1946TREMONT1B, LLC v. Nawal Realty, Inc., et al.
Attorneys and Parties
Brief Summary
Real property—mortgage foreclosure, notice of pendency (lis pendens), and reforeclosure under Real Property Actions and Proceedings Law (RPAPL) 1503 [allows a person acquiring property in a foreclosure sale to reforeclose against an owner of the real property mortgaged].
Denied plaintiff’s summary judgment; granted Nawal Realty summary judgment declaring it the record owner; granted leave to amend to assert a reforeclosure claim.
The grant of summary judgment declaring Nawal Realty the record owner.
Nawal Realty did not establish that plaintiff knew of the pending mortgage foreclosure action when it purchased the property; deed language referencing the mortgage provided, at most, constructive notice of the mortgage, not of the foreclosure action.
Background
In 2015, 1946TREMONT1B, LLC bought Bronx property from West Fork Capital Equities, Inc., which had acquired it via a condominium lien foreclosure. The property was encumbered by a mortgage held by Ocwen Loan Servicing, LLC. Plaintiff purchased during a lapse between Ocwen’s original and successive notices of pendency in a mortgage foreclosure action, and Ocwen (or its successor) did not join plaintiff in that foreclosure. After judgment of foreclosure and sale, the referee deeded the property to Real Homes Management Holdings, Inc., which later deeded it to Nawal Realty, Inc.
Lower Court Decision
Supreme Court, Bronx County, denied plaintiff’s motion for summary judgment, granted Nawal Realty’s cross-motion for summary judgment declaring it the record owner, and granted leave for Nawal to amend to add a reforeclosure counterclaim under RPAPL 1503. The court found plaintiff failed to show lack of knowledge of the foreclosure action, the proposed reforeclosure claim was not palpably devoid of merit because the property was sold pursuant to a foreclosure judgment, and plaintiff failed to show prejudice from the amendment.
Appellate Division Reversal
Modified. The Appellate Division denied so much of Nawal Realty’s cross-motion as sought summary judgment declaring Nawal the record owner, holding Nawal failed to prove plaintiff’s knowledge of the pending foreclosure at the time of purchase. The court otherwise affirmed: plaintiff’s summary judgment was properly denied for failure to prove lack of knowledge, and leave to amend to assert reforeclosure under RPAPL 1503 was a proper exercise of discretion because the statute permits a purchaser at a foreclosure sale to reforeclose against an owner of the mortgaged property, Ocwen’s omission was alleged not to be due to fraud or willful neglect, and delay alone did not establish prejudice.
Legal Significance
Clarifies that a deed referencing an existing mortgage imparts constructive notice of the mortgage but not of a separate pending foreclosure action; thus, absent proof that a purchaser knew of the foreclosure action, a subsequent foreclosure-sale grantee cannot obtain summary judgment declaring superior title. Confirms that reforeclosure under RPAPL 1503 [allows a person acquiring property in a foreclosure sale to reforeclose against an owner of the real property mortgaged] remains available to cut off the interest of an omitted owner when the omission was not due to fraud or willful neglect, and that leave to amend to assert such a claim is liberally granted absent prejudice.
A buyer who acquires property during a lapse in a notice of pendency and is not named in the foreclosure is not bound by that foreclosure absent proof of knowledge of the action; referencing the mortgage in a deed is not notice of the foreclosure. Foreclosure purchasers may pursue reforeclosure under RPAPL 1503 to address omitted owners, and courts will allow amendments to add such claims absent prejudice.