Mortgage Declared Void – Reversed On Appeal

One of the themes of these alerts is to highlight correct law applying to the foreclosure process and where applicable – as too often we find that it is – expose the unfortunate reality that lenders and servicers must fight mightily for their rights and frequently must pursue the time consuming and expensive appeals process to be vindicated.  A shocking new case tells us yet again that this is true; not a surprise, but still stunning. [IndyMac Federal Bank, FSB v. Batista, 101 A.D.3d 952, 956 N.Y.S.2d 181 (2d Dept. 2012)]

Before examining the latest offense, we observe our view of three categories of such events in New York.

• An error at the trial court level is made. While reversal on appeal may be likely (nothing is a sure thing of course) the servicer elects to settle or compromise – or take the punishment the court has meted out – rather than slog through a lengthy appeal and suffer that cost and detainment; or
• The mistake is appealed, the ruling is reversed and the foreclosure proceeds properly; or
• A totally bizarre decision issues – servicers will recall for example the case where for want of negotiating in good faith a court declared a mortgage void and dismissed the foreclosure. This was reversed on appeal with the finding that the court below had exceeded its authority.  A number of these unimaginable type decisions have been overruled on a like finding.  The current decision which is our focus here is akin to that.

In the new case, a mortgage foreclosure, a court – on its own – declared a mortgage null and void and barred the plaintiff from pursuing a deficiency judgment.  Inexplicably, the only basis for the court’s declaration voiding the mortgage was a colloquy between the judge and the borrower.  During that conversation, however, the foreclosing plaintiff was not given the chance to either present any evidence or cross-examine the borrower.  That, of course, is called denial of due process (citing Logan v. Zimmerman Brush Co., 455 U.S. 422, 429, 102 S. Ct. 1148, 71 L.Ed.2d 265). On that basis the order was reversed.

As we are wont to observe in these excursions, yes, the lender won.  It was returned to the usual cauldron of a foreclosure to renew the struggle to some conclusion – but at the cost of all that time and expense — which never should have happened.

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.