Cooperatives & Condominiums

Foreclosing Mortgagee Must Serve Condominium Board if It Has Actual Notice of Condominium's Interest

New Falls Corp. v. Board of Managers of the Parkchester North Condominium, Inc.

NYLJ 10/4/04, p. 23, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action to foreclose a mortgage on a condominium unit, a condominium board appealed from the Supreme Court's denial of its motion to vacate a judgment of foreclosure and sale. The Appellate Division reversed and remanded for a hearing on whether the mortgagee had actual notice of the condominium board's ownership interest in the unit.

In 1996, the condominium board had filed a lien for common charges on the subject unit, and then, on Jan. 21, 1998, obtained a judgment and purchased the unit at a foreclosure sale. The deed, dated Dec. 8, 1998, recited the street address, the apartment number, and the tax lot number incorrectly. That deed was recorded. Ten days later, the condominium board attempted to correct the earlier deed, but never recorded the corrected deed.

On July 20, 2000, the assignee of a mortgage on the premises brought this foreclosure action, alleging, on information and belief, that Clarence and Mae Simmons lived in the unit, and that the condominium board was the owner of the premises. In July 2001, a referee's deed was issued to Magro, the purchaser at the foreclosure sale. Then, in September 2001, the condominium board moved to vacate the judgment of foreclosure and sale, alleging that it was never properly served in the foreclosure action. Although the court had ordered a traverse to ascertain whether service had been properly effected, that proved impossible because of the process server's medical emergencies. The assignee argued, however, that service was unnecessary because, as a result of the incorrect deed, the condominium board had no recorded ownership interest at the time assignee commenced the foreclosure action. The Supreme Court denied the condominium board's motion, concluding that the condominium board had never established that it had acquired title to the unit.

In reversing, the Appellate Division held that if the assignee had actual notice of the condominium board's title at the time the assignee commenced the foreclosure action, then the judgment of foreclosure could have had no effect on the condominium board's rights without proper service on the board. Here, the court noted that assignee had alleged in the complaint that, upon information and belief, the condominium board was the owner of the unit, and indicated that a hearing was necessary to determine whether assignee had actual notice of the board's interest.

COMMENT

When a person with a recorded junior interest is not named as a party in a foreclosure action, the foreclosure sale does not extinguish the junior interest. Thus, in Polish National Alliance v. White Eagle Hall Co., 98 A.D.2d 400, 403-05, the court, in holding that failure to join necessary parties did not invalidate the foreclosure sale, emphasized that the foreclosure sale passed title subject to the rights of junior interests not named in the foreclosure action.

By contrast, parties with interests recorded after the notice of pendency in the foreclosure action are not generally considered necessary parties, and are therefore bound to the foreclosure determination as if they were made parties to the proceeding. Id. See also Kursheedt v. Union Dime Sav. Inst., 118 NY 358 (Court of Appeals establishes that an interest established by deed prior to a filing of lis pendens, but recorded thereafter, binds the holder of that interest to the foreclosure judgment as if that person was a party).

In Lamont v. Cheshire, 65 NY 30, however, the Court of Appeals determined that persons with unrecorded junior interests are unaffected by the foreclosure of a senior interest, should the party holding the foreclosing interest have actual notice of the unrecorded junior interest. Id. In Lamont, the foreclosing mortgagee had notice because the holder of the junior interest was in possession at the time the notice of pendency was filed. By contrast, the New Falls court seems to focus on the foreclosing mortgagee's activities as indicators of notice. Here, the court presumes that the mortgagee had notice of the condominium board's interest, in part because the mortgagee was without explanation for its own behavior that indicated knowledge of the non-possessory junior interest.

Foreclosing Mortgagee Must Serve Condominium Board if It Has Actual Notice of Condominium's Interest

New Falls Corp. v. Board of Managers of the Parkchester North Condominium, Inc.

NYLJ 10/4/04, p. 23, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action to foreclose a mortgage on a condominium unit, a condominium board appealed from the Supreme Court's denial of its motion to vacate a judgment of foreclosure and sale. The Appellate Division reversed and remanded for a hearing on whether the mortgagee had actual notice of the condominium board's ownership interest in the unit.

In 1996, the condominium board had filed a lien for common charges on the subject unit, and then, on Jan. 21, 1998, obtained a judgment and purchased the unit at a foreclosure sale. The deed, dated Dec. 8, 1998, recited the street address, the apartment number, and the tax lot number incorrectly. That deed was recorded. Ten days later, the condominium board attempted to correct the earlier deed, but never recorded the corrected deed.

On July 20, 2000, the assignee of a mortgage on the premises brought this foreclosure action, alleging, on information and belief, that Clarence and Mae Simmons lived in the unit, and that the condominium board was the owner of the premises. In July 2001, a referee's deed was issued to Magro, the purchaser at the foreclosure sale. Then, in September 2001, the condominium board moved to vacate the judgment of foreclosure and sale, alleging that it was never properly served in the foreclosure action. Although the court had ordered a traverse to ascertain whether service had been properly effected, that proved impossible because of the process server's medical emergencies. The assignee argued, however, that service was unnecessary because, as a result of the incorrect deed, the condominium board had no recorded ownership interest at the time assignee commenced the foreclosure action. The Supreme Court denied the condominium board's motion, concluding that the condominium board had never established that it had acquired title to the unit.

In reversing, the Appellate Division held that if the assignee had actual notice of the condominium board's title at the time the assignee commenced the foreclosure action, then the judgment of foreclosure could have had no effect on the condominium board's rights without proper service on the board. Here, the court noted that assignee had alleged in the complaint that, upon information and belief, the condominium board was the owner of the unit, and indicated that a hearing was necessary to determine whether assignee had actual notice of the board's interest.

COMMENT

When a person with a recorded junior interest is not named as a party in a foreclosure action, the foreclosure sale does not extinguish the junior interest. Thus, in Polish National Alliance v. White Eagle Hall Co., 98 A.D.2d 400, 403-05, the court, in holding that failure to join necessary parties did not invalidate the foreclosure sale, emphasized that the foreclosure sale passed title subject to the rights of junior interests not named in the foreclosure action.

By contrast, parties with interests recorded after the notice of pendency in the foreclosure action are not generally considered necessary parties, and are therefore bound to the foreclosure determination as if they were made parties to the proceeding. Id. See also Kursheedt v. Union Dime Sav. Inst., 118 NY 358 (Court of Appeals establishes that an interest established by deed prior to a filing of lis pendens, but recorded thereafter, binds the holder of that interest to the foreclosure judgment as if that person was a party).

In Lamont v. Cheshire, 65 NY 30, however, the Court of Appeals determined that persons with unrecorded junior interests are unaffected by the foreclosure of a senior interest, should the party holding the foreclosing interest have actual notice of the unrecorded junior interest. Id. In Lamont, the foreclosing mortgagee had notice because the holder of the junior interest was in possession at the time the notice of pendency was filed. By contrast, the New Falls court seems to focus on the foreclosing mortgagee's activities as indicators of notice. Here, the court presumes that the mortgagee had notice of the condominium board's interest, in part because the mortgagee was without explanation for its own behavior that indicated knowledge of the non-possessory junior interest.