Lender Leeway With Lis Pendens

While this brief exploration may be more for lenders’ attorneys than lenders themselves, the point here is meaningful (see Sjorgren v. Land Associates LLC, 223 A.D.3d 963 (3d Dept. 2024). The recent case confirms some appropriate but not necessarily surprising leeway to foreclosing mortgage holders. 

First, recall the significance of the lis pendens in the mortgage foreclosure case.  This is a document which can be filed in any action where the right, title, use or enjoyment of real property is at issue – hence its application to the mortgage foreclosure situation. It serves to bind any subsequent encumbrancers to the action as if they have been made a party.  This is vital when contemplating that the foreclosure search tells the plaintiff who is to be named as a party so all junior and subsequent interests can be extinguished.  If, however, the owner were to obtain a junior mortgage, or convey the property to his brother, his cousin or some other compliant person or entity, or suffer judgments, all those interest holders would not have been named or served in the foreclosure action. 

At first glance, it might appear that the only way to deal with them and make the foreclosure action “work” would be to do constant searches, locate these people, name them, serve them and dispose of them. Obviously this would render foreclosures impossible – except that the lis pendens means the foreclosing party need not worry about these later interests.  They are, as noted, bound by the action as if they had indeed been named and served.

It is apparent too that the filing of the lis pendens, being constructive notice to the world that the property is in some jeopardy, might affect the owner’s ability to sell the property – at least it would likely diminish the value because any purchaser would realize the distress that the owner was having.  What happens then (as in the noted case) if the borrower defends the foreclosure on the ground that the lis pendens had diminished the value of the property and reduced the proceeds to be obtained upon a sale?  Could this defense have validity?  The answer is “no”. 

While it may be indeed incidental to the filing of a lis pendens that there would be an effect on the value of the property, the foreclosing party is still entitled to the protection of that lis pendens.  Thus, there is no danger here to the foreclosing lender.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2024), is a partner with Berkman, Henoch, Peterson & Peddy, P.C. in Garden City, New York. He is also a member of the The American College of Real Estate Lawyers, a fellow of 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.