Here’s one you don’t need to worry about, but you should understand it.
We have in the past discussed that legal paper called a notice of pendency (commonly, a lis pendens). This is something your counsel files with the county clerk during a foreclosure action, preferably at the beginning of the case. (In order to obtain a judgment of foreclosure and sale, the lis pendens must have been on file, but that is not our focus here.)
The real significance is what a lis pendens actually does in a foreclosure action: it binds all persons and entities who later acquire record interests to the action as if they were parties named and served. A new case explains this in practical terms. [Novastar Mortgage v. Mendoza, 26 A.D.3d 479, 811 N.Y.S.2d 411(2d Dept. 2006)]
Borrower owns property, defaults on the mortgage and quickly conveys a 1/2 interest in the property to Mr. X, although the deed to Mr. X is not immediately recorded. Lender begins a foreclosure and files a lis pendens. The deed to Mr. X is recorded a month after the lis pendens — of course unbeknownst to the lender because there is no need to constantly search the title once the lis pendens is filed.
The case moves along, but after the judgment is entered, up pops Mr. X with a motion to vacate the judgment and dismiss the foreclosure on the ground that Mr. X — as an owner of the property — was a necessary party who wasn’t served. Can it be so?
The trial court judge didn’t understand the law and dismissed the case (yikes!), but the appeals court appropriately saved the day.
Mr. X may have been an owner, but his deed was filed after the lis pendens. Therefore, he was bound and cutoff by the action as if he were in the case. And of course it must work this way or every borrower would set up a chain of sales, and no foreclosure would ever end; comforting to know the system can function well.
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.