New York State Appellate Court Confirms that Failure to Raise Condition Precedent Defense Results in Waiver of that Defense

By: Shane Biffar

A recent decision from New York’s Appellate Division, Second Department, confirms that a foreclosure Plaintiff’s failure to comply with a condition precedent to foreclosure does not constitute grounds to vacate a foreclosure judgment obtained on default.   In Deutsche Bank Trust Co. Ams. v. Shields, 2014 N.Y. App. Div. LEXIS 2201, 2014 NY Slip Op 2254 (N.Y. App. Div. 2d Dep’t 2014), the defendant borrower appealed from a judgment of foreclosure and sale which had entered after the borrower defaulted in appearing or answering the complaint.   At the trial court, the borrower moved to vacate the foreclosure judgment, arguing that the plaintiff’s failure to provide thirty (30) days’ written notice of the loan payment default, which was listed as a condition precedent in the mortgage, prevented the trial court from entering the judgment of foreclosure and sale. The trial court agreed with the borrower and vacated its own judgment of foreclosure and sale.

On appeal, the Second Department reversed and held that “the plaintiff’s alleged failure to satisfy a condition precedent . . . even if true, did not deprive the Supreme Court of jurisdiction to enter the judgment of foreclosure and sale.”  This case confirms prior decisions which have held that the defense of failure to comply with notice requirements, including those stated in the terms of the mortgage and those prescribed by statute (see RPAPL §§ 1303 and 1304), is waived if the borrower fails to raise it in the answer or in opposition to plaintiff’s motion for summary judgment on the complaint.[1]  In essence, “[a] judgment of foreclosure and sale entered against a defendant is final as to all questions at issue between the parties, and concludes all matters of defense which were or might have been litigated in the foreclosure action.” [2]

The Deutsche Bank Trust Co. Ams. decision is significant due to the procedural posture of the case. In general, a motion to vacate a prior judgment or order is addressed to the trial court’s “sound discretion, subject to reversal only where there has been a clear abuse of that discretion.”[3]  Accordingly, the Deutsche Bank Trust Co. Ams. decision, which is consistent with the Second Department’s previous holding in Signature Bank v. Epstein, 95 A.D.3d 1199, 1201 (N.Y. App. Div. 2d Dep’t 2012), appears to firmly establish the Court’s position that “condition precedent” defenses are not only waived if not asserted, but that a trial court abuses its discretion by vacating a default judgment on grounds of plaintiff’s failure to comply with notice requirements. 

[1] See Signature Bank v. Epstein, 95 A.D.3d 1199, 1201 (N.Y. App. Div. 2d Dep’t 2012); Pritchard v. Curtis, 101 A.D.3d 1502, 1504-1505 (N.Y. App. Div. 3d Dep’t 2012).

[2] Long Is. Sav. Bank v. Mihalios, 269 A.D.2d 502, 503 (N.Y. App. Div. 2d Dep’t 2000).

[3] Maddux v. Schur, 53 A.D.3d 738, 739 (N.Y. App. Div. 3d Dep’t 2008)..

 

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