Loss mitigation efforts typically heat up as the foreclosure sale approaches when borrowers finally face the actuality that the end is near. Frantic efforts at the eleventh hour elicit the servicer’s efforts to find a solution. At the same time, too often the sale may be conducted even though some agreement was just made or some check had arrived.
When this occurs, servicers will ask if the foreclosure sale can be voided or in some fashion undone. But, where a third party has purchased at the sale, the answer is likely no. Even if the servicer took back the property, a court order will be required and even then, nothing is certain.
Mindful of all this, in a recent case the servicer tried a new approach to save the borrower even in the event the foreclosure sale went ahead. [Deutsche Bank Co. of Cal. v. DePalo, 38 A.D.3d 490, 834 N.Y.S.2d 528 (2d Dept. 2007)]. To explain, we offer first that the legal principles; then the servicer’s new plan; then the court decision. (The servicer and the borrower lost.)
A borrower has an absolute right to redeem (that is, to satisfy the mortgage in full) until the moment the hammer falls at the auction sale. Once that occurs, it is simply too late to pay. All this is so as a matter of case law and because of the standard language of every judgment of foreclosure and sale.
Knowing that a borrower is beyond helping once the foreclosure sale is held (certainly if a third party is the successful bidder) the lender in the new case added a provision to the terms of sale that the lender-plaintiff could extend the time for the borrower to pay off the mortgage. This is certainly a friendly way to be gracious to the borrower.
But it doesn’t work, as the court ruled. Terms of sale cannot be at variance with the judgment of foreclosure and sale. Thus, a foreclosing plaintiff cannot override a court judgment by preparing terms of sale giving the borrower a right to satisfy a mortgage after the foreclosure sale.
The lesson then is simple, or perhaps, not so simple. Lack of time combined with borrower problems create uncertainties in settling the foreclosure case on the eve of sale. If the sale is held by mistake, or if the borrower finds rescue after the sale, it is only rarely that anything can be done. So, if the lender believes settlement is worth it and might be accomplished, postpone the sale. Relying upon a post-sale resolution is perilous.
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.