Well, this title is some mouthful and makes the subject sound too obscure to be practical or meaningful; not so. What it means in more understandable terms is that when a servicer must pursue a strict foreclosure (to be discussed in a moment) the servicer can collect the equivalent of rent during the course of the action. That’s good news for servicers.
First, let’s briefly review strict foreclosure. It sometimes happens in mortgage foreclosure cases – particularly in judicial states like New York – that a defendant can be missed or not served. For example, the process server didn’t notice a tenant on the third floor; or a partnership is somehow served as a corporation so service is no good; or when a person was served by a relative at the house, they later argued that there was no such relative and somehow they win. In short, it is more than possible that someone who should have been named and served in a foreclosure action was not.
The net result of that is that when the foreclosure is over, the interest of that unnamed or unserved party is not extinguished. That presents an objection to title. The solution (in short) is what is called a strict foreclosure action which is a somewhat shorter version of a foreclosure whereby the missed party is given the opportunity to pay the full sum which was due on the mortgage (that is redeem) or forever suffer extinguishment of whatever interest it may have had in the property.
As experienced servicers know, anything in a foreclosure in New York can take some time and a strict foreclosure is certainly not immune to delay. So these things can consume typically six months, and more with any problems or opposition.
If the missed party was a tenant, must the servicer endure the duration of the strict foreclosure action with the tenant reposing at the premises rent free? Well, they don’t have to pay rent, but case law supports the proposition that they do have to pay its equivalent – “use and occupation” [NYCTL 1996-1 Commericail REO v. El Pequeno Restaurant Food Corp., 1 Misc.3d 574, 765 N.Y.S.2d 465 (Sup.Ct. KingsCo. 2003)].
It takes a special motion to pursue this, and it does take some explaining to the court to make the point, but knowing this remedy is available is well worthy. Servicers should ask that it be pursued whenever they are involved in a strict foreclosure against a tenant.
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.