Foreclosure: Process Is Everything

Bruce Bergman is to foreclosures what Babe Ruth is to baseball. He's the ultimate, the tops, the best. Bergman on New York Mortgage Foreclosures is the ultimate reference book for attorneys in New York practicing foreclosure defense. I'm happy to include him here as a guest blogger. This very informative article on the importance of correct personal service is from his blog on the Lexis News Room.

Foreclosure: Process Is Everything. Well, not quite everything, because there is just so much that is important in prosecuting a mortgage foreclosure case - seemingly endless rules, regulations, law and practice. But the assertion that "process service is everything" is slammed home by the holding in a new, if otherwise unremarkable case: where personal jurisdiction over the borrower is lacking, a motion to set aside the foreclosure sale must be granted - even after a deed to the property was already delivered. [U.S. Bank N.A. v. Bernhardt, 88 A.D.3d 871, 931 N.Y.S.2d 266 (2d Dept. 2011) [enhanced version available to subscribers].]

Note too that the importance of process service is magnified in the mortgage foreclosure case (in judicial foreclosure states) because of the inherent structure of the actions. Foreclosures must wade through various plateaus before reaching a conclusion - the foreclosure sale. And nowadays this process can often consume years. Therefore, if an infirmity in process service is not revealed until the end of the case, the potential to render years of effort (and expense) meaningless emerges.

We used the word "unremarkable" in assessing the new case because those who delve into these issues with regularity know that a judgment in a case where there is no jurisdiction over the owner of the property means the foreclosure sale could not have been valid to grant title. But the court at the trial level (happily for the lender) did not quite recognize that. The appeals court did, however. Thus, while the trial court preserved the foreclosure sale even absent jurisdiction, the Appellate Division did not.

Here is the quick story and the practical upshot of it all, although that may be nearing the obvious by now.

The borrower in this case was exceptional even among the typically outrageous. Moreover, it was clear that the trial court was exasperated with the borrower's conduct. When the borrower moved to vacate the foreclosure sale because she had not been served, there was apparently no doubt about that and the court so ruled. But the court wanted to use its equitable powers to preserve the sale because of the borrower's conduct and therefore ruled that the sale was good. It was that part of the holding that the appeal court reversed - because if there is no jurisdiction, then the judgment is void and then the sale, based upon that judgment, had to likewise be void. It is this latter principle that is not new.

What it underscores and instructs, though, is that obtaining jurisdiction over the borrower-owner is critical, dispositive. The process server just has to be sure and so too does counsel reviewing that service. There is simply no room for error on this point because if anyone stumbles, the whole case can fall. Of course in the end mortgage holders and servicers need to rely upon the dedication of their counsel and counsel's ability to in turn engage process servers with a like level of devotion to task. It is not so easy.

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