Deficiency Judgment Time Limit Problems – Again


15 July, 2012


Mortgage Lender and Servicer Alerts

We acknowledge of course that lenders (more in the home loan rather than the commercial situation) face a dilemma in recent years regarding pursuit of deficiency judgments.  Although declining property values have only exacerbated shortfalls in value, chasing borrowers after the sale is seen perhaps as bad public relations.  Increasingly too, it may not be worth the effort as more and more borrowers have little or no funds to pay such judgment as may be obtained.

As testament, however, to the actuality of lenders seeking deficiency judgments are the reported cases addressing the subject, too often (from a lender’s viewpoint) focusing upon failure to serve the deficiency motion within 90 days of delivery of the deed.  As recently as mid-February our alert reviewed a case where a lender missed the 90 days when it waited for an appraisal needed to fix the transfer tax.

A new case offers a different twist and buttresses what should in the end be an easy message about when a referee’s deed is delivered – which is the sacred moment at which the inviolate 90 days begins to run. [M&T Real Estate Trust v.Doyle, 93 A.D.3d 1331, 941 N.Y.S.2d 422 (4th Dept. 2012)].

In the new case (it happened to be a commercial mortgage) the foreclosing plaintiff bid in at the sale, hardly unusual.  Then the plaintiff as bidder assigned its bid, also not uncommon.  Plaintiff’s counsel presented the deed conveying title to the assignee of the bid to the referee who dutifully mailed it to plaintiff’s counsel on May 11.  After mailing, but before receipt, plaintiff’s counsel called the referee to say that because the assignee was negotiating with a prospective purchaser, the deed would not be accepted at that time.

Readers may sense doom at hand here, although counsel’s posture is understandable.  Once a deed is delivered, transfer tax will be due upon its recording.  Were the assignee here to take the deed, and then sell the property, two transfer taxes would be due – easier then to assign the bid a second time and give a deed but once, thereby incurring the tax but once.

Consistent with this scenario, counsel returned the deed to the referee on May 17 with a letter asking the referee to hold that deed in his file until further notice.  By July 26 (the sale to another purchaser having apparently disappeared) plaintiff’s counsel invited submission of the deed anew.  After receipt, plaintiff’s counsel further invited the referee to re-execute the deed so the date would coincide with its delivery.  The referee complied and the deed was executed on August 9.  On September 3, the deficiency judgment motion was made.

Now the glitch emerges.  If the referee’s deed was delivered on August 9 (which is what counsel was striving to accomplish), the deficiency motion of September 3 would have been well within the 90 day mandate and therefore timely.  If, however, the deed was delivered back in May, (despite counsel’s pointed efforts to avoid that) then the motion would be untimely and all may be lost.

You saw it coming. “Untimely” ruled the court.  The 90 day period is a statute of limitations.  The means it can be waived, but the defendant raised the issue in opposition to the motion so the court needed to decide the issue.

The referee – as grantor and officer of the court – executed and parted with the deed in May.  When he signed it he was left with no title to convey.  The refusal of plaintiff’s counsel to accept and keep the deed in May cannot alter the actuality that the deed was delivered.

The lesson here seems quite apparent and is made more obvious with each case.  This is not an arena for cleverness and creativity.  There is no easy way to avoid delivery of the deed.  The 90 days must be scrupulously observed.

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.