When finally a long delayed foreclosure arrives at the sale, the foreclosing party wants to proceed to closing as quickly as possible. As lenders and servicers have learned to their dismay, there are a host of scenarios which can delay this process – sometimes for months or years. The focus here is on what happens when the defaulting borrower is the one who impedes the closing (hardly uncommon) but the bidder stays on board, and when the borrower is defeated, wants out of the bid. This was just the situation in a recent case: Bank of New v. Segui, 91 A.D.3d 689, 937 N.Y.S.2d 95 (2d Dept. 2012).
There, the bidder argued in essence that during the delay period, the property declined in value and so became unmarketable (a foreclosure title must be marketable); all the borrower’s (unsuccessful) motions to vacate the foreclosure judgment cast doubt on the title making it unmarketable; he has now overpaid for the property if he closes – in short a laundry list of claimed legal/factual excuses to get out of the bid.
The court denied the bidder’s motion to set aside the sale and for the return of his deposit.
The principles recited by the court – legal rules, but practical and useful when these not uncommon facts are encountered – can be enlightening.
Yes, said the court, a marketable title is one free from reasonable doubt – but not from every doubt. A purchaser should not be compelled to close if that results in being obliged to defend the title from litigation. But, something more than just an assertion of a right must exist to create a marketable or doubtful title. Here that the property decreased in value does not render it unmarketable. Nor do the borrower’s numerous failed motions to vacate the foreclosure judgment constitute reasonable doubt such as to create unmarketability.
That there was a delay in the closing does not afford an equitable basis to set aside the sale. Likewise, overpaying now is not an equitable ground to void the sale.
A part of the court’s rejection of the bidder’s posture, and likely a significant aspect, was the actuality that the bidder acquiesced in the delayed closing. (This is often the case by the way.) He had bid at the sale aware of the borrower’s pending motion to vacate the judgment – and the bidder intervened in the action to oppose that. Even after an appeals court confirmed denial of the borrower’s attack on the judgment, the bidder did not push to close.
In short, it appeared that the bidder was willing to wait, to ride out the storm, so he could get the property. Eventually he changed his mind, but it was too late. He had no arguments.
A PRACTICAL OBSERVATION
When after the foreclosure auction the matter continues to be delayed by the borrower, if it appears to be time consuming, the bidder may want the deposit back. Mindful that the bidder expected to close in thirty days, it is understandable why he might want to walk away. If the lender or servicer prefers to avoid litigating with the bidder, it may be better to let him go, to conduct another sale when the borrower’s claim is disposed of. (If handling the litigation is acceptable, this case suggests that under the cited circumstances, the lender may have a good case.)
If the bidder does not protest, but rather remains in place, he often will not be able to cancel the sale much later – as the reviewed case explains.
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.