sale in at least one newspaper regularly issued and of general circulation in the county, state, or wherein the realty is situated.
It is plain from the express language of these sections that notice by publication is the minimum requirement of notice when property is sold pursuant to federal court order. The decisive question is whether such publication is not only necessary but sufficient for the FHLMC to comply with. Answering this question turns on the degree to which this federal statute on notice preempts New York's CPLR § 2301 notice procedures for real property sales. The preemption effects of federal statutes can either by partial or complete depending upon the pervasiveness of the scheme of federal regulation of an area. Fidelity Federal Sav. and Loan Ass'n v. De La Cuesta, 458 U.S. 141, 153, 73 L. Ed. 2d 664, 102 S. Ct. 3014 (1982); see also Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 91 L. Ed. 1447, 67 S. Ct. 1146 (1947).
In the area of mortgage foreclosures, courts have held that the federal law's displacement of state law is not complete. See, e.g., Whitney, 602 F. Supp. at 728 (holding that the Veterans' Administration regulations governing mortgage foreclosures do not totally displace New York law in that field).
In O'Connell, 496 F.2d 1329, the Second Circuit, while recognizing that it had previously held that federal law governed Federal Housing Administration foreclosure proceedings, applied New York law to determine precisely what property a buyer had actually purchased at the FHA foreclosure sale. See id. at 1332. The court relied upon the fact that there was no suggestion that state law was hostile to the federal scheme. Id.
"Where Congress has not completely displaced state regulation in a specific area, state law is nullified to the extent that it actually conflicts with federal law." Fidelity Federal, 458 U.S. at 153. The basic rule of thumb is clear: to the extent a state law actually conflicts with federal law, the state law must give way. Regarding the notice procedures required for the foreclosure sale of federally insured property pursuant to federal court order, we do not find that New York's notice provisions conflict with federal law. Sections 2001(a) and 2002 clearly establish a four-week publication period as a minimum for the sale of real property pursuant to federal court order. Nothing in their express language suggests that they were intended to establish notice-by-publication as the only notice required for real property sales. Indeed, the provisions only mandate that no public sale of real property pursuant to federal court order shall occur without notice-by-publication. Their language places no express limitations on the notice procedures states may supplement it with, so long as they are not inconsistent with §§ 2001(a) and 2002. We interpret them to mean that notice-by-publication is the minimum notice required to properly effectuate a sale of real property under a federal court's direction.
Requiring the FHLMC to also give defendants who have an undisputed interest in the property personal notice in no way undercuts this federally uniform notice threshold. There is no inherent incompatibility in complying with the notice-by-publication provisions of §§ 2001 and 2002 while also serving personal notice to parties with substantial interests in the property who have appeared pursuant to CPLR § 2301(b).
As such, the present situation is unlike cases such as United States v. Merrick Sponsor Corp., 421 F.2d 1076 (2d Cir. 1970) where a state statute of limitations for deficiency judgment motions was mutually inconsistent with Veterans' Administrations regulations. Id. at 1079 n. 1. The court in Merrick noted the "decisions applying 'federal law' to supersede state law typically relate to programs and actions which by their nature are and must be uniform in character throughout the Nation." Id. at 1078-79 (quoting United States v. Yazell, 382 U.S. 341, 354, 15 L. Ed. 2d 404, 86 S. Ct. 500 (1966)). Here, applying CPLR § 2301(b) works no mischief on the federal notice-by-publication scheme. Requiring personal notice for parties who have appeared and not waived notice only supplements, not supplants or obstructs, the federal notice provisions. The desirability of a uniform federal rule for the minimum notice required for property sales pursuant to court order is plain. See Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 87 L. Ed. 838, 63 S. Ct. 573 (1943). However, personal notice pursuant to CPLR § 2301(b) causes no interference with the integrity of the federal notice scheme.
Recognizing New York's personal notice requirement also comports with fundamental notions of due process by insuring that a person with an established property interest in a building receives notice of its sale. See Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 77 L. Ed. 2d 180, 103 S. Ct. 2706 (1983). In Mennonite, the Supreme Court held that when a mortgagee was identified in a publicly recorded mortgage, constructive notice by publication must be supplemented by notice mailed to the mortgagee's last known address, or by personal service. Id. at 798. The Court stated that:
Notice by mail or other means as certain to ensure actual notice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interest of any party, whether unlettered or well versed in commercial practice, if its name and address are reasonably ascertainable.
Id. at 800.
The present case may not be as compelling as the circumstances in Mennonite where the mortgagee clearly had no actual notice of the impending tax foreclosure sale. Plaintiff stresses that defendants were fully aware that a sale would occur after the four-week period after judgment of foreclosure had elapsed. Defendants did fully participate in the foreclosure proceedings before this court and were personally served with the judgment of foreclosure and sale which directed that the property be sold, and directed that notice of the sale be published once a week for four weeks. This should have doubtless provided defendants with general notice of the FHLMC's intention of selling the property as soon as the four-week period expired.
