All as emphasized in a recent case [Targee Street Internal Medicine Group, P.C. v. Deutsche Bank National Trust Company, 92 A.D.3d 768 (2d Dept. 2012)] reforeclosure is a methodology to save a lender when a defendant who should have been served was not. As a sidelight, two lenders incurred considerable difficulty through lack of dedication.
First, to the facts and the tale of woe. For readers who just want to grasp the key legal principles, it is okay to skip to the end.
A lender began a mortgage foreclosure in 1991. But it did not proceed to judgment until 2009! The tale was that they had difficulty in locating the borrowers and in determining whether one of the borrowers had died. But this shouldn’t be the real story; if there is an issue like that there are ready solutions, publishing the summons among them. In any event, a foreclosure of 18 years duration is surely going to beget mischief and of course that happened here.
Somewhere in the middle of the long journey the borrowers conveyed the property to A. A conveyed to B and B obtained a mortgage loan from a hapless lender, who later assigned it to a major mortgage holder.
When finally the foreclosure was completed in 2009 the more recent mortgage holder (call it the “new bank”) had not been cut off by the foreclosure. So the foreclosing lender, who now owned the property brought a reforeclosure – more on that in a moment.
Unfortunately, for the new bank, it defaulted in the reforeclosure action and when it finally awakened, here was its story as to why that happened. It gave the defense of the action to another bank in accordance with a pooling and servicing agreement and sent the summons and complaint to that other bank. The recipient bank then sent the papers to one of its departments located in California and then to another department in Florida where the papers were somehow misplaced and could not be found – certainly no way to run an airline.
This meant that the new bank needed to vacate its default by showing both an excuse and a meritorious defense. The court did not comment on the reasonableness of the excuse, but jumped to the supposed defense to the reforeclosure action and rejected that, so that the problem with the wayward papers wasn’t that much of an issue anyway.
All can be summed up now with a quick mention of the reforeclosure process. If a defendant was not cut off by a foreclosure, the purchaser at the sale (whether the foreclosing party or a third party) can use one of two methodologies in New York to now extinguish the missed party: a strict foreclosure or a reforeclosure. The differences between the two are poorly understood both by most practitioners and the courts, but then, it is all very obscure. For the purposes of this review, an assumption can be made that they are quite similar and here’s the theory. If the missed party had been named in the foreclosure, the only thing it could have done was to pay off the mortgage to save itself. So in the reforeclosure or strict foreclosure they are given the opportunity to do just that, failing in which their interest is then permanently extinguished, as it would have been if they were named in the original foreclosure in the first place.
What was so compelling here, and is probably the ultimate message, is the court’s observation that New York statute provides that the right to reforeclose is absolute. So it wouldn’t have mattered what defense the new bank had, it was going to lose.
In addition, and contrary to the new bank’s contention, the reforeclosure is properly maintainable even if the statute of limitations barred an action to foreclose on the original mortgage.
Thus, the reforeclosure process is almost (but not quite) unassailable. It is certainly something to consider when a defendant who should have been in the action is missed.
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.