Foreclosure Dismissed For Delay

These alerts usually address foreclosing plaintiff delay issues in terms of possible reduction of interest attributable to the delay period.  But a new case confirms the always lurking possibility that a foreclosure can actually be dismissed if the foreclosing party fails to proceed to a default judgment within a year of the default [Wells Fargo Bank, N.A. v. Bonanno, 146 A.D.3d 844, 45 N.Y.S.3d 173 (2d Dept. 2017)]

It seems reasonable to assume that a foreclosing plaintiff would not volitionally halt a foreclosure for an extended period, especially because interest continues to accrue and threaten the integrity of the debt.  But it does happen – with surprising frequency – and under some circumstances (part of the subject here) can actually lead to dismissal of the case.

First, it should immediately be observed that this does not apply when a borrower has appeared or answered.  Rather, it is a factor only when the borrower has defaulted.

The attendant danger, and often confusion, arises from a section of the New York practice statute (specifically CPLR §3215) which in essence provides that should a plaintiff fail to pursue a default judgment within one year of a default, not only will a judgment not be entered, but the complaint will be dismissed as abandoned (absent sufficient cause shown as to why the complaint should not be dismissed).  Lenders and servicers are prudent to take note of this requirement.

But this section causes particular disarray in foreclosure actions.  In “other” litigation, after service (and when motion practice and discovery will have been completed) judgment is the next step – not so in a foreclosure, however.  There, the intermediate plateau of appointment of a referee to compute intercedes.  If a foreclosing plaintiff must first seek the appointment of a referee, to be followed by the actual computation, reaching application for a judgment within a year will often be impossible.

The solution is that case law recognizes that pursuing the referee stage is the equivalent of a step towards judgment and serves to satisfy the cited statute.  While this seems a straightforward observation, the actuality is that there has been much turmoil, litigation and nuance on the point. The statement alone suffices for this review, but for those needing all the detail and case citation, attention is invited to 2 Bergman on New York Mortgage Foreclosures §20.02[1][a], LexisNexis Matthew Bender (rev. 2017).

In sum, applying for the referee’s appointment within one year of the default avoids any problem.  In the new case mentioned, though, the foreclosing plaintiff inexplicably waited some two years to move for the referee, and had no excuse for the failure to timely proceed; result: case dismissed.

The lesson is simple.  Unless there is truly a good reason impeding the effort, appointment of the referee must be pursued within one year of default or dismissal could ensue.

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.