When The Defaulting Borrower Sues The Lender After The Foreclosure Redux

This is one of the most astonishing examples of gall on the part of a defaulting borrower.  [See Tromba v. Eastern Federal Savings Bank, FSB, 148 A.D.3d 753, 48 N.Y.S.3d 501 (2d Dept. 2017)].

The story here happens to highlight an important principle relating to the judgment of foreclosure and sale:  that judgment is final as to all questions at issue between the parties and concludes all matters of defense which were or might have been litigated in the case.  That means that if a borrower defendant defaults in the action – that is, it does not submit an answer – after the judgment he cannot be heard to assail the case with arguments he might have made if he did interpose an answer.

 Meaningfully, this applies as well after the foreclosure case is concluded.  The borrower cannot sue the lender for matters that were addressed or could have been addressed in the foreclosure.  That is what the borrower tried in the case under consideration but under even more remarkable circumstances.

The borrower defaulted on her mortgage, a foreclosure was begun, she defaulted in the foreclosure action and the property was sold.  She thereupon initiated an Article 15 quiet title action against her former lender.  While the court in its decision did not delineate the precise relief demanded by the borrower, the nature of a quiet title action is seeking a declaration that one’s title is free of any other claims.  So we can surmise that the borrower was claiming that she owned the property free of the title the lender derived from the foreclosure sale.

When the lender – now owner – proceeded to evict the borrower – now former owner – the borrower sought a stay of the eviction on the ground that she was pursuing her quiet title action.

Not only would the court have none of that (it denied the stay) but on its own it dismissed the quiet title action.  And the reason was the critical finality of the foreclosure judgment.  Whatever arguments the borrower might have made in the completed foreclosure, which she was no doubt seeking to assert in the newly minted quiet title action, were barred by res judicata.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2018), 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.