NY Foreclosure Auction Buyers: Understanding Your Obligations and Risks After the Gavel Falls

Today we wanted to bring to your attention to an interesting decision out of the Appellate Division, 2^nd Department which affirmed a Supreme Court Order granting a Plaintiff’s (Foreclosing Lender) for a judgment of default and directed the retention of the Defendant’s (Successful Bidder) down payment for failure to close in accordance with the Terms of Sale.
The relevant facts of, as well as a link to, the case are set forth below.

In or about September 2019, the Lender, Wells Fargo Home Mortgage, Inc., through its court appointed Referee, conducted a foreclosure auction sale of a property located in Brooklyn, New York.  The Successful Bidder, in accordance with the Terms of Sale, delivered a down payment deposit in the amount of ten (10%) percent of the Purchase price (the “down payment”). After the Successful Bidder failed to close on both the original and the adjourned closing dates, the Lender made an application to the Supreme Court to, inter alia, hold the Successful Bidder in default under the Terms of Sale and to retain the down payment as liquidated damages. In response to the Plaintiff’s motion, the Successful Bidder argued that he was not in default because his title underwriter would not insure the transaction. Notwithstanding the Successful Bidder’s arguments, the lower Court held that the Successful Bidder’s alleged inability to obtain insurable title is not a valid basis for his refusal to close, as the Terms of Sale do not require the delivery of insurable title. In citing Bank of Am v. Petit; 89 AD3d 652, 653 [2d Dept 1001], the lower Court’s decision confirmed that a referee is only required to convey marketable title that is title free of “reasonable doubt”, but not from every doubt.

In affirming the Supreme Court’s Order, the Appellate Division, 2^nd Department held:

“The appellants’ contention that the purchaser did not default on the terms of sale because the plaintiff could not deliver insurable title is without merit. Neither the order and judgment foreclosure and sale, which confirmed
the referee’s report, nor the terms of sale and memorandum of sale stated that the purchaser was to be provided with insurable title (citation omitted)”.
https://www.nycourts.gov/reporter/3dseries/2024/2024_03842.htm

This case is an important reminder to carefully review the Terms of Sale in any foreclosure proceeding to confirm the Referee’s delivery obligations with respect to Title Insurance requirements prior participating in the auction.