What happens after a lender declares a commercial loan in default in New York?

This page explains New York law for commercial loans, meaning loans to businesses, including loans secured by commercial or investment real estate. Many of the protections built for homeowners do not apply to these loans; the differences are set out in commercial or residential foreclosure: which protections apply to you. KOR Law LLP's debtor and creditor practice defends commercial borrowers against claims for breach of loan agreement, enforcement and acceleration, and represents lenders on the other side.

What does a default notice actually do?

A default notice is the lender's formal statement that an "event of default" under the loan agreement has happened: a missed payment, a breached financial covenant, an unpaid tax, a transfer without consent, or something else the documents define. What it triggers depends entirely on the loan documents, which usually spell out:

• whether there is a notice and cure period, and how long it is;
• whether default interest, late charges or fees start to run;
• whether the lender may accelerate, meaning declare the entire unpaid balance immediately due; and
• which collateral and which guaranties the lender may look to.

Read the definition of "event of default" and the notice provisions before responding. A notice that does not match what the agreement requires can matter later, and a reply that concedes the default or the amount can matter too.

What happens next, step by step?

What does acceleration change?

Before acceleration, a borrower who misses installments owes those installments. After acceleration, the whole balance is due. The Court of Appeals explained the limitations effect in a mortgage case: before a noteholder accelerates a defaulted loan, "the six-year limitations period runs separately as to each installment payment missed by the borrower," but once it accelerates, the period "starts running as to the entire amount due under the loan as of the date of the acceleration" (Van Dyke v U.S. Bank, 2025, applying CPLR 213(4)). Contract claims, including claims on unsecured notes and guaranties, carry the same six-year period (CPLR 213(2)).

New York also limits a lender's ability to take back an acceleration for limitations purposes. If the borrower raises the statute of limitations and the loan was accelerated before or by an earlier action, the lender is estopped from arguing the acceleration was invalid unless the earlier action was dismissed on an express judicial finding, made on a timely defense, that it was not validly accelerated (CPLR 213(4)(a)). The full foreclosure timing rules are on our page about how long a lender has to foreclose in New York.

Can the lender pursue several remedies at once?

Partly. The Uniform Commercial Code says a secured party's rights after default are cumulative and may be exercised simultaneously (UCC 9-601(c)), and a secured party may reduce its claim to judgment, foreclose or otherwise enforce by any available judicial procedure (UCC 9-601(a)(1)). But real property mortgages carry their own limits in New York:

• One action for the mortgage debt. While a foreclosure is pending, or after final judgment in it, no other action may be started or maintained to recover any part of the mortgage debt without leave of the court where the foreclosure was brought. Getting leave is a condition precedent, and failing to get it is a defense (RPAPL 1301(3)).
• Judgment first, then foreclosure. If the lender has already won a final judgment for part of the mortgage debt, it cannot foreclose unless an execution on that judgment was issued to the sheriff and returned wholly or partly unsatisfied (RPAPL 1301(1)).
• The complaint must disclose other actions. A foreclosure complaint must state whether any other action was brought to recover any part of the mortgage debt and whether anything was collected (RPAPL 1301(2)).
• Deficiency limits. After a foreclosure sale, the lender gets a deficiency only by a motion within 90 days of delivery of the deed, measured against the property's market value (RPAPL 1371); see whether a lender can get a deficiency judgment after a New York foreclosure sale.

What can a lender do with collateral that is not real estate?

Equipment, inventory, accounts, deposit accounts and pledged membership interests or shares are personal property, governed by Article 9 of the New York Uniform Commercial Code. After default, a secured party:

• may take possession of the collateral, by judicial process or without it if it proceeds without breach of the peace (UCC 9-609);
• may notify the borrower's customers or tenants to pay the lender directly and enforce their obligations, and must do so in a commercially reasonable manner where it has recourse against the debtor (UCC 9-607(a), (c));
• may sell, lease or otherwise dispose of the collateral, but "every aspect" of the disposition, including method, manner, time, place and terms, must be commercially reasonable (UCC 9-610(b)); and
• must first send a signed notification of disposition to the debtor and any secondary obligor, such as a guarantor (UCC 9-611(b), (c)). In a non-consumer transaction, notice sent 10 days or more before the earliest disposition date is timely (UCC 9-612(b)).

The debtor, any guarantor or another secured party may redeem the collateral by paying all secured obligations plus reasonable expenses and attorney's fees, at any time before the lender collects, disposes of or contracts to dispose of it, or accepts it in satisfaction (UCC 9-623). A lender's sale of a pledged ownership interest in the company that owns a property is one example of an Article 9 disposition, explained in what a UCC foreclosure sale of an ownership interest is in New York.

What happens to the rents?

