Case Study

Adam Leitman Bailey, P.C. Secures Order Staying the Settlement of Judgment Discharging Lender’s Mortgage

The New York Legislature’s intent in passing foreclosure-related laws are generally in order to protect homeowners.  However, a sophisticated investor can manipulate these laws to game the system all to the detriment of lenders.  ALBPC was recently retained by a lender who faced such a situation.

The lender had given a mortgage that was over a half-million dollars to a borrower in August of 2008.  By October of that same year, the borrower stopped making payments on the loan.  By February of 2009, the borrower had already transferred the property to an investor who acquired the property using one of his aliases for the nominal sum of $17,000.

A foreclosure action was commenced, and despite already transferring the property, the borrower actively opposed the action.  In addition to the foreclosure action, the investor and current owner of the property, commenced a quiet title action against Lender using the same law firm that represented the borrower in the foreclosure action.  It was evident that the borrower, the investor, and their shared counsel were working in tandem.

Taking advantage of the legal system, investors began playing off the actions against each other.  Despite being fully aware of the 2013 foreclosure action, the investor failed to inform the court of the 2013 foreclosure action in the quiet title action.  Additionally, in what appears to have been the result of an intentional faulty service on the lender, the investor was able to obtain a default judgment in the quiet title action against the lender.  Then the investor used this default judgment in the quiet title action to argue in the foreclosure action that the mortgage was discharged.  The court in the foreclosure action accepted this argument and held that the mortgage was extinguished in the quiet title action.  However, that default judgment in the quiet title action was ultimately vacated.

In response to these decisions, the lender filed a notice of appeal on the decision in the foreclosure action, an investor filed a notice of appeal in the quiet title action on the decision vacating the default.

In the quiet title action, after the default judgment was vacated, along with appealing the decision, the investor moved for summary judgment.  The court in what appeared to be a decision based solely on the procedural history of these actions and that the 2013 foreclosure action was dismissed (irrespective of the fact that the decision in which that was based was vacated) granted summary judgment in favor of investor discharging the mortgage.  The court directed the investor to settle an order on notice.

ALBPC was retained to step in for the Lender.  ALBPC quickly perfected the appeal in the foreclosure action pointing out how the investor manipulated the separate actions, and how he used a fake name to evade service.  Additionally, ALBPC filed opposition papers to the investor’s appeal in the quiet title action.

However, the summary judgment decision in the quiet title action presented a huge problem for the lender.  If the investor was able to settle the order and have a judgment entered, he would be able to transfer the property rendering the appeal in the foreclosure action moot.

Despite COVID-19 and parties being unable to appear at the courthouse, ALBPC brought an emergency order to show cause arguing under CPLR § 2201 that given the actions of the property owner, this was a proper case where the terms were just to stay the proceedings, including the entry of judgment, pending the appeal in the foreclosure action.  After oral argument, the Court indicated that while it was generally reluctant to stay proceedings pending an appeal in another matter, the circumstances here warranted such relief.

Jeffrey R. Metz, Esq. of the Appellate Practice Group, Jackie Halpern Weinstein, Esq. and Danny Ramrattan, Esq. of the Foreclosure and Title Litigation Groups at Adam Leitman Bailey, P.C. secured this result for the Lender.

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