Legal Update: Title Protection for Bona Fide Purchasers Survives Foreclosure Judgment Reversal

This week we wanted to draw your attention to a recent decision out of the Appellate Division, Second Department which affirmed a lower court’s order and held that “[i]n the absence of a stay of the sale or an outstanding notice of pendency, title of the purchaser in good faith and for value "is . . . insulate[d] . . . from the effects of an appellate reversal" of an Order granting a Judgment of Foreclosure and Sale (citations omitted). 
The relevant facts of, as well as a link to, the case are set forth below.

In January 2015, JPMorgan Chase Bank, National Association (hereinafter Chase), commenced this action against the defendant 778 Logan, LLC (hereinafter the defendant), among others, to foreclose a mortgage on certain real property located in Brooklyn. Chase subsequently assigned the mortgage to U.S. Bank Trust, N.A. (hereinafter U.S. Bank Trust) and U.S Bank Trust was subsequently substituted as the plaintiff in the foreclosure action.  An order and judgment of foreclosure and sale was issued on November 1, 2017,  which granted U.S. Bank Trust's motion to confirm the referee's report and for a judgment of foreclosure and sale and directed the sale of the property and the defendant appealed.   While the appeal was pending, a foreclosure sale was held, after which the referee, by referee's deed dated January 25, 2018, conveyed the property to U.S. Bank Trust, the highest bidder at the sale.   Thereafter, by deed dated February 15, 2019, U.S. Bank Trust conveyed the property to Bronx H, LLC (hereinafter Bronx H).  Bronx H subsequently took out two (2) separate mortgages on the property from Wisdom Ventures, LLC (hereinafter Wisdom), which then assigned the mortgages to Webster Business Credit Corporation (hereinafter Webster).  Thereafter, by deed dated July 17, 2019, Bronx H conveyed the property to bona-fide purchasers for value, Sherifat Spencer, Alui A. Makanjuola, and Rasheedat Muse-Kosoko, who executed a mortgage on the property in favor of Nationwide Mortgage Bankers, Inc. at the time of closing.
 
In a decision and order dated January 12, 2022, the Appellate Court reversed the order and judgment of foreclosure and sale (see U.S. Bank Trust, N.A. v Bank of Am., N.A., 201 AD3d 769) and the defendant then moved to cancel or set aside the referee's deed dated January 25, 2018, as well as all subsequent instruments transferring or encumbering the property, taking a position that since the order and judgment of foreclosure and sale had been reversed, the referee consequently lacked authority to sell the property.   U.S. Bank Trust opposed the Defendant’s motion and by order dated March 29, 2022, the Supreme Court denied the motion and this appeal ensued.
 
After review of the record on appeal, the Appellate Court affirmed the lower court’s March 29, 2022 Order and held that “ when a judgment of foreclosure and sale is reversed on appeal, the successful appellant may seek restitution of property lost by the judgment (see CPLR 5015[d]; 5523), where, as here, the property was sold pursuant to the judgment of foreclosure and sale, and the title is held by "a purchaser in good faith and for value," recovery is limited to the value of the property”  Moreover, the Court went on to state that In the absence of a stay of the sale or an outstanding notice of pendency, title of the purchaser in good faith and for value "is . . . insulate[d] . . . from the effects of an appellate reversal" (citations omitted).Click the below link to view the case:
https://www.nycourts.gov/reporter/3dseries/2025/2025_01256.htm