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As a Matter of Equity, Hearing Court/Referee was Required to Calculate the Amounts Due in Mortgage Foreclosure Action

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  • Posted on: Mar 29 2024

By Jonathan H. Freiberger

This Blog frequently writes on numerous issues related to mortgage foreclosure.  One aspect of a foreclosure action is the calculation of the amounts due to the lender.  Generally, when the foreclosing lender moves for summary judgment and/or a default judgment it also moves for the appointment of a referee to compute the amounts due to the lender.  [Eds. Note: this BLOG has previously written about referees in foreclosure actions.  See, e.g., [here], [here] and [here].]  Although the judge presiding over the action can calculate the amounts due, the task is typically referred to a referee.  See CPLR 4317(b).

On March 27, 2024, the Appellate Division, Second Department, decided Bank of America v. Danzig, a case involving the calculation of the amounts due to the lender under a mortgage.  In 2009, the lender in Danzig commenced an action to foreclose a mortgage.  Thereafter, an order of reference and a judgment of foreclosure and sale were entered on default.  The property was sold at auction, but the purchaser failed to close.

Apparently, the borrower saw the failed sale as an opportunity to move to, inter alia, vacate the judgment of foreclosure and sale, set aside the sale and to vacate his default in appearing in the action.  The borrower’s motion was denied “except that branch which was to vacate the judgment of foreclosure and sale and set aside the sale ‘based upon a “mistake” with respect to the judgment amount,’ which the court declined to rule on, citing insufficiencies in the plaintiff’s papers, which failed to address the particular amounts challenged by the defendant.”  The motion court directed a framed-issue hearing to address the accuracy of the referee’s calculations.  If it was determined that the referee’s calculations were inaccurate, “then the court granted the subject branch of the [borrower]’s motion in the interest of justice to the limited extent that the sale shall be deemed rescinded, the judgment of foreclosure and sale shall be deemed vacated, and the [lender] shall submit, on notice, a proposed new judgment of foreclosure and sale including a new amount due to the [lender] as ‘calculated by the [h]earing [c]ourt.’”  (Some brackets omitted and some added.)

The lender and the borrower appeared before the hearing court and reached a settlement in which both parties agreed on the proper amount due after acknowledging that the original referee’s calculation was erroneous.  Despite placing the proposed settlement terms on the record, the parties failed to finalize the settlement.

Accordingly, the lender moved to amend the judgment of foreclosure and sale to include as the amount due, the amount the parties stipulated to as part of the failed settlement.  The motion court granted the motion and accepted the amount due “as stipulated”.  

On the borrower’s appeal, the Second Department reversed finding that foreclosure actions are equitable in nature, and it would be inequitable to permit the amount due to be derived from the failed settlement.  Thus, the Court stated:

A foreclosure action is equitable in nature and triggers the equitable powers of the court (Bank of N.Y. Mellon v George, 186 AD3d 661, 663 [2nd Dep’t 2020]; see Notey v Darien Constr. Corp., 41 NY2d 1055, 1056 [1977]; U.S. Bank N.A. v Losner, 145 AD3d 935, 937 [2nd Dep’t 2016]. “‘Once equity is invoked, the court’s power is as broad as equity and justice require’” (Bank of N.Y. Mellon v George, 186 AD3d at 663, quoting U.S. Bank N.A. v Losner, 145 AD3d at 938 [internal quotation marks omitted]). Here, as noted above, the hearing court was charged with calculating the amount due and owing to the [lender] and, in the event that the hearing court found that the referee’s calculation of the amount due to the [lender] was inaccurate and that the [borrower] had not received certain credits to which he was entitled, amending the judgment of foreclosure and sale accordingly. A review of the hearing transcript makes clear that the parties’ stipulation as to the amount due to the [lender] was made in conjunction with the parties’ global settlement discussions. As the settlement was never finalized, as a matter of equity, it remained the obligation of the hearing court to calculate the amount due to the [lender] and to amend the judgment of foreclosure and sale, nunc pro tunc, to reflect that amount.  [Hyperlinks added.]

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. 

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