DS News - HSBC

74 as extended (or as subsequently extended)." Civil Code section 2924i(c). us, if accepting a payment after the loan matures automatically extends the loan terms, then you would arguably also need to send another notice to comply with Civil Code section 2924i(c) in situations where the loan is extended more than 90 days. CAN ACCEPTANCE ALONE EXTEND THE LOAN TERMS? As a general matter, the parties' course of conduct, i.e., acceptance of partial payments post-maturity, can extend the loan terms, usually through application of equitable principles such as waiver or estoppel. Waiver is the intentional relinquishment of a known right after knowledge of the facts. Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31. To succeed on his waiver claim, the borrower would need to prove by clear and convincing evidence that the lender freely and knowingly gave up its right to require the borrower to pay the full amount owed on the maturity date. Id. Notably, a waiver can be oral, written, or it can arise from conduct that shows the lender clearly gave up the right. Id., see also Howard J. White, Inc. v. Varian Associates (1960) 178 Cal.App.2d 348, 353-355. Estoppel is an equitable doctrine codified in California Evidence Code section 623, which provides that when a party, by either statement or conduct, leads another to believe a particular thing is true and the second party acts in reliance thereon, the first party is not permitted to contradict that statement or conduct in any litigation arising out of that statement or conduct. Cal. Evid. Code section 623. To succeed on an estoppel claim, the borrower would need to show that the lender knew about the breach of the loan payment terms but extended the loan term by accepting the partial payment, that the lender intended its conduct to be acted upon, that the borrower did not know differently that the loan had not been extended, and that the borrower relied upon the statement or conduct to his detriment. DRG/ Beverly Hills, Ltd. v. Chopstix Dim Sum Café & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59. HOW DO I PROTECT MYSELF? While the lender's course of conduct/ acceptance of payment can potentially extend the loan terms, generally all loans also contain an anti-waiver clause specifically to prohibit such an occurrence. (Note: if your loan documents do not contain one, they should!) Anti-waiver clauses generally provide that a lenders' failure to enforce its contractual rights in a breach situation shall not constitute a waiver of that breach or the remedies available to the lender. Many also specifically provide that acceptance of late payments or partial payments does not constitute a modification of the loan or a waiver of any other remedy available by law. ese clauses are consistently upheld by courts across the nation based on their plain language, but enforcement is based on the parties' actual conduct, which must be consistent with the anti-waiver clause terms. Here, assuming the lender's loan documents contain an anti-waiver clause which covers acceptance of payments post-maturity, the lender's mere acceptance of the partial payment would not extend the loan terms. is is, of course, subject to the above caveat that the lender's other conduct is consistent. For instance, if the servicer orally represents to the borrower that the loan due date has been extended or a monthly statement is sent to the borrower showing a different due date post acceptance of the partial payment, a court could find that the lender waived the anti- waiver clause protections based on that separate conduct. As a best practice, in situations where the lender decides to accept the partial payment, we recommend the servicer also send a reservation of rights letter to the borrower specifically advising them that acceptance of the payment is not to be considered a modification of the loan or a waiver of any of the loan terms. is letter would not only cut against any argument by the borrower that the lender intended to modify the loan, but also be strong evidence that the borrower knew the acceptance was not a modification of the due date. We are aware that some servicers will sometimes send a new 90-day notice under Section 2924i if they accept a partial payment. However, we do not recommend such a course of action for two reasons. First, logic dictates that since the loan terms have not been extended, a new 90-day notice is not necessary to comply with the statute's requirements. Second, sending such a notice could be problematic because it could be used by the borrower as evidence that the lender intended to voluntarily extend the due date, otherwise why did the lender send the new notice in the first place. In summary, first check your loan documents and review the anti-waiver provision. If it does not already specifically address acceptance of late/partial payments, consider revising it. Next, consider implementing a policy requiring a reservation of rights letter be sent to the borrower in situations where a partial payment is going to be accepted post-maturity. Ultimately, if you are unsure what level of protection you currently possess, please reach out to Wright, Finlay & Zak, LLP or your counsel to discuss your specific situation. Sarah Greenberg Davis is a Senior Associate Attorney at Wright Finlay Zak's California office. Robert Finlay is a founding Partner of Wright Finlay Zak. Feature By: Sarah E. Greenberg Davis and T. Robert Finlay

• Cover