Dist. tion); Smith v. General Finance Co.,
Ct.App.1995); Scarfo v. Peever, 405 255 S.E.2d 14 (Ga.1979) (chattel re-
So.2d 1064 (Fla.Dist.Ct.App.1981); possession); Formall, Inc. v. Commu-
Postal Say. & Loan Ass'n v. Freel, nity National Bank of Pontiac, 360
698 P.2d 382 (Kan.Ct.App.1984); N.W.2d 902 (Mich.Ct.App.1984) (ac-
North Star Apartments v. Goppert celeration of commercial debt); Cobb
Bank & Trust Co., 657 S.W.2d 253 v. Midwest Recovery Bureau, 295
(Mo.Ct.App.1983). N.W.2d 232 (Minn.1980) (chattel re-
 8.1 MORTGAGES
possession); Nevada National Bank v.
Huff, 582 P.2d 364 (Nev.1978) (chattel
repossession).
Illustrations 15 and 16 demonstrate
how estoppel, fraud, or bad faith can
be appropriate theories to defeat ac-
celeration. The leading case for this
proposition is Nassau Trust Co. v.
Montrose Concrete Products Corp.,
436 N.E.2d 1265 (N.Y. 1982). Several
other recent cases recognize the fore-
going proposition, but find insuffi-
cient facts to sustain it. See Ryder v.
Bank of Hickory Hills, 585 N.E.2d 46
(Ill. 1991); Citibank, N.A. v. Nyland
(CF8) Ltd., 878 F.2d 620 (2d Cir.
1989).
There is a clear division of authori-
ty as to whether a court may relieve
a mortgagor from the consequences
of acceleration in cases of extreme
hardship. The traditional approach,
which this section adopts, is that an
acceleration clause works neither a
forfeiture nor a penalty and that a
mortgagor will not be relieved from
acceleration for a default that arises
from his or her negligence, mistake,
or accident unless there is fraud, bad
faith, or other conduct on mortgag-
ee's part making reliance on it uncon-
scionable. See, e.g., First Federal
Say. & Loan Ass'n v. Ram, 659 P.2d
1323 (Ariz.Ct.App.1982); Ciavarelli v.
Zimmerman, 593 P.2d 697 (Ariz.Ct.
App.1979); Community Federal Say.
& Loan Ass'n of Palm Beaches v.
Orman, 473 So.2d 205 (Fla.1985);
David v. Sun Federal Say. & Loan
Ass'n, 429 So.2d 1277 (Fla. Dist. Ct.
App. 1983); Collins v. Nagel, 203
N.W. 702 (Iowa 1925); Poydan, Inc. v.
Agia Kiriaki, Inc., 325 A.2d 838 (N.J.
Super. Ct. 1974); Carle's Motorcycle
Shop, Inc. v. Johnson, 301 A.2d 335
(N.H.1973); Graf v. Hope Building
Corp., 171 N.E. 884 (N.Y.1930); New
York Guardian Mortgagee Corp. v.
Ch. 8
Olexa, 574 N.Y.S.2d 107 (N.Y.App.
Div.1991); Cohn v. Middle Road Riv-
erhead Development Corp., 556
N.Y.S.2d 764 (N.Y.App.Div.1990);
Verna v. ('Brien, 356 N.Y.S.2d 929
(N.Y. Sup. 1974) ("mere improvidence
or neglect or poverty or illness is not
sufficient basis for relief in equity
from foreclosure under a mortgage
acceleration clause. A mortgagee may
be ungenerous, perhaps even unchari-
table, but generosity and charity are
voluntary attributes and cannot be
enforced by the court."); First Feder-
al Sav. & Loan Ass'n of Akron v.
Cheton & Rabe, 567 N.E.2d 298
(Ohio.Ct.App.1989); Phipps v. First
Federal Say. & Loa, Ass'n, 438
N.W.2d 814 (S.D.1989); Greenberg v.
Service Business Forms Industries,
Inc., 882 F.2d 1538 (10th Cir.1989); In
re Nicfur-Cruz Realty Corp., 50 B.R.
162 (Bankr.S.D.N.Y.1985).
Illustration 19 is based in part on
Graf v. Hope Building Corp., 171
N.E. 884 (N.Y.1930).
There is, however, a substantial
body of case law that protects the
mortgagor from acceleration that is
the result of accident or a mistake
while acting in good faith, or unusual
circumstances beyond mortgagor's
control. See Middlemist v. Mosier,
377 P.2d 110 (Colo.1962); Savarese v.
Schoner, 464 So.2d 695 (Fla.Dist.Ct.
App.1985); Federal Home Loan Mort-
gage Corp. v. Taylor, 318 So.2d 203
(Fla.Dist.Ct.App.1975); Redding v.
Gibbs, 280 N.W.2d 53 (Neb.1979) (in
deciding whether to grant equitable
relief from acceleration, "the gravity
of the fault must be weighed against
the gravity of the hardship"); Fair-
mont Associates v. Fairmont Estates,
472 N.Y.S.2d 208 (N.Y.App.Div.1984);
Karas v. Wasserman, 458 N.Y.S.2d
280 (N.YApp.Div.1982); J.N.A. Real-
ty Corp. v. Cross Bay Chelsea, Inc.,
Ch. 8 FORECLOSURE
366 N.E.2d 1313 (N.Y. 1977) (ex-
pressing displeasure with, but not
overruling, the Graf dictum); Rosen-
thal, The Role of Courts of Equity in
Preventing Acceleration Predicated
upon a Mortgagor's Inadvertent De-
fault, 22 Syracuse L. Rev. 897 (1972)
(some courts take the view that "eq-
uity has the power to relieve a mort-
gagor for an inadvertent default in
payment of principal or interest
where acceleration would work ex-
treme hardship upon him.").
The Taylor case, supra, is illustra-
tive of this approach. There, after
three regular payments, there was a
lapse of a month and 20 days in mak-
ing a payment. Following that was a
three-month lapse. However, immedi-
ately thereafter the mortgagor paid
three installments with late charges,
which the mortgagee accepted. How-
ever, a payment made on September
10, 1973, did not include the install-
ment that fell due on September 1.
The latter installment was paid prior
to October 4, but the mortgagee re-
fused to accept it because the Octo-
ber 1 installment was not included. In
upholding relief from acceleration,
the court noted the general delays
caused by the fact that one of the
mortgagors was a member of the mil-
itary stationed overseas:
The lag in mail deliveries was obvi-
ously a circumstance which contrib-
uted to much of the lack of commu-
nication and misunderstanding. It
is to be noticed here that the mort-
gagors were not in the Philippines
by mere choice but due to a mili-
tary assignment. Though the per-
sonal hardship arising from the
daughter's need of a state-side hos-
pitalization is not a circumstance to
excuse payment of a debt when
due, the distance between the
mortgagors and mortgagee's agent
8.1
because of military obligations of
the mortgagor is not to be ignored
as a factor impairing the ability of
the parties to communicate de-
mands and responses thereto. The
total evidence indicates a good faith
effort on the part of the mortgagor
to meet the mortgagee's conditions
of bringing the account current.
Federal Home Loan Mortgage Corp.
v. Taylor, 318 So.2d 203, 208 (Fla.
Dist.Ct.App.1975).
This section, in adopting the tradi-
tional approach, reflects the view
that, in the absence of fault on the
part of the mortgagee, relief from
acceleration is better dealt with by
"arrearages" statutes or the language
of the mortgage documents. This sec-
tion serves an important policy goal
of predictability in mortgage reme-
dies.
Mortgagors have sometimes sought
to defeat acceleration by asserting
1-208 of the Uniform Commercial
Code, which provision states that "[a]
term providing that one party or his
successor in interest may accelerate
payment or performance ... 'at will'
or 'when he deems himself insecure'
or in words of similar import shall be
construed to mean that he shall have
power to do so only if he in good faith
believes that the prospect of payment
or performance is impaired." U.C.C.
1-208 (1995). Where a mortgage
note actually contains such language,
the good-faith requirement is applica-
ble. See, e.g., Watseka First National
Bank v. Ruda, 531 N.E.2d 28 (11.
App. Ct. 1988); Jackson v. State Bank
of Wapello, Iowa, 488 N.W.2d 151
(Iowa 1992). Courts have been unable
to agree as to whether the good-faith
standard is objective or subjective.
See Wegner, Section 1-208: "Good
Faith" and the Need for a Uniform
Standard, 73 Marq. L. Rev. 639
8.1 MORTGAGES Ch. 8

