Failure To File Motion Within 90 Days Of Deed Delivery Consummating NY Foreclosure Sale Sinks Lender's Move To Score Deficiency Judgment

A recent ruling by a New York intermediate appellate court serves as a reminder that, in New York, where the proceeds of the foreclosure sale fail to cover the entire amount due on the loan, a foreclosing mortgage lender will be deemed to be legally "out of luck" in any attempt to obtain a deficiency judgment against those liable on the loan if it fails to file a motion for a deficiency judgment "within ninety days after the date of the consummation of the sale by the delivery of the proper deed of conveyance to the purchaser", as one recent lender sadly discovered.(1)

The lender's desperate attempt to salvage the situation with the argument that the '90-day meter' should not begin to run until the referee's (foreclosure) deed could, under state law, legally be recorded fell on unpersuaded judicial ears.(2)(3)

For the ruling, see Cicero v Aspen Hills II, LLC, 2011 NY Slip Op 05153 (NY Sup. Ct. App. Div. 3rd Dept. June 16, 2011).

(1) Contrast the 90-day time period in New York with the five year time period in Florida (with an additional 20 years to collect). See Time in which the plaintiff must apply for a deficiency judgment in a Florida foreclosure case. Check state law for the applicable time frame in your state.

(2) From the ruling:

• Pursuant to the RPAPL, "the mortgagee in a mortgage foreclosure action [may] recover a deficiency judgment for the difference between the amount of indebtedness on the mortgage and either the auction price at the foreclosure sale or the fair market value of the property, whichever is higher" (BTC Mtge. Invs. Trust 1997-SI v Altamont Farms, 284 AD2d 849, 849-850 [2001]; see RPAPL 1371 [2]).
  
  The statute requires, however, that a motion for a deficiency judgment be made "within ninety days after the date of the consummation of the sale by the delivery of the proper deed of conveyance to the purchaser" (RPAPL 1371 [2]).
  
  The 90-day period is a provision in the nature of a statute of limitations, thus "[f]ailure by plaintiff to serve notice within the 90-day period is a complete bar to the entry of a deficiency judgment" (Amsterdam Sav. Bank v Amsterdam Pharm. Dev. Corp., 106 AD2d 797, 797 [1984]).
  
  Here, no dispute exists that the appointed referee delivered the deed to plaintiff on November 23, 2009, or that there was any deficiency in the deed itself. Plaintiff was required, therefore, to file the motion by February 21, 2010 — 90 days from delivery of the deed — and, accordingly, Supreme Court properly held that plaintiff's March 25, 2010 motion was untimely (see Citicorp Mtge. v Strong, 227 AD2d 818, 820-821 [1996]; National Bank of Sussex County v Betar, 207 AD2d 610, 612 [1994]).
  
  Plaintiff asserts, instead, that the 90-day period did not begin to run until the expert's appraisals of the mortgaged properties were delivered to plaintiff on January 13, 2010. Specifically, because the deed could not be recorded in New York State until two tax forms were completed — the TP-584 and the RP-5217 — which could not be executed until the fair market value was derived from the appraisals, plaintiff argues that consummation of the sale, and the commencement of the 90-day period, did not occur until the appraisals were delivered.
  
  We disagree. Both our statutory and common laws dictate that transfer of real property occurs at the delivery of a properly executed deed, rather than when the deed is recorded (see Real Property Law § 244; Manhattan Life Ins. Co. v Continental Ins. Cos., 33 NY2d 370, 372 [1974]; Janian v Barnes, 284 AD2d 717, 718 [2001]).
  
  Plaintiff's attempt to read the clear reference to "delivery of the proper deed of conveyance" in RPAPL 1371(2) to require something more than the delivery of the properly executed deed to commence the limitations period is not persuasive (see Citicorp Mtge. v Strong, 227 AD2d at 820-821; Savings Bank of Utica v 561-575 Delaware Ave., 201 AD2d 946, 946 [1994]; Crossland Sav. v Patton, 182 AD2d 496, 496 [1992], lv denied 80 NY2d 755 [1992]).

(3) This ruling should serve as a reminder to foreclosed homeowners in New York (and elsewhere) that the unpaid balance on a foreclosed loan cannot be collected (either by the lender, some zombie debt buyer who may have swooped in and bought the crappy paper for 'pennies on the dollar', or any other scavenger) unless and until:

• a motion requesting a hearing for the granting of a deficiency judgment is filed with the court within the proper time period,
• a judge holds the hearing (with all parties receiving proper notice thereof), and
• a judge grants the deficiency judgment, determining exactly what the deficiency amount is (typically, and as set forth in Cicero v Aspen Hills II, LLC, it is "the difference between the amount of indebtedness on the mortgage and either the auction price at the foreclosure sale or the fair market value of the property, whichever is higher").

A word of caution to foreclosed homeowners: beware of zombie debt buyers and other vultures that gobble up these unpaid deficiency debts from foreclosing lenders (see e.g. Short Sellers, Foreclosed Borrowers May Be In For Big Surprise As Collection Firms Scramble To Buy Up Unpaid Loan Deficiencies), and who then attempt to collect on them without first having obtained a deficiency judgment. Keep in mind that, not only are they not allowed to do this, but if they do, they are giving you a good case for a lawsuit against them for violation the federal Fair Debt Collection Practices Act, as well as any applicable state law.

See Fla. Appeals Court Nabs Sneaky F'closing Lender In Attempt To Improperly Go After Foreclosed Property Owner's Personal Assets To Satisfy Unpaid Debt for an example of one foreclosing lender who almost got away with duping a snoozing trial judge into signing a court order allowing for the collection of an unpaid post-foreclosure sale debt where the lender did not first obtain a deficiency judgment in the court that granted the foreclosure.