Motion To Set Aside Foreclosure Sale, Some Principles: Borrower Loses

Experience confirms to mortgage practitioners that motions to set aside foreclosure sales are epidemic – certainly of late, perhaps as part of the general assault by litigious borrowers upon the foreclosure process.  A recent case presents an opportunity to present the underlying principles and while such minutia may not seem to be of immediate interest, understanding these things can be helpful for the very reason that they are so commonplace.  [Chiao v. Poon, 128 A.D.3d 879, 11 N.Y.S.3d 87 (2d Dept. 2015).]

In probably most attempts to vacate a foreclosure sale, borrowers belatedly surface claiming lack of service or admitting service but claiming an excuse for not answering.  The latter posture then requires not only a good excuse, but a meritorious defense as well.  A common alternate scenario is an assault by the borrower on the process of the sale itself – which is what happened in the new mentioned case.

Here, the court confirmed that it has the equitable power to set aside a foreclosure sale, although that requires evidence of fraud, collusion, mistake or misconduct.  In this case, none of those elements were found, although editorially we could add that it might not take much for courts to agree with the borrower when one of those things occurred.

In any event, without a showing of one of those elements, that left a possible issue as to the price bid at the sale.  But, the mere inadequacy of the price bid at the sale is not sufficient to set it aside, unless that price is so inadequate as to shock the conscience of the court.

In this action, and having failed to show any fraud, collusion, mistake or misconduct, the borrower was indeed relegated solely to an attack on the sum bid at the foreclosure sale.  Considering the indebtedness due to the foreclosing plaintiff, and the existence of two superior mortgages on the property which the plaintiff as the bidder at the sale would be bound to satisfy, the sale price was deemed not so inadequate as to shock the court’s conscience.

Therefore, the foreclosing plaintiff resisted the motion and the sale was confirmed as valid.  That is certainly gratifying to any foreclosing plaintiff, although it cannot be said that danger fails to lurk when borrowers make such assertions.  At least this is one arena, though, where the bar is high enough that it is difficult to successfully assail a foreclosure sale on the various grounds noted.

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.