How Does A Servicer Ever Lose A Foreclosure?

The title is not a trick question.  It presupposes that in the foreclosure case, the mortgage holder is almost invariably in the right.  The foreclosure was begun because the borrower defaulted in remitting periodic payments/or in some instances failed to pay upon maturity of the loan.  Default could be based upon other defalcations, for example lying upon the application, or if no escrow is taken, neglect to pay taxes or insurance, but most often it is missed payment.

Putting aside problems with assignments, required notices or major computation gaffe (all of which can happen), overwhelmingly, there is no genuine issue; the borrower is in default.  Undaunted through, the borrower contests the case with an answer, perhaps hoping to buy time to find some rescue or deciding that living free of expense for an extended time has value.

The response to this stance in a judicial state like New York is to move for summary judgment – a motion seeking a court order to strike the borrower’s answer.  The basis of the lender’s motion is that the borrower’s answer (or any other defendant’s answer) is wholly without merit and that there are no factual issues for the court to decide.  When the answer is disposed of, the foreclosure can then proceed unimpeded (except by the now ubiquitous court delays).

If most often the borrower’s defense (whatever is being claimed) is indeed groundless, should not the mortgage holder’s motion for summary judgment be granted?  Yes, of course, and a new case confirms the elemental, universal, bedrock principles in support of that notion. [Washington Mutual Bank v. O’Connor, _A.D.3d_, 880 N.Y.S.2d 696 (2d Dept. 2009)]

Here is the legal point.  What a foreclosing party needs to do upon the motion for summary judgment is establish a “prima facie case”.  This is done with relative ease by presenting the mortgage, the unpaid note and evidence of default.  With that before the court, the borrower (or any other party which answered) must then “produce evidentiary proof in admissible form sufficient to require a trial” for the asserted defenses.

This is a vital rule.  It is not enough for a borrower to just tell a tale, to say “the lender told me this” or “the lender did that” or “I didn’t get the proceeds” or a host of other claims.  (Servicers can fill in the blanks.  They have heard it all before).  More is required.  That “more” is genuine evidence – of the admissible variety (not hearsay for example).  Because typically borrowers have no such evidence, because their assertions are wrong or non-existent, summary judgment should be granted.  In the new case mentioned, the judge somehow found an issue and on that basis denied summary judgment to the lender.  It was only on appeal that prevailing principles were correctly applied:  the mortgage holder did make out a prima facie case and the borrower had no evidence.

While the lender won in the end, the dismaying reality is that courts sometimes – we opine more often than it should occur – are seduced by borrowers’ appeals for sympathy and wild claims against lenders and servicers who may not be viewed as the good guys.  When that happens, unsupported claims not entitled to credence are erroneously seen as raising issues of fact, thereby affording a basis to deny summary judgment.  It shouldn’t happen, but it does, and that is how the servicer can lose.

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.