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USFN 25th Anniversary

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by Bruce J. Bergman
Certilman, Balin, Adler & Hyman — USFN Member (NY)

Why something amenably categorized as "friendly" should ever be offensive may at first appear puzzling, but lenders and servicers are well aware that many defaulting borrowers see demons everywhere and are quick to allege "conspiracy". And so it was that a friendly foreclosure was indeed assaulted — but survived. [Bank Leumi Trust Company of New York v. Luckey Platt Centre Associates, ___A.D.2d___, 665 N.Y.S.2d 976 (3d Dept. 1996)]

The basic idea behind a "friendly foreclosure" is the borrower’s recognition that no one is well served by a litigated or delayed case. So, in essence, the borrower is saying, "Go forward as quickly as possible; I consent to all and will oppose nothing."

The first question servicers ask is, "Because the borrower agrees, can we go immediately to the foreclosure sale?" Unfortunately, the answer is no, because there are ritualistic plateaus that must be achieved in a judicial foreclosure state like New York. In other words, a servicer must go through the required motions although all parties might otherwise agree. (Certain shortcuts can be taken, but there still must be application for the referee to compute and application for the judgment.)

This brings us to our initial inquiry as to whether someone could attack the idea that a foreclosure is proceeding in a friendly, unopposed manner. In the case addressing this point, borrower A owned the property with partner B, and A was the guarantor of the obligation. B stated that A was the one who caused the distress to the property and pointed to the lender’s refraining from pursuing the guaranty as evidence that the friendly foreclosure was part of a conspiracy and should be halted. Did the apparent friendliness of the foreclosure expose the lender to a fatal defense? Under these circumstances, the answer was no. While that is the most important idea for servicers to recognize, the key concept of the debate over friendly foreclosures is that in New York, when confronted with a mortgage in default, the mortgage holder is free to elect its remedy.

To be sure, the mortgage holder could have chosen to sue the guarantor on the monetary obligation, but that was not the only option. In any event, that the foreclosure may indeed have been friendly did not impede either partner from satisfying the obligation prior to sale or bidding at the sale. In short, if a borrower wants to consent to a foreclosure proceeding, that’s just fine.

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