Case Law Summaries

Greenpoint Mortgage Corporation v. Hamm

• Opinion Date: December 14, 2001
• Real Property Law
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MORTGAGES; FORECLOSURE—A court has the equitable power to set aside a sheriff’s sale and can use that power where the sale took place because of an error caused by a mortgagee’s attorney, without culpability on the part of the mortgagor.

The owner of two properties, one a commercial property, and the other her home, faced foreclosure proceedings on both properties. It appeared to be her intention to file a Chapter 13 bankruptcy petition, “thereby obtaining a stay of the sheriff’s sales of both properties, and to develop a plan in the bankruptcy proceeding to bring the mortgages current.” A member of her attorney’s office therefor contacted the sheriff and thought she had been told that the sale would take place a month later, but, in reality, this admitted later, the information received was that the sale was to take place the very next day. At the property owner’s attorney did nothing and the commercial property was sold to its mortgagee. As soon as the mortgagor discovered the sale, the attorney obtained an order to show cause why the sale should not be vacated and sought a temporary restraint enjoining the sheriff from issuing a deed. At the hearing that followed, the mortgagor’s attorney explained about the petition to file for bankruptcy and, in fact, the petition had been filed several days earlier. The mortgagor’s attorney further represented to the lower court that the mortgagor was employed, had an income, and had a plan to commence payment of the arrears. The hearing was adjourned to allow the parties to file additional papers, but when the matter was heard two weeks later, the lower court denied the mortgagor’s application to vacate the sheriff’s sale because “no good cause [had] been shown therefor.” The only reason articulated by the lower court was that proper notice of the original sale date had been given. The mortgagor moved for reconsideration, “believing the judge did not consider the equitable arguments for setting aside the sale, since they were not mentioned in the judge’s letter.” The lower court stuck by its decision, but included “by reference all my remarks” made at the time of the hearing. On appeal, the mortgagor argued that the lower court abused its discretion in not recognizing that solely by reason of a clerical mistake in the attorney’s office, the mortgagor had suffered a substantial injustice in losing her property. The Appellate Division was troubled that the lower court’s findings were incomplete and inadequate. It went on to say that “[a] court of equity possesses the inherent authority to set aside a foreclosure sale on equitable grounds, such as fraud, accident, surprise and irregularity in the sale, to prevent an injustice to a party. ... Ordinarily, a sale will not be vacated ‘on the ground of mistake flowing from [a moving party’s] own culpable negligence.’ ... Here, however, the mistake was not that of a defendant who acted with reasonable diligence, but of her attorney.” The Appellate Division pointed out that but for the clerical error, an adjournment of the sale was readily available to the mortgagor. The Court also pointed out that upon learning of the error, and that the sale had occurred, the mortgagor acted swiftly to seek relief. It pointed out a number of factors to be considered before setting aside a judicial sale, including whether the mortgagee would suffer prejudice if the sale were vacated, “and if so, to what extent compared to that which [the mortgagee] would suffer if there [was] no vacation.” With that in mind, the Court remanded the matter to the lower court and ruled that the lower court should also consider reasons for the mortgagor’s delay in filing bankruptcy proceedings. Further, if the lower court decided to set aside the sheriff’s sale, it would need to determine whether the mortgagor could redeem the mortgage or reinstate the mortgage in a manner contemplated by the bankruptcy laws.

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