Adam Leitman Bailey, P.C. Wins A Foreclosure Notice Issue Of First Impression In The First Department
In a mechanic’s lien foreclosure auction, Adam Leitman Bailey, P.C. was retained post-auction on behalf of the third-party purchaser. The prior owner moved to vacate the sale. After an initial round of motion practice, the Court issued an interim order referring to the case to a special referee for a hearing on two separate grounds either of which could warrant vacating the sale: (1) whether the prior owner received proper notice of the auction, and (2) whether the sale price was unconscionably low.
Adam Leitman Bailey, P.C. conducted a four-day hearing including multiple witnesses from each side. The Special Referee issued a 36-page Report and Recommendation adopting much of Adam Leitman Bailey, P.C.’s arguments and findings. The Special Referee determined that after taking all of the testimony and weighing witness credibility, the value of the property was more in line with the Adam Leitman Bailey, P.C.’s client’s appraisal than with the prior owner’s appraisal.
With regard to the notice issue, it was undisputed that Plaintiff failed to serve prior owner with the notice of sale as directed by the prior order of another judge. However, Adam Leitman Bailey, P.C. argued that the prior owner had sufficient notice including notice to its counsel, and that the prior owner had actually appeared at the Courthouse with counsel on the date of the auction. The Special Referee agreed with Adam Leitman Bailey, P.C. and determined the evidence supported that the prior owner had constructive notice of the auction sale.
After issuance of the Report and Recommendation, the prior owner moved to disaffirm or modify the Referee’s Report, while Adam Leitman Bailey, P.C. moved to confirm it.
The parties engaged in an initial oral argument before the Judge, who directed the parties to submit supplemental letters regarding issues of the valuation of the property and adjourned for further argument.
At the subsequent appearance, after two hours of vigorous oral argument, the Court ruled in favor of Adam Leitman Bailey, P.C.’s client.
The Judge slightly modified the referee’s finding of the value of the property, but after calculating the percentage of value, held that the purchase price did not shock the conscience of the Court and was not a basis to set aside the sale.
The Judge said the notice issue was a close call, and that it was likely a case of first impression for the appellate division. The judge held that while the Plaintiff’s lawyer may have failed to serve the prior owner as directed by the previous order, there was sufficient notice. The prior’s owner principal and attorneys appeared at the courthouse on the date and at the approximate time and location of the foreclosure auction. Despite the prior owner’s confusion as to where the auction was to be held within the courthouse and therefore not bidding, it was not legally prejudiced. By finding in favor of Adam Leitman Bailey, P.C.’s client on both issues, the Judge upheld the sale of the Property to the third-party purchaser.