No Obligation To Take Deed In Lieu Or Short Sale (And Borrower Shotgun Defenses)

Shouldn’t it be obvious?  We think so, but a borrower argued it again in defense of a foreclosure and the court – upon appeal no less – was constrained to make the point and cite legal precedent.  [BAC Home Loans Servicing, LP v. McCombie, 133 A.D.3d 1252, 20 N.Y.S.3d 276 (4th Dept. 2015).]

At the risk of being overly repetitious, we marvel yet  again at the zeal and dedication of too many borrowers in resisting the obligation to pay their mortgages through interposition of baseless defenses and as many defenses as can possibly be conjured up.  This new case is a good example.

First to the main points:  Borrower counterclaimed to compel acceptance of a deed in lieu or a short sale.  The helpful ruling, albeit not surprising, was that a foreclosing plaintiff is under no obligation pursuant to the mortgage to grant a borrower request for a short sale or deed in lieu of foreclosure.

But of course the borrower had more to say, and because the banishment of those additional defenses is a worthy topic, we briefly report.

The borrower went on to claim that the plaintiff lender was negligent in its dealings with the borrower.  The relationship between the parties is a contractual one, plaintiff as mortgagee and defendant as mortgagor.  The plaintiff owed the borrower no legal duty independent of the mortgage – hence no negligence claim would be possible.

Next the borrower asserted a claim against the plaintiff pursuant to TARP.  The court, correctly again, ruled that there is no private right of action against a lender under TARP, so this cause of action too had to be dismissed.

Adding to the mayhem, the borrower brought counterclaims for punitive damages against the lender, arising supposedly from the parties’ respective financial situations following the financial crisis of 2007 – 2008. But the borrower defendant was ruled unable to claim punitive damages because he failed to assert an underlying claim upon which a demand for punitive damages can be grounded.

This case in the end is a good example of the court recognizing the baselessness of a host of borrower defenses.  But as we are always bound to observe, the costs to the lender of defeating these various claims was litigation at the trial court level as well as the time and the cost of the appeal.

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.