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Multifamily Mortgage Trust 1996-1 v. ARA Assocs.-Shangri-La Ltd.

The trial court had to look at the intent of the parties to determine whether the plaintiff could deduct the costs of extensive repairs to its apartment complex as operating expenses under an agreement with the defendant's predecessor which was designed to stop the foreclosure of a security deed on that complex.

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In this case, the borrower and guarantor of a federally-insured mortgage loan entered into a forbearance agreement designed to stop foreclosure on a security deed after the borrower defaulted on the loan payments. The forbearance agreement required that the borrower make minimum monthly payments to the lender and also pay the lender any funds the borrower had in an operating account each month in excess of $42,015 after the borrower paid operating expenses. The borrower was also responsible under the agreement for paying for and making repairs required by the guarantor. The borrower made the minimum monthly payments to the lender but, after the borrower paid for extensive repairs and incurred other expenses, it claimed there were no excess funds with which to pay the lender. The lender declared the borrower in default and started foreclosure proceedings. Claiming there was no default, the borrower successfully moved to enjoin the foreclosure. We agree that there was no default and affirm the decision of the trial court.

In November 1980, ARA Associates-Shangri-La, Ltd. “ARA”, granted a security deed and note to Trust Company Mortgage to secure a mortgage loan for financing the purchase of Shallowford Oaks Apartments. The loan was guaranteed by the U. S. Department of Housing and Urban Development “HUD” pursuant to Section 221 d 4 of the National Housing Act.

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