Deficiencies – Must Watch That Ninety-Day Window

In an odd way incongruously, pursuing deficiency judgments may not so often be the focus of attention for mortgage lenders and servicers.  The havoc visited upon property values circa 2007 to date (and apparently continuing) too frequently means that a foreclosure sale cannot recoup the debt – in essence creating a shortfall, the deficiency.  At the same time, though, the climate is adverse to pursuing foreclosed borrowers for the debt they still owe.

But for those cases where a deficiency does need to be pursued, lenders and servicers should be reminded that (in New York) there is a very strict ninety-day time period during which the post-sale deficiency motion must be made.  This concept has recently been confirmed in New York by case law which defeats a creative response on the part of the pursuing lender. [Cicero v. Aspen Hills II, LLC, 85 A.D.3d 1411, 926 N.Y.S.2d 680 (3d Dept. 2011)].  The clever argument (albeit rejected) is a convincing reminder of the need for attention and thereby elicits this alert.

This sojourn, however, is not designed to be an exploration of the entire subject of deficiencies.  We have reviewed this in a number of previous alerts and the full story can be found at 3 Bergman On New York Mortgage Foreclosures, Chap. 34, LexisNexis Matthew Bender (rev. 2011).  That noted, the most basic concept to recognize is this:  If subtracting from the sum due to the lender the greater of the amount bid or the value of the property on the date of the sale yields a deficiency, it is the amount which can be sought by motion against those liable, i.e., signers of the mortgage note and any guarantors.

The motion to obtain the judgment, though, must be served within ninety days of delivery of the referee’s deed arising from the foreclosure.  When the deed is actually delivered can become a very nuanced analysis, but that too is not the subject of the day.  Rather, it is the strict ninety-day limit.

If that time period is so vital, and if servicers are aware of it, why should it be such a problem?  In particular, the motion needs some version of an appraisal to demonstrate that the property was worth less than the debt.  That can incur time, so servicers need to be sure that is obtained with reasonable dispatch.

Related to that rule is the usual obligation upon the foreclosing plaintiff to pay a transfer tax as a condition of recording the deed, often not an inconsequential sum. (When the lender is the successful bidder there is no one else available to pay this tax.)  For state tax (there could be New York City tax as well if such is the venue of the property) the percentage is paid upon the full amount of the mortgage due or the actual value of the property if it is a lesser amount.  That is welcome relief for the foreclosing lender, but to assess that value, some version of an appraisal (or broker’s price opinion) should be obtained.  That should not be so time consuming, but neither is it typically instantaneous.

That now leads to the case which is our focus.  Because the referee’s deed could not be recorded without attributing a value to the property, the dilatory plaintiff awaiting an appraisal exceeded the ninety days to move for a deficiency.  It then argued in the face of its tardy motion that the sale could not be deemed consummated – and the commencement of the ninety-period could not have begun – until the appraisals were delivered.

Nice try, but it cannot pass muster.  Conveyance of title occurs as a matter of law when a deed is delivered, not when it was recorded.  Because “delivery” of the deed is the event, trying to change the statute with discussions of the need for an appraisal simply won’t work.

So for a deficiency motion, the ninety-day mandate remains inviolate, construed as it has always been.

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.