The title of this alert (which seems like an obvious statement) could have been “Election of Remedies Trips Up Servicer”, which would certainly have been accurate, but a bit technical. The actual title tells the story more clearly. Of course, it also sounds like a lesson which needs no explanation – but then, it really did happen and a servicer was slammed with much wasted time and expense. [Aurora Loan Services v. Spearman, 68 A.D. 3d 796, 890 N.Y.S.2d 124 (2ds Dept. 2009)]
The general rule controlled this case, which is the statutory provision [RPAPL §1301(3)] that when a foreclosure is pending, no other action can be begun to recover any part of the mortgage debt without leave of the court. This is sensible and understandable, more typically involving the interplay between a foreclosure and a suit on the note, a subject perhaps for another day.
What happened in this case, though, is a commentary upon the need for care when mortgages are sold or when mergers may cloud the status of existing actions – all of which is the real underlying problem.
Here, lender A began a foreclosure action in 2000. How far that foreclosure progressed was unstated in the decision (although we suspect it was quiescent). Whatever the circumstance, the mortgage was assigned to Lender B in 2003 and Lender B started its own foreclosure that year. Presumably, Lender B did not know Lender A had instituted a foreclosure back in 2000. If Lender B did know about the earlier action, they certainly erred in beginning their own action instead of just continuing the earlier suit. If B did not know of the previous action, one can question the due diligence in reviewing the file for the mortgage taken by assignment.
Whatever B’s miscue, the property owner was smart enough to move to dismiss B’s 2003 action on the ground that a prior action was already pending. Instead of just discontinuing its new case and adopting pursuit of the action from 2000, B opted to do battle, moved for summary judgment and for the appointment of a referee.
The court would have none of it. The property owner’s motion was granted, B’s motion was denied and B’s 2003 action was dismissed – because there was a foreclosure already pending and no special leave of the court was granted.
It so happens that this is not the circumstance where such leave would have been available anyway. B’s error was either in not knowing what it bought (not just a mortgage, but a mortgage in foreclosure) or if it did know, not recognizing the controlling principle. It is a rule worthy of noting.
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.