However, this says nothing about whether defendants, as parties who had appeared in this action, were entitled to specific notice of the date and place of sale and whether they had somehow acquired actual knowledge of them. Plaintiff describes defendants as having "full knowledge." Plaintiff's Reply Memorandum at 11. However, there is no evidence that defendants possessed actual knowledge of the crucial facts: the date and place of sale. To the contrary, in a letter dated October 20, 1992, defendants' counsel notified plaintiff's counsel after receiving the Referee's Report of Sale that they had been provided no notice of the sale nor had any knowledge that the sale had been scheduled or had occurred on September 23, 1992. See Kazarnovsky Affidavit, Exhibit 1. Defendants's full participation in the proceedings up to that point and their vigorous, though unsuccessful, opposition to foreclosure, which plaintiff's stresses, do not speak to their notice of the sale.
In his Reply Affidavit, plaintiff's counsel states that there can be no dispute "that Mr. Trien [defendants' counsel] had actual notice that the sale would occur shortly after four weeks beyond the date of judgment." Decea Reply Affidavit at 2. Knowledge of a sale "shortly after" the four weeks had concluded following the judgment of foreclosure does mean that defendants had any notice of when the sale would actually occur. Plaintiff was free to set a date for the property's sale any time after those four weeks had expired. Nothing required plaintiff to set the sale on any particular date. Even if defendants had some general, ballpark idea of the sale's timing, this is not the functional equivalent of knowing specifically when and where the sale would be held. Yet, it is such key information that the notice provisions of New York law are designed to ensure is communicated to parties with substantial interests in the property for sale.
In many cases, defendants indicate no interest in the sale of the property. Where, as here, they have shown an intense interest, notice should be provided. This holding will not erase the benefits of a uniform federal law on notice requirements for real property sales. Sections 2001(a) and 2002 guarantee a minimum standard of uniformity for property sales carried out pursuant to the mandate of federal courts. As such, New York's requirement of personal service of notices of sale poses no discernable obstacle to accomplishing this federal objective. Nor does it grant defendants any additional substantive rights under New York law. Rather, New York's requirement that specific notice be sent enhances the federal goals of ensuring that parties with significant interests in a property are informed when that property will be sold. In this regard, CPLR § 2301(b) helps implement and fulfill the federal policy in ensuring that interested parties receive notice of the sale of property pursuant to a federal court decision.
Recognizing the applicability of state notice provisions which do not conflict with the federal notice-by-publication statutes also comports with past FHLMC practice. In two separate actions in New Jersey relating to other properties owned by the principals of defendant MLG, counsel for the FHLMC personally served all the defendants in that case with a specific notice of sale pursuant to state law. See Trien Reply Affidavit, Exhibits 3, 4 and 5. While this does not necessarily indicate the FHLMC's recognition that it is bound by state notice procedures, it is at least instructive on how the FHLMC conducts its business in some states.
Effecting personal service on defendants here would have been a simple process under the present circumstances. Plaintiff's counsel was well-acquainted with defendants, having dealt with them in this prolonged litigation. Plaintiff's counsel is no doubt fully familiar with the address of defendants' counsel who have represented defendants since August 1991. Given that he has presumably served every other paper on defendants' counsel, we can see no reason why plaintiff's counsel should have chosen not to serve defendants' counsel with a notice of sale, even if only as a matter of courtesy. Serving defendants' counsel with personal notice of the sale would have worked no hardship whatsoever. Any added burden would certainly have been de minimis.
Plaintiffs claim that defendants consciously failed to pursue the two options that existed to stop the sale, bankruptcy or settlement, and should thus be estopped from attacking the sale on notice grounds. Plaintiff recounts that certain attempts at settlement were made but defendants' attorney went on vacation without confirming that letters of inquiry were actually sent or received. We are unable to explain why defendants' counsel, after two years of dealing with Mr. Decea who has handled this case for plaintiff since its inception and works out of Elmsford, New York, sent a last-minute settlement communication to the FHLMC's office in Virginia. As a result, the September 8, 1992 letter was not received by plaintiff's counsel until September 30th, one week after the foreclosure sale had occurred. We shall not attempt to sort out this factual thicket. However, we note that the fact that defendants elected not to file in bankruptcy or failed to effect a settlement with the FHLMC before the sale does not mean that they have somehow waived their right to notice of the sale.
Plaintiff also argue that there is no evidence that defendants could have made a bid on the property with their own funds had they received personal notice. While we harbor serious doubts that defendants would have bid on the property given their precarious financial position (which was a prime cause of their inability to keep up with the property's mortgage payments in the first place), we shall not attempt to sort out this dispute factual issue either. Nor do we give any credence to defendants' speculative claim that notice would have enabled them to encourage other prospective bidders to attend the sale. We presume that rounding up potential bidders is exactly what the month of published notices is intended to accomplish. Given our holding, we also make no attempt to delve into defendants' claim that they could have exercised a right of redemption.
To conclude, we hold that New York's statutory provisions on notice of a sale are not inconsistent with the notice-by-publication requirement of §§ 2001 and 2002. Personal service should have been provided to defendants pursuant to CPA § 2301(b) before the property was sold. Failure to provide such notice necessitates a new sale upon proper notice. Consequently, we vacate the sale and order plaintiff to effect proper service upon defendants before a second foreclosure sale.
Dated: White Plains, New York.
December 28, 1992.
GERARD L. GOETTEL