Another Warning On Deficiency Judgments


1 February, 2006


Mortgage Lender and Servicer Alerts

While not every lender or servicer will pursue a deficiency judgment, when a foreclosure sale yields a shortfall, many do.  And for those who will seek deficiencies, the field is liberally spread with landmines – not the least of which (in New York for example) is the obligation to move for the post-sale deficiency within 90 days of delivery of the referee’s deed. The 90 day dictate is treated as a statute of limitations so that failure to serve the motion within that time bars entry of a deficiency judgment – a most serious consequence indeed.

Well, if servicers and their counsel are aware of this mandate, where is the problem?  A recent case emphasizes that there is assuredly room to stumble.  [Arbor Commercial Mortgage v. Carmans Plaza, LLC, 305 A.D.2d 622, 759 N.Y.S.2d 683 (2d Dept. 2003)]

One place for miscue arises from servicers’ understandable desire to typically move as quickly as possible to own the property. Because most often the aim is to resell the property (assuming it is not bid in by a third party), getting the deed at the very moment of the foreclosure sale is a worthy goal.  So, instead of waiting days or weeks (or more) for a referee to sign all the closing papers mailed to him after the foreclosure sale, those documents are usually brought to the sale by servicer’s counsel and signed there. The moment the attorney obtains the deed in that fashion, however, the deed is deemed delivered and the 90 days begins to run.

Even though the servicer needs to solicit an appraisal to pursue a deficiency, the situation still should not be so daunting. But in the troubling case, the foreclosing plaintiff decided to assign its bid. Many months later it did so, redelivering deeds as part of the transaction, believing presumably that this later deed delivery is what would first trigger the 90-day period.  Not so, said the court; the usual rule must apply. Delivery of the deed occurred when the foreclosing lender received it – something not altered by a later assignment.

The lesson of all this is to be extra careful. Rules on deficiencies and endless nuances vary from state to state. It would be exceptionally challenging to know all the minutia applicable everywhere.  It is wise, therefore, to discuss goals and share intentions with local counsel to avoid the fate which befell the lender in this case.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.