The collection of the legal fee component of a mortgage foreclosure action can often be a meaningful pursuit. This will be especially so in substantial commercial foreclosure actions, perhaps less compelling in residential cases, although the importance can be elevated if such matters are heavily litigated. The award of legal fees is made in the judgment of foreclosure and sale and is typically granted based upon the papers – except in New York County.
But New York County is, of course, Manhattan, and that will be the situs of some of the most substantial commercial cases, concurrently the most significant incurrence of legal fees.
As an initial observation, legal fees are available to a plaintiff – in any action, foreclosure or otherwise – only where statute or the contract of the parties requires such an obligation. As lenders and servicers will recognize, mortgages typically have such a legal fee provision. But the quantum of fees to be assessed is governed by the standard of “reasonableness” and there is a demonstration of any number of factors which the party pursuing the fees must offer. These include:
While not all of these need be presented, many or most of them will be required, although submission of all the bills for legal fees together with a delineation of counsel’s ability, background and regular fees will be the essence of the material needed. Again, this can be expressed in an affidavit with exhibits and is overwhelmingly what the court will use to grant the award – except in Manhattan. There, the determination of legal fees is at least sometimes set down for a hearing.
The dilemma then presented to the foreclosing plaintiff is the time to be consumed in scheduling such a hearing and awaiting a decision. Usually, there is a very strong compulsion once a foreclosure judgment is entered to proceed to a sale. After all, interest is accruing and the larger the debt, or the greater the rate of interest, the greater is that accrual. In turn, the debt will eventually eliminate any surplus, create a deficiency and portend loss to the plaintiff. It depends how the numbers come out, but he utility of garnering a legal fee award may be outweighed by the cost of time incurred in the pursuit.
So a plaintiff has to make a decision as to whether or not it will await such a hearing. But as a new case instructs, should the plaintiff neglect to assert its claim to legal fees at that hearing, instead waiting until after the referee has filed his report of sale and deposited surplus monies (assuming those exist) with the court, the surplus money proceeding is not the forum to obtain the legal fees incurred in the underlying foreclosure action. [Bayview Loan Servicing, LLC v. Sylvester, 185 A.D.3d 514, 129 N.Y.S.3d 44 (1st Dept. 2020)].
Legal fees are not available in the prosecution of the surplus money proceeding in any event [see 4 Bergman On New York Mortgage Foreclosures §35.02, LexisNexis Matthew Bender (rev. 2021)]. The recent case confirms as well that the legal fees which would otherwise had been compensable in the prosecution of the mortgage foreclosure action itself, if not awarded in the judgment of foreclosure and sale or a subsequent hearing, cannot be sought in the surplus money proceeding.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2021), 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.