Second Department Holds Foreclosure Sale Still Valid Despite Reversal of Related Judgment of Foreclosure and Sale
Print Article- Posted on: May 16 2025
In today’s article, we will discuss Yesmin v. Aliobaba, LLC, an Opinion and Order rendered on May 14, 2025, in which the Appellate Division, Second Department, held that “a notice of pendency that was unexpired at the time of the foreclosure sale has no effect on the title acquired by a good faith purchaser for value from a sale conducted pursuant to the judgment of foreclosure and sale.”
By way of brief background, the borrower in Yesmin secured a $600,000 loan with a mortgage on a residential property in Queens, New York. Upon the borrower’s default, the lender commenced a mortgage foreclosure action[1] in which a notice of pendency[2] was filed and extended. In 2017, the motion court entered a judgment of foreclosure and sale (“JFS”). The borrower appealed from the JFS but did not seek a stay of its enforcement pursuant to CPLR 5519 during the pendency of the appeal. Within ninety days of the entry of the JFS, a foreclosure sale occurred and the property was sold. Thereafter, the purchaser took title to the property by referee’s deed.
Three years later, the Second Department reversed the JFS and denied the lender’s motion to confirm the referee’s report and for a judgment of foreclosure and sale finding, inter alia, that the report was not supported by admissible evidence.[3]
Thereafter, the borrower commenced an action pursuant to RPAPL Article 15 against the purchaser to cancel and discharge the referee’s deed. The Borrower argued that “since the [JFS] that authorized the sale had been reversed, the referee’s deed must be canceled” and that the purchaser “took title subject to a valid notice of pendency, which had not expired by the time of the foreclosure sale, and, therefore, [the purchaser]’s title, taken by the referee’s deed, was invalidated by the reversal of the [JFS].” The purchaser cross-moved for summary judgment and for the imposition of an equitable lien on the property arguing, inter alia, that “it was a good faith purchaser for value whose title was protected from the effects of the reversal of the [JFS].” The purchaser appealed from the motion court’s order granting the borrower’s motion.
The Court framed the issue to be decided as “whether the referee’s deed was invalidated by the reversal of the [JFS].” The Court noted that it must first examine “the statutory authority vested in the courts to remedy the effects that a judgment of foreclosure and sale, subsequently reversed, vacated, or otherwise set aside, may have had on the rights of the parties with regard to the property at issue.” The Court stated that CPLR 5523 permits an “appellate court reversing or modifying a final judgment [to] order restitution of property or rights lost by the judgment.” It further noted that its order reversing the JFS “left untouched” the motion court’s grant of summary judgment and “did not order restitution of the property or rights lost by the [JFS].” The Court further stated that:
[P]ursuant to CPLR 5015(d) where a judgment has been set aside or vacated, the Supreme Court is authorized to direct and enforce restitution in like manner and subject to the same conditions as where a judgment is reversed or modified on appeal. Of significance, the ability of a trial or appellate court to order restitution of property is qualified by the condition that “where the title of a purchaser in good faith and for value would be affected, the court may order the value or the purchase price restored or deposited in court” (id. § 5523). The effect of this provision is that where title to the property has been transferred to a purchaser in good faith and for value, in the event of an appellate reversal, restitution of the property is no longer available and the successful appellant must content itself with restoration of the value or purchase price already paid. [Citation, internal quotation marks and ellipses omitted; hyperlink added.]
It was undisputed that the purchaser was a purchaser for value at the foreclosure sale. The borrower, however, argued that the purchaser could not be a “good faith” purchaser because a valid notice of pendency was of record at the time of the foreclosure sale. The Court rejected this contention noting, inter alia, that a notice of pendency serves to “prevent a defendant from thwarting the objective of an action by transferring the property to an unwitting third party” and “to provide constructive notice of a plaintiff’s claim to potential purchasers or incumbrancers, and not for a defendant’s benefit.” (Citations and internal quotation marks omitted.) The Court further recognized that constructive notice is unnecessary at a foreclosure sale because “the purchaser has actual notice of the plaintiff’s claim to a lien on the property and is well aware that the title to the property is transferring through foreclosure.” Further, the Court noted that the entry of a judgment of foreclosure and sale: transforms the lender’s rights from “potential” to “real”; are conclusive unless overturned on appeal; and, are fully enforceable in the absence of a judicially issued stay pending disposition of the appeal.” (Citations and internal quotation marks omitted.) Because no stay was obtained, the lender was free to proceed with a foreclosure sale.
Because notices of pendency are frequently in place at the time of a foreclosure sale, the Court found “untenable” the borrower’s contention that “title acquired by referee’s deed, otherwise taken in good faith and for value, is nonetheless negated upon reversal of the judgment because the notice of pendency of the foreclosure action had not yet expired at the time of the foreclosure sale…. If the Court was to find to the contrary, it “would render meaningless the need to obtain a stay and run contrary to the established caselaw requiring a stay pending disposition of the appeal in order to protect title and restrict alienability.” (Citations omitted.)
The Court found that the purchaser “established that no stay was issued precluding the foreclosure sale and that it was a purchaser in good faith and for value, whose title is insulated from the effects of the reversal of the [JFS].” Thus:
Contrary to [the borrower]’s contention, the referee’s deed was not rendered void merely by the reversal of the [JFS]. Her reliance on cases in which the judgment was found void for lack of personal jurisdiction are inapposite, as the judgment here was not found void. Furthermore, we note that [the borrower] has not sought to set aside the foreclosure sale itself. Since no party argues that the referee’s deed cannot be set aside without also setting aside the foreclosure sale, that issue is not before us.
Since [the purchaser] established that it is “a purchaser in good faith and for value” whose title would be affected by restitution of [the borrower]’s property rights lost by the [JFS], [the borrower] may not seek restitution by canceling the referee’s deed and, instead, is limited to monetary relief against the plaintiff to the foreclosure action. [Citations omitted.]
Thus, the Court reversed the order appealed from, denied the borrower’s motion for summary judgment, and granted the purchaser’s motion for summary judgment dismissing the complaint.
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 written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you.
[2] This BLOG has written numerous articles addressing notices of pendency. To find such articles, please see the BLOG tile on our website and type “notice of pendency” into the “search” box. Simply stated, a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR. The purpose of a notice of pendency is to put defendants and the world on constructive notice of the full scope of the rights claimed by plaintiff to defendant’s real property. Sjogren v. Land Assoc., LLC, 223 A.D.3d 963, 965 (3rd Dep’t 2024).
[3] This BLOG has written numerous articles on referee reports. See, e.g., [here], [here] and [here].
