What obscurity of practice is this and why is it of interest to lenders and servicers?
Mortgage holders can readily confirm that the eve of sale or post-sale order to show cause is a proliferating bane of their existences. Borrowers regularly claim to be wronged. They were never served in the foreclosure action; the foreclosure case is baseless; the foreclosing plaintiff missed a notice or did not dot every procedural “i”. And they want a stay of the action or vacatur of the sale because of these assertions. (Of course such an order to show cause can be sought earlier in the action but borrowers seem prone to reserve this thrust until the eleventh hour.)
An order to show cause is a version of a motion which the proponent takes to court for a judge to sign asking some other party (in our scenario the foreclosing plaintiff) to come to court on a day the court selects in that order to show cause why some relief should not be granted – such as to vacate a judgment or vacate a sale. A typical part of such an order to show cause is a paragraph which stays prosecution of the foreclosure pending either the hearing of the motion – that is until the return date selected by the court – or its hearing and determination. The order then goes on to recite the mode of service of the order to show cause after signed by the court as the court has directed. This could be in any number of ways, for example, by overnight mail, or by certified mail, or by personal service, among others or different combinations of these.
Foreclosing plaintiffs, or perhaps more accurately, their counsel, who are then served with these orders to show cause (in unfortunate profusion) can testify that the orders are sometimes served late or are sent in a manner at variance with what the court has dictated. This is of course protested, but as a practical matter courts may tend to ignore such defalcations.
But a new case – and it is very welcome indeed – ruled at the appellate level that a stay imposed upon a foreclosure sale was a nullity – even though served before the sale on the referee’s office – because the defendants had neglected to comply strictly with the methods of service provided for in the order to show cause. Moreover, the defendants had failed to present proof of their service on the return date of the motion, that is on the day the order to show cause was to be heard in court. [Lenders Capital LLC v. Ranu Realty Corp., 99 A.D.3d 566, 952 N.Y.S.2d 187 (1st Dept. 2012)].
This is the first case of its type, certainly at the appellate division level, where a court specifically rejected the efficacy of an order to show cause for failure to serve it in the manner directed by the court in the order to show cause. Perhaps this is a new wave of appropriate strictness which will constrain offenders to follow the rules or lose the effect of an order to show cause. At the very least, it provides the object of the order to show cause (typically foreclosing plaintiffs) to cite authority for the proposition that adherence to service requirements is mandatory and failure to comply is fatal.
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.