Since the downturn in the economy, financial institutions have seen rapid increases in property foreclosures. In an effort to halt foreclosure proceedings, some borrowers will attempt to make a payment under the promissory note right before a foreclosure sale is set to occur. Under this scenario, the borrower walks into a branch location of a financial institution on the eve of foreclosure and tenders payment of the outstanding amounts owed. The branch location, following its typical business practices, accepts the payment from the borrower. However, despite the branch location’s “acceptance” of the payment, the financial institution proceeds with the foreclosure as scheduled.
A wrongful foreclosure action follows. The borrower alleges that the financial institution improperly accepted his or her payment and, as a result, could not legally proceed with the foreclosure sale. (Ultimately, the financial institution returns the tendered payment to the borrower, but usually that occurs after the foreclosure has occurred). Fortunately, applying the Uniform Commercial Code (“UCC”), courts are strictly enforcing the terms of the promissory note and providing financial institutions with a good defense to these types of wrongful foreclosure actions.
The UCC provides that “an instrument is payable at the place of payment stated in the instrument.” UCC § 3-111. The UCC further states that “[a] branch or separate office of a bank is a separate bank for the purpose of . . . determining the place at or to which action may be taken.” UCC. § 4-107. Consequently, when a borrower attempts to make a payment at a branch location (or other location not specified as the “place of payment” in the promissory note), such payment is not an effective tender of payment under the note. See, e.g., Rossi v. Suntrust Mortg., Inc., 2011 U.S. Dist. LEXIS 149376, *12, 76 U.C.C. Rep. Serv. 2d (Callaghan) 427, 2011 WL 6888530 (M.D. Tenn. 2011) (applying Tennessee law) (citing U.S. Bank Nat’l Ass’n v. Whitney, 119 Wn. App. 339, 81 P.3d 135 (Wash. Ct. App. 2003)); Simpkins v. SunTrust Mortg., 2012 U.S. Dist. LEXIS 105700, *15, 2012 WL 3095570 (E.D. Tenn. July 30, 2012) (“Because plaintiff tendered payment to the wrong entity at the wrong place, the court finds that the amended complaint fails to state any facts showing that defendants breached the provisions of the Deed of Trust or the Note.”).
In Whitney, a borrowers’ payment at a non-designated bank branch did not constitute effective tender of payment. In that case, the borrowers executed a promissory note which provided that “the place of payment . . . is the Bank of Yakima, or at such other places . . . as the holder hereof may from time to time designate.” Id. at 140. Despite the place of payment being identified in the note, the borrower tendered payment to a bank branch in Seattle. In finding that the payment at the Seattle branch did not constitute effective tender of payment under the UCC, the court held:
Tender of payment on a note must be made at the place of payment to be effective . . . . The place of payment of a promissory note is the place stated in the instrument . . . . A separate branch or office of a bank is a different bank for the purpose of place of payment . . . . The [borrowers] simply did not comply. Id. (emphasis in original).
Accordingly, a borrower’s attempt to halt a foreclosure sale by tendering payment at a branch location is precluded by the application of the UCC. A financial institution is fully within its rights to proceed with a foreclosure sale when a tendered payment is not an effective tender under the UCC and any “acceptance” of such a payment by a branch location does not give rise to a viable wrongful foreclosure action.
