Some disgruntled borrowers are not satisfied with defending and delaying foreclosures. Rather, they carry it further and separately sue lenders in other actions, for example in Federal Court. (See out July 1, 2014 Alert on this subject entitled “Borrower Assails Lender in Federal Court – Again – And Loses”.) Another methodology, exposed by a recent case [Maa-Sharda, Inc. v. The First Citizen’s Bank & Trust Co., 149 A.D.3d 1484, 54 NYS3d 785 (4d Dept. 2017)] arises where a lender obtained a judgment of foreclosure and sale and the borrower, claiming that the lender had pressed a fraud claim upon the court, initiates a separate action founded upon such a cause of action. But case law says this will not work.
Where the complaint of the borrower in the new case alleges fraud, misrepresentation or other misconduct of an adverse party committed during earlier litigation, the new plaintiff (here the borrower) is confined solely to the remedy of a motion to vacate the court’s prior order pursuant to New York practice [CPLR § 5105(a)(3)] Thus, the remedy for the asserted fraud during a legal action is confined exclusively to that lawsuit itself, that is, by moving under CPLR § 5105 to vacate the judgment based upon its supposed fraudulent procurement, but not through a second plenary action collaterally assailing the judgment.
In the noted case while the court confirmed that there is an exception to the rule, it only applies when the asserted fraud or perjury is just a means to facilitate a larger fraudulent scheme that is greater in breadth then the one in the prior proceeding complained of. In this case though the assertion was found to be just manufactured to try to fit within that exception. It wasn’t real and so the general rule prevailed and the borrower lost.
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.