Berkman, Henoch, Peterson & Peddy P.C.
April, 18th 2007
LIS PENDENS IN THE FORECLOSURE CASE
Although this is perhaps more a focus for lawyers rather than servicers
(don’t stop reading yet), one cannot fully understand the foreclosure process in New York
without being aware of the lis pendens and its role in a mortgage foreclosure case. Because
of this ultimate relevance we have written on the subject before , and for good reason a case
of somewhat recent vintage brings it to our attention yet again. [Bankers Trust Co. of
California v. Lifson, 5 A.D.2d 710 , 776 N.Y.S.2d 288 (2d Dept. 2004)]. That this case was
reported (at an appeal court level no less) highlights how contentious and sometimes
misunderstood critical issues about the lis pendens can be.
First, the briefest of basic introduction; it is good to know. The lis pendens is
a document which can be filed with a county clerk when an action affecting title to real
estate has been begun. A foreclosure is such an action.
Lender and Servicer Alert
By Bruce J. Bergman
This is a very helpful device in a foreclosure because once filed, it binds
anyone who later obtains an interest in the property to the foreclosure as if they were
named and served in the action. Here is an illustration to translate this into plain English.
A loan in default is sent to counsel on February 1. A foreclosure search is
ordered so servicer’s counsel can determine all the necessary (and junior) parties to the
planned foreclosure action: the owners, subsequent mortgage holders, judgment creditors,
etc. The search is received on February 4 and the legal papers (the summons, complaint
and lis pendens) are filed with the court on February 8, thereby beginning the action.
When the foreclosure proceeds to sale many months in the future, everyone
who appeared in that search from February will have been named in the action and served
with process which results in their interest in the property being extinguished. The success
of that process is how purchasers are induced to buy at a foreclosure sale – to essentially
obtain a clear title.
What happens, though, if on February 10 the defaulting borrower/owner
sold the property to his cousin? The servicer and its counsel couldn’t know about the
cousin – he wasn’t in the search of course. And suppose further that some new lender took
a mortgage on the property from that cousin? (That is slightly implausible but he assured
it occurs.) Because the cousin and his lender were never served and named in the
foreclosure, how can the foreclosure sale give a title free of these interests? The lis pendens
pendens was filed in the foreclosure. Therefore, the lis pendens “covers” them. They are
cutoff just as surely as if they had appeared in the search, had been named and had been
served.
It is apparent, therefore, that a lis pendens is vital to a foreclosure. It also
appears that the lis pendens should be filed at the inception of the case to guard against all
later interests. While it might be a good idea to file that lis pendens early, such is a matter
of strategy – not a requirement. But, a lis pendens must be on file for 20 days prior to
issuance of a judgment of foreclosure and sale. So, in a New York mortgage foreclosure
action the lis pendens is eventually a mandate if a judgment is to be maintained and a
foreclosure sale conducted.
Okay, you say. But if a lis pendens is such a good idea in any event, why
wouldn’t it be on file sooner or later to assure that a judgment will be granted? It is that
very question which leads us to the issue in the recent case.
A lis pendens is only effective for three years, after which it expires. If a
foreclosure is delayed for three years the lis pendens is gone. A lengthy forbearance
agreement which eventually fails or a heavily litigated case can consume that three years as
servicers well recognize.
The simple solution to the lapsed lis pendens is to file a new one; how
New York’s highest court emphasized at length recently. [Matter of Sakow, 97 N.Y.2d 436,
741 N.Y.S.2d 175, 767 N.E.2d 666.] If a lis pendens must be on file in a foreclosure, then
foreclosure must be an exception to the rule. It is (which saves the day) except that Sakow
case created some unfounded confusion.
That disarray fortunately dissipated and the case which spurred this alert
restated the rule as longstanding that a new lis pendens may indeed be filed in a mortgage
foreclosure action even if previously cancelled or expired.
Oh, that final glitch to underscore how insidious all this can be: the servicer
could not demonstrate whether it had either extended its old lis pendens or filed a new one.
Faced with this uncertainty, the appeals court sent the case back down to the trial court for
further proceedings to determine the question. So the simple lis pendens created untold
months of delay for that foreclosing party. (This really is important!).
Mr. Bergman, author of the three-volume treatise, Bergman on New York Mortgage Foreclosures, Matthew Bender & Co., Inc. (rev. 2007) is a partner with Berkman, Henoch, Peterson & Peddy, 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 and an adviser to the New York Times on foreclosure issues. He is AV rated by Martindale-Hubell, listed in Best Lawyers In America and his biography appears in Who’s Who In American Law.
For further information on this subject, or to add a colleague to the alert list, contact Bruce Bergman at the main phone number listed, directly at (516) 780-0324 or by e-mail at [email protected].
100 Garden City Plaza Garden City, NY 11530 Phone: (516) 222-6200 Fax: (516) 222-6209
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