Bid Mistake At Foreclosure Sale – No Excuse For Lender

As a general proposition, courts are unsympathetic to foreclosing plaintiffs when they make a mistake at a foreclosure sale.  A new case, unfortunately, makes this point very well and also offers a sage warning to plaintiffs that they are best advised to be represented at their foreclosure sales and not allow referees to bid for them. [Chase Manhattan Mortgage Corp. v. Julian, 12 Misc. 3d 1152(A), 819 N.Y.S.2d 209, 2006 (2006)].

The foreclosing plaintiff (“Lender”) decided to have the court appointed referee bid for it at the foreclosure sale (and wisely arranged to have a provision in the judgment allowing the referee to accept a written bid from the Lender).  Accordingly, the Lender sent a letter to the referee inviting him to put in an opening bid for $500 on behalf of the Lender and continue bidding up to $70,000.  Enclosed with that letter were the terms of sale and instruction sheet which said, “Start bidding at: $500, stop bidding at $170,000″.

You can guess what happened.  The referee missed the “$170,000″ but adhered to the “$70,000″ in the letter.  At the sale the referee bid that $70,000 and a third-party bid $70,001.

When shortly thereafter the Lender unraveled the confusion, the referee changed the sale to make it to the Lender for $170,000.  The third-party then attacked this sale to the Lender asking that his sale (at $70,001) be validated – and that is precisely what the court did.

The holding was that the unilateral mistake of the Lender in submitting a letter incorrectly stating its written bid amount was an insufficient basis for the referee to reopen the bidding.  Thus, the first sale was held valid and the changing of the transaction to allow the sale to the Lender was ruled invalid.  In sum, the Lender made a mistake but that was no excuse.

Not incidentally, the court also ruled that while the referee could have put in a single bid on behalf of the Lender (at least because the judgment allowed that), the referee was not allowed to put in a series of bids and thereby not appear to be impartial.  It is, therefore, not recommended that a referee serve as a foreclosing plaintiff’s agent if there is any discretion to be exercised in bidding in the foreclosing plaintiff’s behalf.

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.