NYCHPD v. Deutche Bank National Trust Co., Richmond County Civil Court HP Index # 115/2013
Judge Philip Straniere has ruled that a lender that obtained a judgment of foreclosure and sale, but had not proceeded to auction, is responsible for the costs of repairs ordered by HPD.
Mysteriously, seemingly knowledgable legislators passed statutes permitting government agencies to finance mortgage loans in amounts for more than the property is worth, to people who could not afford to pay, without the need to document such things as income, and then to allow the chopping up the loans into little pieces to sell to new investors, so that if a borrower defaulted in repayment of the loan, the lender would not have the ability to prove it actually owned the debt. . . .
Real Property Actions and Proceedings Law § 1307, provides that a lender, upon obtaining a judgment of foreclosure and sale, has a duty to maintain residential premises even before the actual sale occurs, if the owner/borrower has abandoned the property. In this case, the court held that HPD was entitled to conclude that the owner/borrower had abandoned the property pursuant to Real Property Actions and Proceedings Law § 1971.
Because it was evident that the lender would not effectuate any of the HPD-ordered repairs, the court found that HPD was entitled to a lien on the property for the costs of the repairs that HPD performed. Such a lien would be superior to the lender’s mortgage debt. Thus, if the property ever was sold at a foreclosure sale, the proceeds would first be used to pay HPD’s repair costs.
The court did not address what would happened if the lender was the successful credit bidder at the auction, but, presumably, the lender would either need to pay HPD’s lien or it would obtain the property subject to HPD’s lien, which, of course, would affect the property’s marketability.
The lesson of NYCHPD v. Deutche Bank is that as long as a lender is going to the trouble of obtaining a judgment of foreclosure and sale, it should follow through and commence the auction and sell the property as promptly as the statutes allow. (Prior to the sale the referee appointed to sell the property must publish notice of the sale in a newspaper for at least three consecutive weeks.) Lenders are foolish to undertake all the effort required to get a judgment of foreclosure and sale only to abandon there efforts right before the foreclosure sale.
In NYCHPD v. Deutche Bank, the owner/borrower had defaulted in the mortgage foreclosure action. Apparently more than five years after the action was commenced, the owner/borrower sought and obtained a stay of the action claiming he was not served with process – a favorite defense of defaulting borrowers everywhere. This, of course, highlights the value of obtaining the best proof of service possible when bringing a mortgage foreclosure action.
The court’s opinion provides no explanation as to why it took five years for the lender to prosecute an unopposed mortgage foreclosure action. (Foreclosing, even when unopposed, is time consuming, but five years is inordinately long.) However, there are indications in the court’s opinion that the lender made several mistakes in the details of its foreclosure prosecution. Included among these mistakes was failing to correctly name the owner of the loan in the caption of the foreclosure action.
The court’s opinion makes its frustration evident and the court uses portions of its opinion as a platform to criticize just about everyone associated with the 2008 mortgage foreclosure crisis. In one particularly sarcastic paragraph the court wrote:
Apparently, Maleficient, the evil fairy from “Sleeping Beauty” having realized Briar Rose had beaten her curse, and having been unsuccessful in screwing up the world’s computers when 2000 began, decided to cast a spell over the mortgage industry in the United States. Mysteriously, seemingly knowledgable legislators passed statutes permitting government agencies to finance mortgage loans in amounts for more than the property is worth, to people who could not afford to pay, without the need to document such things as income, and then to allow the chopping up the loans into little pieces to sell to new investors, so that if a borrower defaulted in repayment of the loan, the lender would not have the ability to prove it actually owned the debt, let alone plead its name correctly. The spell cast was so widespread that courts find almost everyone involved in mortgage foreclosure litigation raising the “Sgt. Schultz Defense” of “I know nothing.”
Harsh words. They are worth keeping in mind when preparing foreclosure papers. They are worth keeping in mind as policy makers continue to consider how to regulate the mortgage industry.