Eve Of Sale Settlement – A New Twist


1 December, 2006


Mortgage Lender and Servicer Alerts

A highly unusual new case in New York tells us that the terms of sale used at the foreclosure auction can save a last minute attempt to settle the foreclosure. [See Ameriquest Mortgage Company v. Bellon, A.D 3d ,815 N.Y.S.2d 193 (2d Dept. 2006)].  To explain…

The pressure of last minute negotiations with borrower is a fertile arena for mistakes and confusion:

  • loss mitigation agreed to a settlement (perhaps forbearance; maybe a restructuring; could be an expansion of time to sell or refinance) but didn’t tell servicing and so the sale was held anyway; or
  • an agreement was signed with the borrower but the message did not reach servicer’s counsel; or
  • negotiations concluded and a check was sent but somehow the referee conducted the sale anyway.

All this disarray is particularly perilous when the sale is to a third party because then undoing the sale becomes very difficult.

In the new case, the servicer recognized the precipitous state of its settlement discussions with the borrower.  Hoping, but not knowing if the attempts would come to fruition, and still wanting to conduct the foreclosure sale to protect its interests, the servicer put special (unprecedented) language in the terms of sale.  Those terms specifically made the foreclosure sale subject to any arrangements made prior to the sale between the servicer and the borrower for reinstatement of the mortgage, arrangements “at this time unknown to the referee”.  If the arrangements were completed, the sale was to be void.

As it turns out, the borrower did remit a check which the servicer received just before the sale.  Did this deny the bidder the right to own the property?  Yes, said the court.  This language in the terms of the sale is enforceable.

While we have some trepidation about this holding, it does come from an appeal level court and serves as precedent.  Of course, telling bidders in essence that they may be wasting their time won’t exactly serve to maximize the bidding.  But the ruling does suggest that in a confusing settlement situation, resolution can be preserved by careful drafting of the terms of sale.

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.