When The Referee Gives You A Hard Time (Or What Does The Referee Get Paid To Sell?)

This issue is a genuine, practical problem for foreclosing lenders and servicers – and expensive in the aggregate of many cases.

The controlling statute [CPLR 8003(b)] provides that a referee to sell receives $500 as a fee.  (The typical judgment of foreclosure and sale confirms that.)  All this is easy enough, but what happens when:

• An order to show cause, a bankruptcy filing or the parties’ efforts to settle the case postpone the sale on the courthouse steps at the last minute and the referee demands an additional $500 to schedule a new sale; or
• The same event occurs prior to the date of sale; or
• The sale is conducted but the referee demands an additional fee as a condition of attending a closing.

These incidents occur every day and are usually handled informally.  Pressed mortgage holders, needing both to proceed to sale (or closing) as soon as possible, and seeking to avoid legal fees which may exceed what the referee is asking for, most often just pay the referee what is demanded; it is those excess fees which add up across a portfolio of loans.  A new case, however, tells us that it shouldn’t work this way [U.S. Mortgage v. Almeida, N.Y.L.J., May 25, 2005, at 19, col. 1 (Sup. Ct., Bronx Co., Victor, J.)]

The new decision rules that local custom to pay referees for cancelled sales (even if otherwise deserved) is not the law.  While plaintiffs and referees can agree to pay the referee additional compensation (which the referee must report via forms filed with the court system) if they decline, the referee must proceed nevertheless and seek additional compensation from the court only after the sale is completed.

The latter point is both the practical and legal key to this thoughtful and helpful decision.  Whether apparently deserving or not, referees cannot refuse to honor their obligations absent payment in advance in some increased amount.  So the referee cannot say to the foreclosing party, “pay me or I won’t cooperate”.

This case should then serve as potent ammunition to servicer’s counsel who’s riposte to the demanding referee is “do your job and then apply to the court.”

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.