(1990). However, most mortgage obli-
gations do not contain such "at will"
or "insecurity" language or, if they
do, actual acceleration results from
specific mortgagor defaults such as
failure to pay the debt, real estate
taxes, to maintain casualty insurance
or the commission of waste. A few
decisions have applied the good-faith
requirement in the latter context. See
State Bank of Lehi v. Woolsey, 565
P.2d 413 (Utah 1977); Williamson v.
Wanlass, 545 P.2d 1145 (Utah 1976);
Brown v. AVEMCO Investment
Corp., 603 F.2d 1367 (9th Cir.1979).
Moreover, some of these latter deci-
sions have used the good-faith ap-
proach where the obligation appar-
ently lacked "at will" or "insecurity"
language. See Williamson and
Brown, supra. However, most courts
correctly focus on the literal language
of 1-208 and hold that it cannot be
applied to defeat an acceleration
based on specific mortgagor defaults.
See Bowen v. Danna, 637 S.W.2d 560
(Ark.1982); Hickmon v. Beene, 640
S.W.2d 812 (Ark.Ct.App.1982); Ben
Franklin Financial v. Davis, 589
N.E.2d 857 (Ill. App. Ct. 1992); Mat-
ter of Sutton Investments, Inc., 266
S.E.2d 686 (N.C.Ct.App.1980); Don
Anderson Enterprises, Inc. v. Enter-
tainment Enterprises, Inc., 589
S.W.2d 70 (Mo.Ct.App.1979); Green-
berg v. Service Business Forms In-
dustries, Inc., 882 F.2d 1538 (10th
Cir.1989); Comment, 11 B.C. Ind. &
Com. L. Rev. 531 (1970) ("Section 1-
208 is not concerned with default type
acceleration clauses.").

8.2 Mortgagee's Remedies on the Obligation and the Mort-

gage
When an obligation secured by a mortgage becomes
due, the mortgagee may either:
(a) obtain a judgment against any person who is
personally liable on the obligation and, to the extent that
the judgment is not satisfied, foreclose the mortgage on
the real estate for the balance; or
(b) foreclose the mortgage and, to the extent that the
proceeds of the foreclosure sale do not satisfy the obli-
gation, obtain a judgment for the deficiency against any
person who is personally liable on the obligation in accor-
dance with 8.4.
Cross-References:
Section 1.1, The Mortgage Concept; No Personal Liability Required; 7.1,
Effect of Mortgage Priority on Foreclosure; 8.1, Accrual of the Right to
Foreclose-Acceleration; 8.3, Adequacy of Foreclosure Sale Price;
8.4, Foreclosure: Action for a Deficiency.
Comment:
a. Mortgagee's choice of remedies. Once the mortgage goes into
default and the obligation is accelerated, this section gives the mort-
gagee the choice to proceed initially on the underlying personal