The title is some mouthful and perhaps makes the subject sound too obscure to be meaningful; not so. To put it in more understandable terms, when a servicer must pursue a strict foreclosure (to be discussed in a moment), the servicer can collect the equivalent of rent during the course of the action.  This is good news for servicers.

 

First, let’s briefly review strict foreclosures. It sometimes happens in mortgage foreclosure cases —  particularly in judicial foreclosure states like New York — that a defendant can be missed or not served. For example, the process server didn’t notice a tenant on the third floor; or a partnership is somehow served as a corporation, thus invalidating service; or when a person is served by a relative at the house, he or she later argues that there is no such relative, and somehow wins.  Unfortunately, it is possible that someone who should have been named and served in a foreclosure action was not. 

 

The net result of this is that when the foreclosure is over, the interest of that unnamed or unserved party is not extinguished. This presents an objection to title.  The solution is a strict foreclosure action, which is a somewhat shorter version of a foreclosure whereby the missed party is given the opportunity to pay the full sum that was due on the mortgage (that is, redeem) or forever suffer extinguishment of whatever interest he may have had in the property.

 

As experienced servicers know, foreclosures in New York can take some time, and a strict foreclosure is certainly not immune to delay.  So these things can consume typically six months, and more if there are any problems or opposition.  If the missed party was a tenant, must the servicer endure the extent of the strict foreclosure action with the tenant reposing at the premises rent-free? Well, while the person doesn’t have to pay rent, case law supports the proposition that he does have to pay its equivalent for “use and occupation.” [NYCTL 1996-1 Commercial REO v. El Pequeno Restaurant Food Corp., __Misc.2d __, 765 N.Y.S.2d 465 (Sup. Ct. Kings Co. 2003)]