Assignee Overturns Tax Sale
Despite Record Notice
Denisco had given a mortgage to MERS, as nominee for Aegis Lending. Denisco subsequently defaulted on tax payments to the City of Buffalo and was included in a list of delinquent taxes recorded in the Erie County Clerk’s Office pursuant to RPTL §1122(7). The mortgage was subsequently assigned to Wachovia Bank, corporate predecessor to the plaintiff, U.S. Bank. Soon thereafter, U.S. Bank began foreclosure proceedings on the mortgage. Approximately one month later, the City commenced an in rem foreclosure proceeding, mailing a copy of the petition and notice to Denisco, but not the Bank, as required by RPTL §1125. The in rem proceeding was completed and the property sold at auction.
The split panel pointed out that “it is well settled that ‘an assignee steps into the shoes of its assignor’ and ‘may pursue the same remedies as would have been available to the assignor,’” and found that “plaintiff may assert the lack of notice to Aegis as a ground for setting aside the tax foreclosure judgment and tax sale” because “the assignor was not provided the requisite notice and thus ‘was not aware of and could not’ pursue its legal remedies.” The dissent focused on the delinquent tax list recorded prior to the assignment. Because RPTL §1122(7) provides that the recorded list constitutes a notice of pendency under Article 65 of the CPLR, the dissenters believe it prevents the subsequent assignee from acquiring bona fide purchaser status. In addition, the dissent pointed out that the list should have been picked up on a search performed in connection with the filing of the U.S. Bank mortgage foreclosure, giving the bank an opportunity to redeem.
Cases such as Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983) focus on the fundamental unfairness to prior mortgagees of reliance on methods of notice which are unlikely to be received by the mortgagee. In those cases, the mortgagee has no reason to search the record after recording its mortgage. In Denisco, the assignee had the opportunity to search the record before taking the assignment. Perhaps this case will find its way to the Court of Appeals for a definitive answer.