Parties To The Foreclosure: Lien On Lien Not A Necessary Party

When a foreclosure is to be initiated, a key decision is made by plaintiff’s counsel: who are to be named as parties defendant.  Strategic issues aside (which is a separate subject) generally, any person or entity having a subordinate interest in the mortgaged property should be named and served.  This affords jurisdiction over those parties and serves to extinguish their interests when the property is sold in foreclosure.  In turn, this accomplishes the goal of a foreclosure to cause the property to be sold in the same legal condition as existed when the loan originated. [For a further discussion of this latter compelling subject see 1 Bergman On New York Mortgage Foreclosures §2.02, LexisNexis Matthew Bender (rev. 2024).]

After this seemingly arcane introduction, what is the real world relevance?  Being sure to name all parties who should be named is most important – to assure that all those subordinate interests are indeed cutoff.  The danger in naming parties who should not be named – who are not necessary – is that they will litigate their inclusion and thereby delay the foreclosure, perhaps considerably.  So, weeding out the unnecessary is the ultimate point.

Suppose, for example, that there is a second mortgage on the property to be foreclosed upon.  Suppose as well that someone sued that mortgagee and got a judgment.  Is the judgment creditor of a junior mortgagee (who is a necessary party) also a necessary party?  Should the senior foreclosing lender be sure to name that judgment creditor?  “No” is the answer to both questions.  [See, for example, Johnson v. Augsbury Organization, Inc., 167 A.D.2d 783, 563 N.Y.S.2d 339 (3d Dept. 1990).]

What underlies the conclusion is the concept that a real estate mortgage is collateral security for the payment of a debt.  But it is personal property – not real property.  Therefore, a lien on a mortgage is merely a lien on a lien and therefore fails to create an interest or estate on the mortgaged property.  [Johnson v. Augsbury Organization, Inc., supra., citing Stickler v. Ryan, 270 A.D. 962, 61 N.Y.S.2d 708, ex. Dismissed, 296 N.Y. 735, 70 N.E.2d 545.]

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.