After a lender or servicer suffers all the slings and arrows of outrageous fortune in slogging through the mire of what foreclosure actions in New York have become, the last thing it needs is a borrower’s post-sale attack on the foreclosure. Of course, such assaults are hardly uncommon.
Where there has been a third party bidder at the sale, the problem is exacerbated because the bidder might seek to be relieved of its bid because of the issues raised as to the validity of the sale – and thus the quality of the title being conveyed through the foreclosure. Does the delay imposed by a borrower litigating the efficacy of a foreclosure sale provide an equitable basis for relieving the bidder? A recent case says “no”, under what may seem as usual circumstances. [Manufacturers & Traders Trust Co. v. Foy 79 A.D.3d 825, 914 N.Y.S.2d 185 (2d Dept. 2010)].
First, let’s look at an alternative scenario. The foreclosure auction is held and the closing is to be thirty days thereafter. It rarely occurs precisely on that thirtieth day and there are a host of factors which can lead to some delay so that the closing is held the week after that or a month or two later. But these things are not uncommon and are typically not the variety of delays which create issues.
If, however, the motion to vacate the sale is made by someone (usually the borrower), then a bidder may promptly ask that the bid deposit be returned because questions have been raised. This would usually be a valid basis for the bidder to make the demand and in many situations – particularly where the litigation may appear to be protracted – the lender or servicer would return the bid deposit.
But then there is the scenario in the noted case. Here, and obviously desirous of proceeding to a closing, the bidder submitted papers in opposition to the borrower’s motion to vacate the sale. They also submitted a memorandum of law. At the same time, they raised no objection to the closing delay until more than one year after the issue of title marketability had been resolved. (Not incidentally, the bidder could not allege any conduct casting suspicion on the sale and offered no other basis other than delay to be relieved of its bid.)
In the end, it was apparent to the court that the bidder had acquiesced in the delay. The bidder wanted the property and joined the fight to preserve the sale to itself. When later the bidder had a change of heart, the court ruled that the delay under these circumstances was simply not a basis to afford the bidder equitable relief. The bidder was bound to complete the foreclosure sale or suffer loss of the bid deposit.
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.