New York Court Expands Borrower's Entitlement to Legal Fees After Foreclosure Action Successfully Defended – Lexology

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The New York Supreme Court, New York County, recently held that a borrower on a mortgage is entitled to recover reasonable legal fees pursuant to Real Property Law § 282(a) so long as a successful defense to foreclosure is asserted, even where it is undisputed that the borrower failed to make their monthly mortgage payments. NRZ Pass-Through Trust IV v. Rouge, 2021 WL 465982 (N.Y. Sup. Ct. Feb. 9, 2021). In the case, the Lender initially sought to foreclose on a mortgage given to it by the Borrower on her property. Although the record was clear that Borrower had not made her monthly mortgage payments, the foreclosure action was dismissed because she successfully argued that she had not been at her apartment when she was allegedly served with process. However, the Court’s dismissal in the initial foreclosure action did not address borrower’s claim for legal fees pursuant to RPL § 282(a), which was enacted in 2010 and states that attorney’s fees in certain litigations may be recovered when “supported by statute, court rule, or written agreement of the parties.” Lender moved for reargument on the dismissal, arguing that Borrower had actually appeared in the case, waiving the service issues. Borrower cross-moved for reargument, asserting that the Court had overlooked her claim for legal fees.
The Court granted Borrower’s motion for reargument and denied Lender’s motion for reargument. The Court first noted that the relevant section of RPL § 282 provided that whenever a mortgage encumbering residential real property contains a covenant that the lender may recover attorney’s fees upon a borrower’s breach of the mortgage agreement, it is also implied that the borrower may recover reasonable attorney’s fees incurred “in the successful defense of any action or proceeding commenced by the [lender] against the [borrower] arising out of the contract.” There was such a covenant contained in the mortgage agreement in the instant matter, and Borrower asserted a successful defense based on Lender’s failure to serve. Thus, the Court was compelled to award Borrower reasonable legal fees, “even [though] it [was] undisputed that” Borrower failed to make her monthly mortgage payments. The Court also addressed Lender’s motion for reargument, which was predicated on its argument that it had newly discovered evidence that Borrower’s attorney had filed a notice of appearance in the foreclosure action. The Court found that because the notice had been filed with the Court in 2016, it was not newly discovered evidence, and the fact that “plaintiff never bothered to check the file does not constitute a reason why it was unable to raise this argument in connection with previous motions.” Consequently, Lender’s motion for reargument was denied while Borrower’s motion was granted, and the Court found that Borrower “was entitled to reasonable legal fees to be determined at a hearing to be [later] scheduled.”
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