Improperly “Serving” a Notice to Appoint a New Attorney on Borrower Pursuant to CPLR 321(c), Did Not Serve the Lender Well in a Mortgage Foreclosure Action

• Posted on: Mar 21 2025

By: Jonathan H. Freiberger

Today’s article relates to CPLR 321(c), a topic we have addressed before [here] and [here]. As previously discussed in this BLOG, once an attorney appears[1] and becomes the attorney of record, the client is free to change counsel by filing with the clerk, a substitution of counsel stipulation, which must also be served on “the attorneys for all parties in the action or, if a party appears without an attorney, to the party.” CPLR 321(b)(1). Additionally, an attorney of record “may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.” CPLR 321(b)(2). 

Sometimes, however, an attorney, after appearing, dies, becomes incapacitated or is suspended. In such circumstances, CPLR 321(c) is applicable and provides:

If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs.

CPLR 321(c) “protects [a] client by automatically staying [an] action from the date of the disabling event.”  Wells Fargo Bank, N.A. v. Kurian, 197 A.D.3d 173, 176 (2^nd Dep’t 2021) (citations omitted). The provision’s “command … is straightforward” and “automatically stays” a lawsuit upon an occurrence that falls within its purview and until such time as the conditions to the continuation of the lawsuit are satisfied. Moray v. Koven & Krause, Esqs., 15 N.Y.3d 384, 388-89 (2010) (citations omitted). “The obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.” Wells Fargo, 197 A.D.3d at 176. (Citations omitted.); see also Moray 15 N.Y.3d at 389. “During the stay imposed by CPLR 321(c), no proceedings against the party will have any adverse effect” (JPMorgan Chase Bank, Nat. Ass’n v. Simonsen, 208 A.D.3d 1167, 1169 (2^nd Dep’t 2022) (citations, internal quotation marks and brackets omitted)), and “[o]rders or judgments that are rendered in violation of the stay provisions of CPLR 321(c) must be vacated” (Wells Fargo, 197 A.D.3d at 176 (citations omitted)); see also Galletta v. Yip, 271 A.D.2d 486 (2^nd Dep’t 2000). It is up to opposing counsel to “bring the stay to an end by serving a notice on the affected party to appoint new counsel within 30 days.” Simonsen, 208 A.D.3d at 1169.

The application of CPLR 321(c) was the issue decided by the Appellate Division, Second Department, on March 19, 2025, in HSBC Bank USA v. McGrath. McGrath was a mortgage foreclosure action[2] commenced in 2014 by the lender upon the borrower’s default. Although the borrower retained counsel to defend the action, shortly after being retained he was suspended from the practice of law for two years commencing on October 28, 2014. Several months later, in February of 2015, the lender “mailed [the borrower] a notice to appoint another attorney.” Thereafter, in March of 2016, the motion court granted the lender’s unopposed motion for summary judgment and the appointment of a referee to compute. When the lender moved in June of 2018 to confirm the referee’s report and for a judgment of foreclosure and sale, the borrower, with new counsel, cross-moved pursuant to CPLR 321(c) to vacate the order granting the lender summary judgment. The motion court granted the lender’s motion, denied the borrower’s cross-motion and issued a judgment of foreclosure and sale directing the sale of the property.

On the Borrower’s appeal, the Second Department reversed. In its decision, the Court discussed the law on CPLR 321(c) as articulated herein. Quoting Wells Fargo, supra, the McGrath Court noted that:

“There are actually two ways in which a CPLR 321(c) stay may be lifted. One way is if the party that lost its counsel retains new counsel at its own initiative, or otherwise communicates an intention to proceed pro se” (Wells Fargo Bank, N.A. v Kurian, 197 AD3d at 177). “The second way is by means of the above-described notice procedure pursuant to CPLR 321(c)” (id.).

The Court then determined that neither method for lifting the stay was employed by the lender before proceeding with the foreclosure. Thus, the Court stated:

Here, the [lender] did not serve [the borrower] with the notice to appoint either personally or in such manner as the court directed (CPLR 321[c]). It is undisputed that no attempt was made to personally serve the required notice, nor is it alleged that the Supreme Court directed that service of the notice be made in some other manner. Moreover, it is undisputed that [the borrower] did not communicate an intention to proceed pro se. Therefore, the automatic stay was not lifted until [the borrower] opposed the plaintiff’s motion to confirm the referee’s report and for a judgment of foreclosure and sale and cross-moved to vacate the summary judgment order in September 2018.

(Citations, internal quotation marks and brackets omitted.) The mailing of the 321(c) notice on the borrower was not deemed to be personal “service” as required by 321(c) and, accordingly, the borrower’s cross-motion to vacate should have been granted.

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.

[1] This BLOG has addressed formal and informal appearances by counsel. See, e.g., [here], [here] and [here].

[2] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and, in the “search” box, type any topic related to foreclosure, or other commercial litigation issues, that may be of interest you.