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Saving time--inviting the odious answer to disappear.

At the risk of sounding trite, we observe the bromidic phrase "Time is money"--and there are few arenas in which this admonition better applies than the mortgage foreclosure case. One of the primary imposers of the dreaded time is the litigated action. While it is, of course, possible for a borrower to assault a non-judicial foreclosure, the litigation process is most oppressive in judicial foreclosure states where the pitfalls can waste months, sometimes years--all of which translates into ever-accruing debt.

Among the innumerable events that are a plague upon the progress of a mortgage foreclosure case is the submission of a baseless answer by some defendant. The moment that occurs, the servicer is obliged to dispose of that answer before the action can proceed.

Banishing that answer typically requires a motion for summary judgment, although it is possible that discovery and a trial might be required--especially if a motion for summary judgment is defeated. The point here, though, is not the minutiae of litigation procedure (that can vary, and is for servicers' counsel to address), but to highlight the peril and delay that can emerge. What's more, depending upon the equity cushion--lately a vanishing commodity--the servicer might have to absorb the interest cost engendered by the considerable delay, to say nothing of the increased legal fees attendant to what is now a litigated case.

Could there be some occasions when a defendant can be persuaded to withdraw that answer? It might seem counter-intuitive, but the answer is "yes"--which is the message of this column. How and when to attempt the approach merits some exploration.

As servicers know, the foreclosure case in judicial foreclosure states can have multiple defendants in addition to the borrower or property owner. These include, for example, junior lenders, judgment creditors and holders of mechanic's liens.

Consider the latter as an example. A lien is filed, is revealed of record in the foreclosure search, and elicits naming the lienor as a party defendant to unburden the title from that interest. The lienor is served, and probably doesn't even know why. He turns over the pleadings to his attorney, who likely has little or no experience with specialized mortgage foreclosure litigation. (Although not often so denominated, mortgage foreclosure is a specialized legal pursuit.)

Because an attorney's natural--or trained--inclination when sued is to submit an answer, that is precisely what the lawyer does here. An answer serves to postpone a conclusion and tends to clarify a plaintiff's position, so it appears, and it is assumed, that some worthy goal is served. But is it? The answer is most often "no," even though counsel to the mechanic's lienor will not know that--unless told. And that is precisely a point of this review.

Overwhelmingly, the mechanic's lien is in actuality junior and subordinate to the mortgage being foreclosed. That being the case, the answer on behalf of the lienor will not defeat the foreclosure case.

This analysis also applies to the ubiquitous judgment creditor. Borrowers in distress can often incur debts that lead to suits that beget judgments. When the judgment attaches to the mortgaged premises, the judgment creditor becomes a necessary defendant in the foreclosure action. He, too, (and his attorney) often will not well understand foreclosure methodology, and may respond to the action with that loathsome, dilatory answer.

Here is a key concept. Assuming the likes of subordinate mortgages, mechanic's lienors and judgment creditors cannot defeat the foreclosure action, the only definition of success for that holder of a junior interest (other than the owner selling the property with generous equity and paying off everyone) is to claim against such surplus as the foreclosure sale will generate. Surplus is diminished, however, concomitant with the time and effort expended by plaintiff in forging through the foreclosure.

Lenders and servicers need not be reminded that the passage of each day in the foreclosure case increases the accrual of interest. The larger the mortgage and the greater the rate of interest--particularly where a default rate may apply--the greater will be the debt due the lender. Insofar as the answer submitted by a defendant then necessitates a motion for summary judgment (or perhaps even a trial), many months (or more) are added on to the case. Then, of course, additional legal fees are incurred that can become further increments to the debt.

All these factors portend reduction or elimination of surplus. While lenders and servicers know this, our not-so-hypothetical attorney for the mechanic's lienor (or judgment creditor, among others) may be completely unaware of the consequences resulting from that seemingly innocuous answer he submitted.

Defendant's attorney should be enlightened, and that is where self-help can persuade the lawyer to withdraw the answer. So, servicer's counsel is well-advised on some occasions to respectfully make these points in a letter to the party who interposed the answer. The message is that the answer will not succeed in defeating the foreclosure. It will, however, waste time, thereby increasing interest. It will also incur legal fees that will be added to the debt; the greater the debt, the less money will be left for the mechanic's lienor (or judgment creditor or inferior lender).

The explanation is sensible (it is, after all, correct), and on some occasions is favorably received. The urging is for this defendant's attorney to substitute some less-time-consuming mode of appearance in the place of the answer. The servicer's attorney should consider preparing the appearance document and enclosing it with the letter to ease compliance.

This method becomes somewhat more problematic in cases where the answer originates with the borrower. The borrower is typically in a more desperate situation, grasping at any chance to postpone the inevitable or perhaps create a path to live rentfree at the premises all the longer. The delay engendered by submission of an answer could be advantageous for the borrower if there is a glimmer of hope that, given enough time, the servicer will capitulate or the property can be sold or refinanced, thus saving the day. (Sometimes delay for its own sake appears to be the goal.)

There is, though, another aspect of the equation where the borrower is concerned. Not only do delay and litigation diminish surplus; they increase the likelihood and then the amount of a deficiency. Where the loan is recourse, the borrower can be personally liable for the shortfall. Because such liability is most often worthy of avoidance, even an otherwise recalcitrant borrower could be amenable to withdrawing an answer.

Obviously, all this involves dynamics, personalities, facts and circumstances. There is no rule. There is, nonetheless, a suggestion that a sage letter under the right conditions can be beneficial. Even if persuasion as a tool is successful only some of the time, each productive instance is one less headache--and one less possible loss. These can add up, and become meaningful across a servicer's portfolio.

Bruce J. Bergman is a partner with Berkman, Henoch, Peterson & Peddy PC, Garden City, New York. He is the author of a three-volume text, Bergman on New York Mortgage Foreclosures (LexisNexis Matthew Bender [rev. 2008]), and a member of the USFN. He can be reached at
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Title Annotation:Servicing
Comment:Saving time--inviting the odious answer to disappear.(Servicing)
Author:Bergman, Bruce J.
Publication:Mortgage Banking
Article Type:Column
Geographic Code:1USA
Date:Apr 1, 2008
Previous Article:Indymac Bank FSB's Mortgage Broker Division.
Next Article:Back to basics.

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