How Late Can Borrower Claim It Did Not Get 30-Day Notice?

Well, not after judgment of foreclosure and sale.

A common theme of our alerts of late has been the tribulation of lenders and servicers when the trial court errs on an elemental foreclosure issue and the mortgage holder is relegated to slogging through the expensive and time consuming appeal process for vindication.  Candor is in order here.  The reason is ever growing perception that borrowers are put upon by lenders who are perceived as villains.

A companion quarrel we assert is the ability of borrower defendants to litigate cases to a farethewell, only to hold in reserve until the eve of sale some fanciful defenses, choosing at the eleventh hour to pounce yet again and buy more time.

An example of these dual paths is found in a recent case: Signature Bank v. Epstein, 95 A.D.3d 1199, 945 N.Y.S.2d 347 (2d Dept.).

Here is the tale.  On January 7, 2008, lender’s attorneys notified borrowers in writing of their default, giving them 30 days to pay.  Payment was not forthcoming, although plaintiff did not begin the foreclosure action for 6 months thereafter – on July 9, 2008.

On July 30, 2008, the borrowers contested the case by submitting an answer.  It took more than seven months for the court to grant the motion for summary judgment (by then it was March, 2009) and the judgment of foreclosure and sale issued on July 14, 2009.

Why the plaintiff did not proceed promptly to sale is unclear, but it was almost two years later (May, 2011) that the borrowers (still reposing enjoyably at the premises) moved by order to show cause to vacate the judgment on the ground that the plaintiff failed to give the borrowers 30 days’ written notice of their default.  The trial court agreed with the borrowers and vacated the judgment.

The Appellate Division, however, reversed on appeal on very sound principles.  The judgment of foreclosure and sale is final as to all questions between the parties and concludes all matters of defense which were or might have been litigated.  Here, the borrower had a right to claim that the 30-day notice was not sent (although we can’t tell from this case whether there had been some failure in that regard) but they did not assert this in their answer.  Nor did they argue it in their motion for summary judgment.  So the right to make this argument was waived.  The combination of the judgment being final and the waiver clearly meant that vacating the judgment was wrong.

So the law was apparent and the foreclosing plaintiff won in the end.  But did it?  The borrower’s order to show cause was made in May of 2011.  It took a year for this to be straightened out at the appeal level which was yet another year of interest accruing and the expenditure of considerable legal fees, all to assure that well accepted law was honored.  We have used the word Pyrrhic victory before, and are constrained to use it again here.

All this underscores how tough the foreclosure arena in New York has become.

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.