Do It Right the First Time!
So says the Second Department in a case where a foreclosing lender failed to join a subordinate easement holder. Bass v. D. Ragno Realty Corp., 2013 NY Slip Op 07924 (2nd Dept., November 27, 2013).
Following the execution of the mortgage, the borrower granted an easement to the adjoining property owner. The agreement was recorded. When the lender subsequently began foreclosure proceedings, it was “unaware of the easement and did not name [the easement holder] as a party in that action.” The foreclosure was completed and the lender purchased the property at auction. After learning of the easement, the lender commenced an action seeking “strict foreclosure” pursuant to RPAPL §1352 or ”reforeclosure” pursuant to RPAPL §1503.
The Court narrowly interpreted both statutes. RPAPL §1352, by its terms, only applies to an action “to foreclose or extinguish a right of redemption in … real property” claimed by “the holder of [a] mortgage or other lien.” Similarly, RPAPL §1503 only applies to a “judgment, sale or conveyance [that is] … void or voidable ….”
The panel reasoned that an easement holder is not a mortgagee or lienor. Since it lacks an equity of redemption or a right to possession, it can neither foreclose or redeem, nor void the judgment or sale. Hence, an easement holder is not amenable to suit under either statute. The judgment is final, and the parcel is burdened with an easement to which the lender did not consent.
Comment:
This appears to be a case of first impression in New York. But, it seems to be at odds with prior case law. RPAPL §1311, ¶3, requires joinder of every person having “any incumbrance” that is subordinate to the mortgage. Both the First and Second Departments have held that failure to join a necessary party means the “foreclosure sale may be considered void as to the excluded party” (emphasis supplied). Unless the failure to find the recorded easement and join its holder resulted from “willful neglect” (RPAPL §1523), reforeclosure should have been obtainable under RPAPL §1503.