Foreclosure Judgment Is Final – Again

That a judgment of foreclosure and sale is solidly final is one of the few protections left for the foreclosing party as the New York legislature continues to legislate help to borrowers.  It must be noted immediately that a defense of standing can resist the finality of the judgment.  That aside, the general rule remains, as pointedly restated in a recent case [Jones v. Flushing Bank, 212 A.D.3d 791, 183 N.Y.S.3d 458 (2d Dept. 2023)].

Lenders will recognize the almost other worldly persistence of some borrowers to delay and impede the foreclosure process; this case is a good example of that.  After the mortgage was given, the borrower sold the property to an entity, promptly defaulted and resisted the foreclosure by interposing an answer claiming, among other things, that although this was – it is asserted – a residential loan, the lender characterized it as a commercial loan.  Upon summary judgment the borrower cross moved, lost, took an appeal, ultimately filled a bankruptcy which confirmed the foreclosure sale and took an appeal of that as well. 

But all that is a sideshow.  The topper to the obfuscation was the bringing of a post foreclosure sale lawsuit by the borrower against the lender to recover damages for negligence, fraud, breach of contract and violation of General Business Law § 349.  Can a borrower do that?  Well, they can do it, but they will not succeed, as this case underscores.

The controlling principles were discussed both in terms of res judicata and finality of judgment.  Under the doctrine of res judicata, once a claim is brought to a final conclusion, all other claims arising out of the same transaction are barred even if they are based upon different theories and even if seeking a different remedy.  Thus, res judicata bars a party from re-litigating any claim which could have been or should have been litigated in a prior proceeding – precisely the situation here.

Moreover, and to the very particular point of the foreclosure judgment, a judgment of foreclosure and sale entered against a defendant is final as to all questions at issue between the parties and concludes all matters of defense which were or might have been raised in that foreclosure action.  Because the judgment of foreclosure and sale encompassed all issues that were raised or could have been raised in that action, including whether the lender improperly failed to disclose that the mortgage loan was placed in a commercial loan rather than a residential loan, the borrower is precluded from asserting the causes of action raised in the post foreclosure suit which are predicated on those same earlier issues.

In short, the borrower’s new action can be dismissed, and in this case it was.  There really is finality to the judgment of foreclosure and sale.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), 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.