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AFTER THE FORECLOSURE SALE BUT BEFORE THE CLOSING, THE MORTGAGOR STARTED AN ACTION ALLEGING FRAUD IN THE FORECLOSURE PROCEEDINGS; THE FRAUD ACTION DID NOT RENDER THE TITLE UNMARKETABLE SUCH THAT THE PURCHASER COULD SET ASIDE THE FORECLOSURE SALE AND HAVE THE DOWN PAYMENT RETURNED (SECOND DEPT).

The Second Department determined the fact that the mortgagor, after the foreclosure sale but before the closing, started an action alleging fraud in the foreclosure proceeding did not render the title to the property unmarketable. Therefore the purchaser at the foreclosure auction did not have right to set aside the foreclosure sale and have the down payment returned:

“A marketable title is a title free from reasonable doubt, but not from every doubt” … . “[S]omething more than a mere assertion of a right is essential to create an unmarketable or doubtful title” … . Here, contrary to the purchaser’s contention, the mortgagor’s action did not render title unmarketable. Therefore, the Supreme Court properly denied those branches of the purchaser’s motion which were to set aside the foreclosure sale and to direct the plaintiff to return the down payment. DiTech Fin., LLC v Steplight, 2022 NY Slip Op 03710, Second Dept 6-8-22

Practice Point: The title to the property sold at the foreclosure auction was not rendered unmarketable by a subsequent action brought by the mortgagor alleging fraud in the foreclosure proceedings. Therefore the purchaser’s motion to set aside the foreclosure sale and return the down payment was properly denied.

 

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