Daily Development for Friday, October 5, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

MORTGAGES; FORECLOSURE; NOTICE: Failure to give proper statutory notice of mortgage foreclosure sale does not require that the sale be vacated absent a showing that a substantial right has been prejudiced.

Amresco New England II v. Denino, 725 N.Y.S.2d 78 (A.D. 2 Dept.2001).

The property sold for $500,000, while the mortgagor's appraiser estimated a value of $640,000. But the court said that the mortgagor had the burden of demonstrating that the failure to provide proper notice prejudiced a "substantial right of a party." It characterized the notice defect as a "mere irregularity" and not a jurisdictional defect.

Here the mortgagor knew of the sale and attended it. The court opined that where the mortgagor (i) is aware of the foreclosure sale and (ii) fails to show that any prospective bidders were prevented from attending the sale due to lack of proper notice, then the lack of notice is a mere irregularity and not a jurisdictional defect.

Comment 1: The statutory defect asserted by the mortgagor dealt with the publication of notice, rather than with the notice to the mortgagor.

Consequently, the fact that the mortgagor had actual notice and attended the sale would not appear to be relevant. The question, rather, is whether the failure to provide notice to the community in the statutorily required form might have affected the bidding at the sale.

Of course, it is impossible to answer that question for certain in any case.

Here the appeals court does not tell us the nature of the publication notice defect. If, for instance, it was a failure to publish in the proper places for the proper number of days, then it would seem that any shortfall of that type conceivably could result in critical potential bidders not being notified. On the other hand, if it there was substantial notice, but a minor defect in the text of the publication, which was remediable upon inquiry by potential bidders, then perhaps one could conclude that there was "no harm, no foul."

Comment 2: The statute imposes the burden of proof on the mortgagor to demonstrate that "substantial interests" were adversely affected. The court reinterprets that standard to say that the mortgagor must demonstrate that "any prospective bi dders were prevented from attending the sale." Again, without knowing more about the evidence (New York case reports are unusually skimpy) we can't really say what the mortgagor did show, but one would certainly expect that a showing that on a given day there was no notice of the sale in a place where it should have appeared ought to be sufficient. It only takes on bidder, and bidders don't necessarily read the paper every day.

Comment 3: It is easy for courts and lawyers to get pretty callous about deadbeats who fight to the end to avoid meeting their just responsibilities. Further, foreclosure sales typically don't result in any bidders at all, other than the mortgagee, so it is tempting to treat the entire exercise as a mere formality. But, of course, it is far more than that - it is, in a sense "minimum due process." It is our assurance that, before we strip a mortgage debtor of the loss of the equity in the property, there is fair chance at a public process testing the value of the property. Even if the process usually is just a formality, the mortgagor is entitled to every bit of it, and the legislature, in this case, has defined what "every bit of the process" is. Courts should be cautious about ignoring the legislature's requirements.

Also see: Redman v. Federal Home Loan Mortgage Corp., 765 So.2d 630 (Ala.1999).(The DIRT DD for 8/8/01.) (Defects in notice required by mortgage agreement itself will not nullify sale if mortgagor in fact had notice.) The editor sees the contract notice problem as less significant than the statutory notice problem, but he hated the Redman case on its facts anyway.

Compare: Village of Dimondale v. Grable, LC No. 97001253 (Mich App. 4/21/2000) http://www.michbar.org/opinions/home.html?/opinions/appeals/2000/04 2100/6815.html (Notwithstanding that taxpayer had actual notice of sale, IRS failure to provide notice as required by statute of presale seizure of property rendered title void, and equitable claims such as laches are of no help to party purchasing such void title in that party's action to quiet title.) (This is the DIRT DD for 4/27/00)

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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