I read the following from an unpublished opinion of the trial judge in a commercial foreclosure action in the United States District Court where the borrower through up just about everything in an effort to overcome a motion for summary judgment and lost.  The basic holdings provide a primer on important issues decided by judges in New Jersey. 

Default Interest

Default interest provisions in commercial mortgages "are presumed reasonable." MetLife Capital Financial Corp. v. Washington Avenue Assoc., 159 N.J. 484, 501 (1999); see also MONY Life Ins. Co. v. Paramus Parkway Building, Ltd., 364 N.J. Super. 92, 103 (App. Div. 2003). Thus, the borrower must prove the default interest unreasonable, and failed to do so when the rate was a 4% increase which did not suggest "punitive intention. MetLife, 159 N.J. at 501.  

Prepayment Clauses

New Jersey courts have held prepayment clauses in commercial mortgages "valid and enforceable" even when the lender accelerates the debt. MONY Life Ins. Co., 364 N.J. Super. at 105. Like the default interest rate analysis, the borrower has the burden of proving that the prepayment fee is unreasonable. Id 

Alone, the fact that the borrower did not voluntarily prepay the debt, but rather its prepayment was involuntary does not render the prepayment fee unreasonable. Indeed, MONY Life Insurance holds the opposite: "the loan document clearly and unambiguously provides that upon default the lender could both accelerate the debt and collect the prepayment fee. This clause is valid and enforceable under New Jersey law." 364 N.J. Super. at 105; see also Westmark Commercial Mortg. Fund IV v. Teenform Associates, L.P. 362 N.J. Super. 336, 347 (App. Div. 2003)("While there is a certain ineluctable logic to the statement that payment after acceleration cannot be considered prepayment, we can perceive no reason why the debtor should be relieved of the terms of the contract freely entered into."). 

Mitigation of Damages

A non-breaching party is only required to take reasonable steps to limit its damages. Ingraham v. Trowbridge Builders, 297 N.J. Super. 72, 83 (App. Div. 1997).  The duty to mitigate does not require an injured party to take steps that would subject it to "undue risk or burden." Id.  The Court would not allow that the borrower could re-write the terms of its contract with it lender to get a better deal than the one it bargained for.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.