Can A Receiver Sell The Mortgaged Property?

Although it might appear that we are setting up a straw man, this concept has indeed been the subject of servicer concern.  To avoid any possible suspense, the answer to the question raised by the title is “no”.

The reason the inquiry is presented arises from the dire progress of foreclosures in New York.  As a judicial foreclosure jurisdiction, foreclosures were generally slow in any event.  In recent years, though, this condition has been severely exacerbated by a number of factors:

• Exceptionally clogged calendars (foreclosure actions are legion of course); and
• The imposition of mandatory settlement conferences in home loan cases which add many months of delay to the process; and
• The passage of new statutes which add notice requirements and any number of other impediments to the process.

The net result of all of this is understandable frustration on the part of lenders and servicers.  Mortgage foreclosure actions traverse a field of landmines to reach a conclusion, now measured in years, many years in some counties, fewer in others, but disconcerting much of the time to mortgage holders.

Receiverships are commonplace – virtually required – in any commercial matter.   (This is a subject we have explored in any number of earlier alerts.)  Receiverships are even sometimes pursued in home loan cases although it is rare because the income would not typically support the appointment.  Because a receiver takes control of property, the thought has sometimes occurred to servicers that should a receiver sell the property entrusted to him, it would certainly shorten the foreclosure process.

That is assuredly a tempting thought and would be a welcome remedy for foreclosing lenders, but the authority just doesn’t exist.  No statute allows it and when specifically addressed by case law, the notion was understandably rejected. [Shammah v. Shammah, 22 Misc.3d 822,868 N.Y.S.2d 874 (Sup. Ct. 2008), citing Security National Bank v. Village Mall at Hillcrest, Inc., 79 Misc.2d 1060, 361 N.Y.S. 977; Brush v. Jay, 113 N.Y. 482, 21 N.E.184 (1889); Small v. Muller, 67 A.D. 143, 73 N.Y.S. 667 (2d Dept. 1901).]

The elemental principle is that title to mortgaged property does not pass to the receiver, but rather remains with the owner.  Therefore, a receiver in a mortgage foreclosure action does not have the power to sell property to which he has no title.  In sum, the idea that a receiver might be able to sell the property in default is an intriguing one, but the law simply will not allow it.

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.