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FEDERAL HOME LOAN MORTG. CORP. v. DUTCH LANE ASSOC

December 28, 1992

FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiff,
v.
DUTCH LANE ASSOCIATES, MORTON L. GINSBERG, d/b/a A & P MAINTENANCE, VILLAGE OF SPRING VALLEY, and PEOPLE OF THE STATE OF NEW YORK, Defendants.


GOETTEL


The opinion of the court was delivered by: GERARD L. GOETTEL

GOETTEL, D. J.,

 I. FACTUAL BACKGROUND:

 On October 16, 1991, this court granted summary judgment of foreclosure on a consolidated mortgage and note held by plaintiff the Federal Home Loan Mortgage Corporation ("FHLMC") after defendant Dutch Lane Associates ("Dutch Lane") defaulted on its monthly payments. *fn1" A judgment of foreclosure and sale was entered in July 1992 and a referee was appointed to conduct the sale. The Referee published a notice of sale once a week for four consecutive weeks in the New York Law Journal pursuant to RPAPL § 231. Defendants claim that no notice of sale was served upon the attorneys for the moving defendants. As a result, the defendants were allegedly unaware of the sale scheduled for September 23, 1992 at which the property was sold at auction for over $ 1 million to plaintiff as the successful bidder.

 Defendants allege that they learned of the sale when plaintiff's attorney served the Referee's Report of Sale upon them. After plaintiff allegedly refused to vacate the sale, defendants moved to have the sale set aside and also moved for Rule 11 sanctions arguing that plaintiff intentionally refrained from informing defendants of the sale. Conversely, plaintiff moves to confirm the sale.

 II. DISCUSSION

 Essentially, only one issue need be decided by this court, namely whether personal notice to defendants' attorney was required before a valid sale could be done? Resolution of this issue boils down to deciding whether plaintiffs need only have complied with the federal laws on service of notice of the sale of real property or whether plaintiffs were also required to comply with the relevant state procedures.

 Defendants argue that New York law requires that pursuant to New York CPLR § 2103(b) defendants, as parties to the foreclosure proceedings who appeared and did not waive service of notice of sale, receive notice of sale in the same manner as all other legal papers have been served upon them. See Aetna Life Ins. Co. v. Avalon Orchards, Inc., 103 A.D.2d 948, 479 N.Y.S.2d 564 (3rd Dep't 1984). *fn2"

 In Shaw v. Russell, 60 N.Y.2d 922, 471 N.Y.S.2d 40, 459 N.E.2d 149 (1983), the New York Court of Appeals affirmed the Appellate Division's decision to vacate a foreclosure sale for improper notice. The court held without much discussion that:

 [a] party to a foreclosure proceeding who appears and waives service of the papers but who reserves right to receive notice of sale is entitled to such notice in the ordinary manner in which papers are to be served upon a party in a pending action. Notice by publication pursuant to RPAPL 231 is insufficient to comply with that requirement.

 Id. at 40. This legal holding comports with the position legal commentators take on New York's notice requirements. Bergman On New York Foreclosures P 30.06(1)(b) states in part that:

 If a defendant has effectively appeared, then delivering the notice of sale to him is a prerequisite to a valid sale. In such a case publication alone, which would otherwise suffice, will not be enough.

 Defendants also argue that because they had no notice of the sale, they were deprived of their right to due process when property in which they had an interest was sold without their personal notice. See Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 77 L. Ed. 2d 180, 103 S. Ct. 2706 (1983) (personal notice to mortgagee in an in rem tax foreclosure on property in ...


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