FORECLOSURES; BANKRUPTCY; ASSIGNEE — Once a debt has been discharged in bankruptcy, the borrower, having no pecuniary interest in the outcome, cannot sustain an action based upon alleged defects in subsequent assignments of the mortgage.
A bank commenced a mortgage foreclosure action, and its borrower substantially delayed the proceeding by filing for bankruptcy and engaging in various litigation “seeking to collaterally attack the final judgment of foreclosure.” Sometime after the foreclosure judgment was entered, an assignee acquired the note and mortgage upon which the foreclosure was based. It then filed a proof of claim in the borrower’s bankruptcy proceeding. The proceeding triggered the automatic stay such that the foreclosure judgment could not be enforced. Eventually, the Bankruptcy Court ordered that the bankrupt estate pay the assignee the mortgage arrearages and then to make further timely payments on the mortgage. Its order provided “that if those payments were not made to [the assignee], the automatic stay with respect to the final judgment of foreclosure would be vacated.”
The bankruptcy apparently concluded but the borrower then filed another bankruptcy proceeding as well as engaging in various litigation “to forestall enforcement of the foreclosure judgment.” While the proceedings were continuing, the original lender, the one who assigned the note and mortgage, filed for bankruptcy and the Federal Deposit Insurance Corporation, “acting as the receiver in the bankruptcy proceedings, sold [the original lending bank’s] assets to” another bank.
A sheriff’s sale took place. The borrower did not bid at the sheriff’s sale or take any further action to redeem the property. Instead, about six weeks later, the borrower filed the current suit “to set aside the deed for the property, naming both [the assignee] and the Sheriff as defendants.” The borrower’s claim was based on an allegation that the original lender “had not validly transferred the foreclosure judgment to [the assignee] before [the original lender] went bankrupt and its assets were transferred” to the successor bank.
Both the assignee and the sheriff filed a motion for summary judgment. Attached to the motion was a certification stating that the assignee was “the holder of the foreclosure judgment ... which has merged with the underlying mortgage” and was the assignee’s parent company and that “the note secured by the mortgage had been ‘stamped as payable to [the assignee]’ and was being held by its attorney.”
The lower court granted the summary judgment motion and dismissed the complaint. Its reason was that if there was a defect in the deed, the assignee would deal with it, but the borrower “no longer [had] an interest in [the] property. He ha[d] no pecuniary interest in the outcome because of the deed, the note has been discharged, so that mortgagee cannot go after him for the deficiency, nor [was] he claiming that there would be any legal [e]ffect of changing the Sheriff’s sale, the sheriff’s deed.”
The borrower appealed, arguing that the summary judgment should be reversed because the assignee “did not present adequate evidence that [the original lender] assigned” the foreclosure judgment to the assignee. The Appellate Division ruled against the original borrower even though the record did not show the formal assignment of the judgment. The Court found “compelling evidence that [the assignee] obtained the assignment of the judgment from [the original lender].” The records of the bankruptcy proceeding and the certification submitted to the lower court provided substantial evidence.
Most importantly, the Court held that “even if there were a question whether [the assignee] obtained a valid assignment of the foreclosure judgment from [the original lender before its own bankruptcy], this would not provide a basis for [the borrower] to obtain relief from the foreclosure judgment or invalidate the Sheriff’s Sale to [the assignee].” If anything, the original bank’s successor in interest might have a claim against the assignee, but the borrower, having lost his interest in the property through the bankruptcy, no longer had such a claim.
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