Knocked Down, But Not Out
The recent First Department decision HSBC Bank USA, N.A. v. Eliezer Rubin is a tale of back and forth foreclosure litigation with each party enjoying their time in the sun. Commenced in 2008, the mortgagee enjoyed initial victory with a default order of reference in 2010. Five years later, the mortgagor moved to dismiss for lack of personal jurisdiction. At a traverse hearing, the mortgagor prevailed and moved to confirm the referee’s report and to dismiss the complaint against him. The lender, now up against the statute of limitations, cross-moved for an extension of time to serve pursuant to CPLR §306-b. The Court simultaneously granted the dismissal of the complaint and the motion for an extension of time to serve, giving the lender 120 days to serve the mortgagor. When the lender failed to effectuate service within the new 120 day window, they again moved for an extension and were denied.
At this point, the borrower was likely doing backflips to celebrate his victory, but the First Department had two valuable lessons to teach: (1) Don’t forget to convert an order to a judgment; and (2) Lenders are not left without remedy if their mortgage is properly drafted.
An Order is Not a Judgment
Justice Dillon in his full fledged opinion reminded “the bench and the bar of the importance of CPLR §5011 — that an action or proceeding is concluded upon entry of the final judgment, and not by operation of any decision or order preceding it.”
Although the mortgagor had obtained an order dismissing the complaint against him, he never converted the order to a final judgment — a step that often can be overlooked by defendants who view the procedure as redundant. The functional impact of this distinction may seem abstract and inconsequential in some actions, but not in this foreclosure.
Appointment of Referee Without Notice
RPL §254(10) permits the appointment of a receiver in a foreclosure, without consideration for the adequacy of the security of the debt, so long as the mortgage contains the covenant “that the holder of this mortgage, in any action to foreclose it, shall be entitled to the appointment of a receiver”.
RPAPL §1325(1) permits the appointment of that receiver to be made without notice to the defaulting borrower, so long as the mortgage provides for the same.
Taken together, the only requirement for the appointment of a receiver, assuming your mortgage contains the required language, is the commencement of an action to foreclose. As Justin Dillon reasoning, “[t]herefore, in a commenced action, the failure of the plaintiff to serve the defendant with process does not, in and of itself, negate the court’s authority to entertain the plaintiff’s motion to appoint a temporary receiver, as the motion may be prosecuted ex parte in any event, pursuant to the terms of the mortgage and Real Property Law §254(10) and RPAPL §1325(1).”
This lender, seemingly left holding the bag with a dismissed foreclosure action now barred by the statute of limitations, was able to inflict pain upon the borrower from beyond the grave and protect their secured asset.
The Big Takeaway
Defendants are reminded to convert their dismissal orders to final judgments or risk continued substantive motions under the same index number.
Lenders should ensure their mortgage satisfies RPL §254(10) and RPAPL §1325(1), as the ex part appointment of a receiver without notice to the borrower — even after the borrower has dismissed your action — is a powerful tool.