“All Foreclosure Sales Not Final”
Print Article- Posted on: Jul 21 2023
By Jonathan H. Freiberger
In most situations, the contemplated goal of a mortgage foreclosure action is the sale of the subject property at public auction pursuant to a judgment of foreclosure and sale. Once a sale occurs, however, can it be set aside? [Eds. Note: this article is not intended to address every circumstance in which a foreclosure sale may be challenged.]
“A court has the inherent power to ensure that a sale conducted pursuant to a judgment of foreclosure is not made an instrument of injustice [and, accordingly,] in the exercise of its equitable powers, [the court] has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale.” Alkaifi v. Celestial Church of Christ Calvary Parish, 24 A.D.3d 476, 477 (2nd Dep’t 2005) (citations and internal quotation marks omitted). This is so even if the sale is made to a “good faith purchaser”. Altshuler Shaham Provident Funds, Ltd. V. GML Tower LLC, 129 A.D.3d 1439, 1442 (4th Dep’t 2015) (citations omitted). As the Altshuler court noted, the discretion to set aside a sale “is separate and distinct from any statutory authority” and should be “exercised where … fairness of the sale” is called into question. Altshuler, 129 A.D.3d at 1442 (citations and internal quotation marks omitted). Further, sales may be set aside where the “price is so inadequate as to shock the court’s conscience”, but not where the price is “mere[ly] inadequate. Polish National Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc., 98 A.D.2d 400, 407 (2nd Dep’t 1983) (citations omitted).
A foreclosure sale was set aside on July 19, 2023, by the Second Department in Golden Bridge, LLC v. Rutland Development Group, Inc. [Eds. Note: the facts of Golden have been simplified significantly for the purpose of this discussion.] Plaintiff commenced a foreclosure action against borrower with respect to a parcel of property comprising two lots (the “Property”). The Property was ultimately sold to purchaser at public auction pursuant to a judgment of foreclosure and sale. At the auction, purchaser paid the required down payment and had thirty days to close. Between the time of the foreclosure sale and the time to close, a quiet title action was commenced against one of the two lots comprising the Property and against which, the plaintiff in the quiet title action filed a notice of pendency. The complaint in the quiet title action was dismissed, but a notice of appeal was filed. Ultimately, the Second Department reversed that order and reinstated the complaint in the quiet title action.
Purchaser appealed two orders. In the first, the motion court denied purchaser’s motion to set aside the foreclosure sale and to have the referee return to it the down payment and granted lender’s cross-motion to compel a closing. The second order directed the referee to deliver the down payment to the lender and to direct the re-auction of the Property. Both orders were reversed and the sale was vacated and the referee was directed to return the down payment to the purchaser. In so doing, the Second Department stated:
Generally, a court has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale. A court may exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice. Marketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession. As a general rule, a purchaser at a foreclosure sale is entitled to a good, marketable title. A purchaser at a judicial sale should not be compelled by the courts to accept a doubtful title, and, if it was bad or doubtful, he or she should, on his or her application, be relieved from completing the purchase.
Moreover, the rule that a buyer must protect himself or herself against undisclosed defects does not apply in all strictness to a purchaser at a judicial sale. A sale of land in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire.
Here, the continuing quiet title litigation involves allegations that the deed to one of the lots comprising the subject property was procured by forgery. This litigation casts suspicion on the fairness of the sale of the property to [purchaser], and therefore [purchaser] should not be compelled by the courts to accept a doubtful title. [Citations, internal quotation marks and brackets omitted.]
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
