Election Of Remedies – OK To Foreclose Even Though Suing On Note


15 March, 2016


Mortgage Lender and Servicer Alerts

The title of this alert merits an exclamation point because a principle which has been a source of much confusion (although we opine that it is established) is pointedly clarified in a new case – on appeal: VNB New York Corp. v. Paskesz, 131 A.D.3d 1235, 18 N.Y.S.3d 68 (2d Dept. 2015).

To be candid, most lenders and servicers do not enter the byzantine world of election of remedies (known elsewhere as the one action rule).  When there is a mortgage default, they will foreclose the mortgage. In rare instances – and there are good reasons for it as we have reviewed in the history of these alerts – the servicer will sue on the note.  But attempting to do both at the same time is only seldom an issue.

Such does not mean, however, that the necessity for dual pursuits never occurs or is unimportant.  While typically confined to the arena of commercial cases or more sophisticated or unusual situations, the fact is that proceeding on two tracks can be helpful and meaningful.  The problem has been, though, the notion that it is either one or the other; you can’t do both.  At least such is the prevailing wisdom.  But it is not necessarily so, as the cited case illuminates.

This admittedly difficult subject is best approached by noting three aspects of New York statute which affect the subject and then lead to a conclusion.  The first is the overall edict (RPAPL §1301) that the holder of a note and mortgage is empowered to proceed at law to recover on the note, or proceed in equity to foreclose the mortgage – but must elect only one of these alternative remedies and cannot do both.  That is the general proposition which suggests to most that the choice must be one or the other.

Next is the section [RPAPL §1301(1)] addressing that action at law, the suit on the note, which provides that when a plaintiff obtains a final judgment in an action for any part of the mortgage debt, there is then a prohibition to commence or maintain a foreclosure action, unless an execution on that judgment has been returned fully or partially unsatisfied.

Then consult the reverse provision [RPAPL §1301(3)] which on the other hand bars a party from commencing an action at law – for example a suit on the note – to recover any part of the mortgage debt while a mortgage foreclosure action is pending but has not itself reached final judgment – at least without leave of the court to do so.

Here, in the new case, the mortgage holder had begun an action for replevin (among other things) and later commenced a foreclosure action.  Because the action at law was initiated first, that means the section dealing with a money judgment controls (not the section about starting a foreclosure first) and underscores that because no final judgment had been entered in the replevin action, there was no preclusion of an action to foreclose the mortgage.

This clearly confirms what the statute says.  If you sue on the note but don’t arrive at a judgment, you are free to also begin a foreclosure action.  Once you get a money judgment you cannot begin a foreclosure action until that judgment is returned by the sheriff fully or partially unsatisfied.  The reverse, which did not occur in this case, is that when a foreclosure is begun, its existence is a prohibition against suing on the note unless you have special circumstances that would lead a court to grant specific permission to sue on the note.

Complicated?  A bit, but this case helps a great deal.  It is worth consulting in one of those instances where the lender or servicer has a need to think about something other than a pure foreclosure action.

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.