Although this is perhaps more a focus for lawyers rather than servicers (don’t stop reading yet), one cannot fully understand the foreclosure process in New York without being aware of the lis pendens and its role in a mortgage foreclosure case. Because of this ultimate relevance we have written on the subject before , and for good reason a case of somewhat recent vintage brings it to our attention yet again. [Bankers Trust Co. of California v. Lifson, 5 A.D.2d 710 , 776 N.Y.S.2d 288 (2d Dept. 2004)]. That this case was reported (at an appeal court level no less) highlights how contentious and sometimes misunderstood critical issues about the lis pendens can be.
First, the briefest of basic introduction; it is good to know. The lis pendens is a document which can be filed with a county clerk when an action affecting title to real estate has been begun. A foreclosure is such an action.
This is a very helpful device in a foreclosure because once filed, it binds anyone who later obtains an interest in the property to the foreclosure as if they were named and served in the action. Here is an illustration to translate this into plain English.
A loan in default is sent to counsel on February 1. A foreclosure search is ordered so servicer’s counsel can determine all the necessary (and junior) parties to the planned foreclosure action: the owners, subsequent mortgage holders, judgment creditors, etc. The search is received on February 4 and the legal papers (the summons, complaint and lis pendens) are filed with the court on February 8, thereby beginning the action.
When the foreclosure proceeds to sale many months in the future, everyone who appeared in that search from February will have been named in the action and served with process which results in their interest in the property being extinguished. The success of that process is how purchasers are induced to buy at a foreclosure sale – to essentially obtain a clear title.
What happens, though, if on February 10 the defaulting borrower/owner sold the property to his cousin? The servicer and its counsel couldn’t know about the cousin – he wasn’t in the search of course. And suppose further that some new lender took a mortgage on the property from that cousin? (That is slightly implausible but he assured it occurs.) Because the cousin and his lender were never served and named in the foreclosure, how can the foreclosure sale give a title free of these interests? The lis pendens supplies the answer. The interests of the cousin and the new lender arose after the lis pendens was filed in the foreclosure. Therefore, the lis pendens “covers” them. They are cutoff just as surely as if they had appeared in the search, had been named and had been served.
It is apparent, therefore, that a lis pendens is vital to a foreclosure. It also appears that the lis pendens should be filed at the inception of the case to guard against all later interests. While it might be a good idea to file that lis pendens early, such is a matter of strategy – not a requirement. But, a lis pendens must be on file for 20 days prior to issuance of a judgment of foreclosure and sale. So, in a New York mortgage foreclosure action the lis pendens is eventually a mandate if a judgment is to be maintained and a foreclosure sale conducted.
Okay, you say. But if a lis pendens is such a good idea in any event, why wouldn’t it be on file sooner or later to assure that a judgment will be granted? It is that very question which leads us to the issue in the recent case.
A lis pendens is only effective for three years, after which it expires. If a foreclosure is delayed for three years the lis pendens is gone. A lengthy forbearance agreement which eventually fails or a heavily litigated case can consume that three years as servicers well recognize.
The simple solution to the lapsed lis pendens is to file a new one; how elemental. In New York though, there can only be one lis pendens in a case – a rule that New York’s highest court emphasized at length recently. [Matter of Sakow, 97 N.Y.2d 436, 741 N.Y.S.2d 175, 767 N.E.2d 666.] If a lis pendens must be on file in a foreclosure, then foreclosure must be an exception to the rule. It is (which saves the day) except that Sakow case created some unfounded confusion.
That disarray fortunately dissipated and the case which spurred this alert restated the rule as longstanding that a new lis pendens may indeed be filed in a mortgage foreclosure action even if previously cancelled or expired.
Oh, that final glitch to underscore how insidious all this can be: the servicer could not demonstrate whether it had either extended its old lis pendens or filed a new one. Faced with this uncertainty, the appeals court sent the case back down to the trial court for further proceedings to determine the question. So the simple lis pendens created untold months of delay for that foreclosing party. (This really is important!).
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.