Rogers Towers: The Perils of Post-Judgment Pre-Sale Modifications

A reasonable workout often remains the prudent choice for defaulted commercial real estate loans even in the context of a pending (or nearly completed) foreclosure action. Thus, it is not surprising that we have seen a number of foreclosure cases where the bank and debtor entered into a modification agreement after obtaining a foreclosure judgment but before proceeding with the foreclosure sale. These post-judgment, pre-sale modifications can create needless difficulties and expenses if not documented properly. In the event of a subsequent default, can the bank merely ask the court to reschedule the foreclosure sale or must it first comply with any notice and cure provisions in the underlying loan documents? For that matter, given that the underlying mortgage merged into the foreclosure judgment, what exactly is being modified? We have seen too many instances where it was necessary for the bank to essentially start over by setting aside the foreclosure judgment, re-defaulting the debtor and amending its Complaint, all because the post-judgment modification did not take into account the practical consequences of the foreclosure judgment. At a minimum, the post-judgment modification should be memorialized with a through stipulation filed with the Court specifying the terms of the modification, the consequences of a default and, perhaps most important, the Court’s enforcement powers.