Three defaulted loans, a failed lawsuit, and an indemnification clause that bit back
A borrower who defaulted on three mortgage loans sued his private lender over the terms - and now owes it attorneys' fees.
New York's Appellate Division dismissed every claim against private lender Titan Capital ID, LLC on October 7, after a borrower who defaulted on three mortgage loans secured by four Southampton properties turned around and sued.
The borrower and his corporation, Emanon South Corp., entered into three loan agreements with Titan. Two loans originally matured on July 26, 2019, later extended to January 26, 2020. The third matured on October 18, 2020. The borrower did not repay the two loans when they came due in January 2020.
By August 2020, Titan had launched foreclosure proceedings on all four properties. Two months later, Titan sold its rights in the loans to a third party. The borrower then sued Titan and one of its principals, alleging breach of contract and fraudulent inducement against the lender, and tortious interference against the principal.
The breach of contract claim turned on whether Titan's acceptance of payments in June and July 2020 - after the January maturity date - amounted to a new oral agreement. The court said no. The loan agreements contained no-oral-modification clauses, and the evidence showed those payments were partial interest on already-defaulted loans. An email in the record stated that the "loan matured on January 26, 2020 and this does not represent a loan renewal."
The fraudulent inducement claim fared no better. The court found no misrepresentation by Titan and no justifiable reliance by the borrower, given the evidence available through "ordinary diligence." The tortious interference claim against the principal also failed - his conduct was permitted under the loan agreements, and with no actual breach, the claim could not stand.
That part is settled. What makes this case sharper is the fees.
The lower court denied Titan's request for attorneys' fees and costs. The appellate court reversed. Under New York's "American rule," each side normally pays its own legal bills unless a contract says otherwise. Here, the court found it "unmistakably clear" from the loan agreements that the borrower had agreed to indemnify Titan for reasonable attorneys' fees. The matter goes back to determine how much.
For private lenders and loan originators, the takeaway is direct: indemnification clauses in loan agreements can shift the cost of litigation back to a borrower who sues and loses.