If the mortgage contains a covenant that the holder, in any action to foreclose it, is entitled to the appointment of a receiver, New York law reads that covenant as entitling the lender to a receiver of the rents and profits without notice and without regard to the adequacy of the security, and treats the rents as assigned to the lender as further security on a default (Real Property Law 254(10)). Where the mortgage provides that a receiver may be appointed without notice, no notice of the motion is required (RPAPL 1325(1)). After a sale, any money the receiver still holds, after its fees and expenses, goes to the lender up to the shortfall, even if no deficiency judgment is sought (RPAPL 1371(4)). The receiver's duties, fees and limits are covered in whether a lender can take over a building's rents with a receiver during a New York foreclosure.

What changes the answer?

• The loan documents. Cure periods, notice requirements, default interest and the events of default come from the contract, and the guaranty from its own terms.
• Whether and when the lender accelerated. It moves the six-year clock to the whole balance (Van Dyke; CPLR 213).
• What secures the loan. Real property follows RPAPL Article 13; personal property and pledged interests follow UCC Article 9 (UCC 9-601, 9-610).
• Which suits are already pending. A second action on the mortgage debt needs leave of the foreclosure court (RPAPL 1301(3)); see whether a lender can sue on the note and foreclose at the same time.
• The loan amount and the interest rate. The 16% civil usury ceiling does not apply to loans of $250,000 or more unless they are secured primarily by a one or two family home, and no usury law, civil or criminal, applies to loans of $2.5 million or more (General Obligations Law 5-501(6); Banking Law 14-a). Between those amounts, only the criminal usury limit of 25% a year remains (Penal Law 190.40). The details are in whether your commercial loan is usurious under New York law.
• Who signed what. A personal guarantor can be sued separately; see what defenses a personal guarantor has when a New York lender sues.

For example: a default on a mixed collateral loan

Common mistakes after a default notice

• Ignoring the cure period. A short window to fix a covenant breach can be the cheapest exit there is.
• Admitting the amount in writing. A signed written acknowledgment of the debt can affect the limitations period (General Obligations Law 17-101).
• Moving collateral or cash. Transfers after a default invite claims that they were voidable; see whether a creditor can undo a property transfer in New York.
• Treating every remedy as separate. The rules on combining suits (RPAPL 1301) and on deficiencies (RPAPL 1371) can limit what the lender recovers.
• Missing a 3213 return date. A suit on the note or guaranty can arrive as a motion with a short deadline; see what a CPLR 3213 motion is.
• Assuming an Article 9 sale will be fair. Check the notice, the timing and the sale terms against UCC 9-610 to 9-612.

What to do this week

1. Assemble the loan agreement, note, mortgage, security agreement, any pledge agreement and every guaranty.
2. Mark the default notice's date, the event of default it names and any cure deadline.
3. Check whether the lender has accelerated, and if so, on what date and how.
4. List every piece of collateral and who holds or controls it.
5. Request a written payoff or reinstatement figure, and do not sign any acknowledgment or forbearance without advice; see what you give up when you sign a forbearance agreement.
6. Speak with a lawyer before the cure period ends.

Frequently asked questions

Does a commercial borrower get the 90-day pre-foreclosure notice?

No, if the loan is not a "home loan." RPAPL 1304 defines a home loan as one made to a natural person primarily for personal, family or household purposes, secured by a one to four family home or condominium unit the borrower occupies as a principal dwelling (RPAPL 1304(6)(a)). A loan to a business for business purposes does not fit; see New York's 90-day foreclosure notice.

Can the lender take my equipment without going to court?

After default, a secured party may take possession without judicial process, but only if it proceeds without breach of the peace (UCC 9-609(b)). It must then dispose of the collateral in a commercially reasonable manner after notice (UCC 9-610, 9-611).

Can a lender keep the collateral instead of selling it?

Only by following the acceptance rules: the debtor must consent in a record after default, or fail to object within 20 days to a proposal to accept the collateral in full satisfaction (UCC 9-620(a), (c)).

Is a guarantor told about a sale of collateral?

Yes. The notification of disposition goes to the debtor and to any secondary obligor, which includes a guarantor (UCC 9-611(c)). A guarantor can waive that notice only by an agreement entered into and authenticated after default (UCC 9-624(a)).

Who appoints a receiver for my building?

The court in the foreclosure action, on the lender's application, where the mortgage provides for it (Real Property Law 254(10); RPAPL 1325). Court-appointed receivers in judgment collection are a different tool; see when a New York court can appoint a receiver to collect a judgment.

Can the lender charge default interest?

If the loan documents provide for it. For loans under $2.5 million, the total rate can still raise usury questions; loans of $2.5 million or more are outside every usury law, including the criminal one (General Obligations Law 5-501(6)(b)).