Necessary Parties in a Foreclosure—Who Needs to be Captioned and Served?

Long Island Foreclosure AttorneySome foreclosures involve a mortgage lender filing a legal action against a single homeowner, though not all foreclosure actions are that simple. Under certain circumstances, there may be multiple necessary parties that a plaintiff must include in the action or else risk those parties retaining rights in the property. If you were not properly included in a foreclosure action, you may have the right to defend your property interests, and you should speak to a skilled foreclosure defense lawyer right away. Read on to learn more about necessary parties in a foreclosure action under New York law.

Captioning and Serving Necessary Parties

When a mortgage lender wants to initiate a foreclosure action, they must file a petition with the proper court. At the top of every foreclosure petition, there will be a caption, which names the parties in the legal action. In some cases, the caption will include one plaintiff and one defendant, such as New York Bank, Plaintiff v. Mike Smith, Defendant. However, the caption can (and should) include multiple plaintiffs and defendants when necessary.

All captioned defendants must be properly served notice of the action and summons, including all of the necessary information and disclosures required by New York Real Property Actions and Proceedings Law (RPAPL) § 1303, such as the “Help for Homeowners in Foreclosure” notice.

Who are “Necessary Parties”?

New York RPAPL § 1311 clearly states that necessary defendants in a foreclosure action include anyone “whose interest is claimed to be subject and subordinate to the plaintiff’s lien.” The statute goes on to specify the following types of interests that can qualify parties as necessary defendants:

  1. Every person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the courtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein.
  2. Every person having a right of dower or an inchoate right of dower in the real property or any part or share thereof.
  3. Every person having any lien or incumbrance upon the real property which is claimed to be subject and subordinate to the lien of the plaintiff.
  4. Where the mortgage is upon any of the public utilities regulated by the public service law, the public service commission.

In addition to the mortgagors themselves, such parties may include anyone who acquired the following after the execution of the mortgage in question:

  • A lease
  • A lien
  • An easement

Courts in New York have especially emphasized that “tenants are necessary parties to a foreclosure action.” (1426 46 St. v. Klein, 60 A.D.3d 740 (N.Y. App. Div. 2009). This means that foreclosure plaintiffs should always include all tenants of the property, lienholders, and anyone else who gained an interest in the property after the mortgage execution in the action. All such parties should be included in the caption and properly served with the complaint, summons, and all required information.

What Happens When Necessary Parties Are Omitted?

Some foreclosure defendants in New York have tried to file motions to dismiss a pending action based on the omission of other necessary parties. However, New York courts have denied such motions, stating that the remedy for such an omission is not “to dismiss the action upon the motion of the party who was properly named.” (Dime Sav. Bank of N.Y. v. Johneas, 172 A.D.2d at 1082, 569 N.Y.S.2d 260.) Instead, the plaintiff should have the opportunity to join the omitted necessary parties to the action and properly serve them.

CPLR 1001 allows for joinder of additional parties, stating that “Persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants.” CLPR 1003 adds that “Parties may be added at any stage of the action by leave of court or by stipulation of all parties who have appeared, or once without leave of court within twenty days after service of the original summons or at anytime before the period for responding to that summons expires or within twenty days after service of a pleading responding to it.” However, CPLR 1003 also states that if a plaintiff fails to properly join a party who should be a defendant under CPLR 1001, the court will have grounds to dismiss the action without prejudice if it will not let the action proceed without all necessary defendants. In most cases, New York courts have found that the judgment “may be inequitably affected” without proper joinder of the necessary defendants, which will mean a dismissal in the event of nonjoinder. Beltway Capital, LLC v Soleil, 2009 NY Slip Op 52403(U) [25 Misc 3d 1233(A)].

By pointing out to the court that there are omitted necessary parties, property owners may be able to buy some time since the proceedings may be delayed for a joinder or even dismissed upon nonjoinder. The plaintiff will have to serve the joined defendants, and the court may have to reanalyze the case in light of the new defendants. This may give mortgagors a chance to have their attorneys negotiate further with the lender to reach a settlement that prevents foreclosure, including a mortgage loan modification.

In some cases, a court may order a foreclosure judgment without realizing the omission of necessary parties. If defendants fail to notice the omission and necessary parties do not come out of the woodwork on their own, the foreclosure sale may occur without the parties knowing their interests were ever at stake. In these situations, New York courts have repeatedly held that:

“The absence of a necessary party in a foreclosure action leaves that party’s rights unaffected by the judgment and sale, and the foreclosure sale may be considered void as to the omitted party.” (see 6820 Ridge Realty v Goldman, 263 AD2d at 26.)

This case law is especially important for tenants of a property sold in foreclosure who were not properly captioned and served as part of the action. Normally, a foreclosure sale would terminate a lease agreement and terminate the tenant’s rights to possess the property. However, if the plaintiff failed to include a tenant as a necessary party, the tenant “retains the right to remain in possession of the property for the remainder of the term of his or her tenancy, regardless of whether the lease has been recorded. The failure to join a tenant as a party fails to cut off the tenancy.” This means the tenant can continue to possess the premises according to the lease agreement until the lease expires. Additionally, omitted lienholders can still enforce the lien, as omitted parties with easement rights may still exercise those rights.

“John Doe” Defendants

Sometimes, a lender will not know the identities of all necessary parties, though they know there likely are additional necessary parties out there. In these cases, the plaintiff may include “John Doe” or “Jane Doe” defendants in the caption. When the plaintiff learns their identities, they can file a motion with the court to substitute the proper names and continue with service. They can also request that unnecessary “John Does” be stricken from the caption. While some lower courts have denied these motions, New York Appellate courts have often reversed these decisions, such as in Deutsche Bank Nat’l Trust Co. v. Islar, 996 N.Y.S.2d 130 (N.Y. App. Div. 2014).

Discuss Your Options with an Experienced Long Island Foreclosure Defense Attorney

If you learn of an impending foreclosure action, you should always contact a skilled foreclosure defense lawyer. At the Law Office of Ronald D. Weiss, we know all of the intricate foreclosure laws and standards in New York, and we identify all possible ways to defend against foreclosure actions. Call (631) 271-3737 or contact us online to schedule your consultation today.