Can Laches Ever Extinguish A Senior Mortgage?
Perhaps surprisingly, a new case says “yes” and this is a scary ruling for any mortgage holder – although we hasten to add that it could have been avoided if the mortgage holder was more careful in paying attention to its situation. [Bank of New York v. Terrapin Industries, LLC, 189 A.D.3d 620, 139 N.Y.S.3d 149 (1st Dept. 2020).]
First a reminder as to what laches is and why it typically does not threaten a mortgage holder.
As a general rule, laches is not a defense to a mortgage foreclosure action. [For extensive discussion on the subject see 1 Bergman on New York Mortgage Foreclosures § 5.10, Matthew Bender LexisNexis (rev. 2021)]. The essence of the doctrine of laches is an estoppel against a party seeking to assert a right; it would be inequitable to exercise a right after the passage of a lengthy period of time during which period the other party has changed its position.
Laches is usually asserted by a borrower when a lender takes some time – or even years – to initiate its foreclosure action. But delay alone does not support a laches defense – there has to be some damage resulting. Moreover, where the statute of limitations controls (and in a mortgage foreclosure situation that is six years), laches cannot play a role. If a lender wants to wait five years, for example, to start a foreclosure action, that is certainly a long duration, but since the statute of limitations has not expired, the action is valid and laches offers no defense.
But the new case presented different circumstances. There, a lender encountered a number of mishaps but was very slow to cure its problems. This is best understood through a graphic presentation of the events, as follows:
4/9/07 Bank A mortgage (on a condo) executed (recorded shortly thereafter, case did not specify)
3/2008 Bank A commences foreclosure
3/2011 Bank A’s lis pendens expires
3/2012 Bank A foreclosure marked by court “disposed”
8/21/14 Borrower enters judgment discharging and cancelling Bank A’s mortgage
Early 2015 Bank A makes second motion to restore its foreclosure (not yet granted)
Early 2015 Bank B searches record, finds no prior mortgage and records its own mortgage
Upon digesting these events, it becomes apparent that Bank A waited three years to move to have its marked-off foreclosure restored to the calendar. It’s not clear whether the case having been disposed of was appropriate or inappropriate, but Bank A waited far too long to pursue its rights because it allowed another lender to take a mortgage when the record revealed there was no foreclosure action. In addition, Bank A’s mortgage had been cancelled and discharged in 2014, so when Bank B searched the record to record its own mortgage a year later, there wasn’t even a record of a prior mortgage in existence.
The legal result of these events was that the doctrine of laches was imposed because Bank A delayed in curing its issues. As an adjunct point, when Bank B searched the public record and found no trace of any mortgage or mortgage foreclosure action this made Bank B a bona fide purchaser for value so that its later recorded mortgage was valid and superior to Bank A’s mortgage which, after all, had been discharged.
While the circumstances of this case are not necessarily an everyday occurrence, the lesson is clear that attention to case status by a mortgage holder is critical: if there is something to be done, it must be done with reasonable dispatch lest an undue delay create an untenable situation.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), 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.