Eviction After Foreclosure – What About A Tenant With A Lease

Eviction after foreclosure continues to be one of the thorny realms in the foreclosure process, particularly anywhere within the City of New York.  Tenants do not always amenably depart when the foreclosure concludes; rather they stand and fight, a tactic which can add expensive delay. Sometimes a legal glitch can deflect the foreclosure sale purchaser or bamboozle the court.  (And of course, sometimes the foreclosure sale purchaser is the foreclosing lender.)

Neither of those events occurred in a case (from a few years ago) which catches our attention:  Fannie Mae v. Lourdes, N.Y.L.J., Dec. 5, 2001, at 23, col. 3 (Civ. Ct., Housing Part, Kings Co., Sikowitz, J.). Here, a tenant was in possession under a 3 ½ year lease which was to expire about a year and a quarter after the foreclosure sale and thus after title was conveyed to the foreclosure sale purchaser. Because she had a written lease, the tenant argued that the foreclosing lender should have been aware of her presence and therefore the foreclosure sale purchaser was bound by and had to honor the lease.

Was the foreclosure sale purchaser stuck with the tenant?  No, said the court.  The lease was subsequent to the mortgage and was therefore subject to extinguishment in the foreclosure action. Moreover – and this was the key ruling – a lease of more than three years is deemed to be a “conveyance” (like a deed or a mortgage). And, unrecorded conveyances are void against subsequent good faith purchasers who duly record their own interest in the property.

In short, the tenant might indeed have bound the purchaser if her lease was recorded and she wasn’t served, but she didn’t record.  So she received no protection against a later party who did record – the foreclosure sale purchaser. Eviction granted!

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.