Immediate Danger Of Owning A Foreclosed Property – When Does It Happen?


1 January, 2019


Mortgage Lender and Servicer Alerts

Whether it is a foreclosing bank or a third party that bids at a foreclosure sale, there comes a time when the bidder becomes the owner and then is liable for negligence claims at the premises:  for example, someone falling on the front steps or the stairs within or injuries which may result from a fire or electrical problem, among a host of other untoward events.  This, of course, is standard for any property owner who may have tenants or even who may suffer squatters at the premises.  So owners are in a position to obtain insurance and plan such events, unpleasant though they may be. 

If, however, the imposition of liability is wholly unexpected, then there is room for much remorse, highlighted by a recent case on this point. [Wisdom v. Reoco, LLC, 162 A.D.3d 1380, 79 N.Y.S.3d 717 (3d Dept. 2018)].

For perspective, the first point to recognize is that although a bidder at a sale becomes the equitable owner of the property the moment it is struck down at the auction, that bidder does not have either legal ownership, or requisite care custody and control to impose tort liability.  The bidder at a foreclosure sale is not so infrequently sued for damages arising from negligence claims at the property, but they are not liable for the very reason that until the deed is delivered, they are neither the owner nor do they have dominion over the property – at least they typically do not have the latter until they are the owners.

Once the bidder becomes the legal owner, that is when the deed is conveyed to it, then the usual situation prevails and there can be liability if some condition of the property was not taken care of by that owner.  When does a bidder become the legal owner?  The answer is when the deed is delivered, as mentioned.  But when does that happen?  

 The new case exposes a problem. There, the court recited the standard mentioned maxim, that a title to real property transfers upon the execution and delivery of the deed.  That is certainly lucid enough.  The court also observed that while there is a strong presumption that a deed purporting to transfer ownership in real property has been delivered and accepted as of its date, this presumption may be overcome by evidence of the party’s actual intent.  That, however, was the problem in this case.  The referee’s deed was dated March 28, which happened to be one day before the party who sued in negligence was injured through an accident at the premises.  This indicated that the bidder had indeed succeeded to title and could have been liable for negligence.

Given the strong legal presumption that a deed is delivered and accepted as of the date it is signed, a problem for the bidder appeared.  The bidder’s response was through an affidavit of an attorney representing the bidder’s predecessor in interest in the acquisition stating that the transfer documents executed by the referee where not received by his firm until April 11.  They provided a copy of the letter sent that same day forwarding that documentation to be countersigned.

This however was deemed insufficient by the court.  The problem was that it didn’t really show that the deed itself had not been delivered earlier, nor what the true intent of the parties was regarding the delivery and acceptance of the deed.  Concededly these facts were rather messy – but that is just the point.  Without assiduous attention to detail, the question of the actual delivery of the deed can become fuzzy and, should there be an accident at the premises, it could impose liability upon the bidder.

Always being aware of insurance coverage, if available, is certainly critical, but this also exposes the need for great attention to assuring that ownership occurs when the bidder is ready for that responsibility.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.