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Lender’s Failure to Timely Prosecute Action Results In Estoppel

A recent court decision dismissed a lender’s revived attempt to foreclose on its mortgage where a third party had purchased the mortgaged property at a time that the lender’s foreclosure action had been dismissed for lack of prosecution. LaSalle Bank N.A. v. Daniels, 2019 NY Slip Op. 50211(U), 2019 N.Y. Misc. LEXIS 669 (Sup. Ct. Kings Co. Jan. 7, 2019). LaSalle Bank had commenced a mortgage foreclosure action against Donna Daniels and others on in May 2008. Although the defendants had defaulted, in September 2013, the court dismissed the action as abandoned due to LaSalle’s failure to adequately prosecute its action and to seek a default judgment within one year. In the court’s order, LaSalle’s notice of pendency was also vacated. LaSalle’s six year statute of limitations to foreclose thus apparently expired in May 2014 – after LaSalle’s action had been dismissed.

At the same time, a separate, junior lender was pursuing its own foreclosure action and successfully obtained judgment of foreclosure and sale in September 2009. The property was eventually sold to bona fide purchasers, pursuant to a deed dated July 25, 2014 and recorded on August 7, 2014 — approximately 10 months after LaSalle’s action had been dismissed and its notice of pendency vacated and three months after LaSalle’s statute of limitations had apparently expired.

Thereafter, in September 2014, LaSalle, without notifying the purchasers, successfully vacated the order dismissing its foreclosure action, thereby restoring such action. The purchasers were granted leave to intervene in LaSalle’s action to defend against LaSalle’s revived attempt to foreclose on the property that they had purchased believing that LaSalle’s mortgage was no longer enforceable. The purchasers moved for summary judgment dismissing the complaint and LaSalle cross-moved for summary judgment.

In its recent decision, the court granted the purchasers’ motion for summary judgment dismissing the complaint and denied LaSalle’s cross-motion. The court found that the purchasers had “established as a matter of law that plaintiff should be estopped from assertion of rights on the subject property based on the doctrine of laches.” The court found that, when the purchaser bought the property, they were justified in believing that LaSalle’s mortgage was no longer enforceable because there was no pending foreclosure action or notice of pendency on file, and the statute of limitations had seemingly expired. Thus, “the record establishe[d] that there was no reason to believe that plaintiff could or would attempt to foreclose on the subject mortgage,” and the purchasers, who acted in reliance on such record, would be prejudiced if LaSalle were allowed to foreclosure. Accordingly, LaSalle was precluded from foreclosing on its mortgage.