The level of proof that a lender must submit to obtain a deficiency judgment following a mortgage foreclosure was recently clarified by the New York Court of Appeals. Under RPAPL § 1371, a lender may seek a deficiency judgment within 90 days of the consummation of sale to recover the difference between the amount of the foreclosure judgment and the higher of the foreclosure auction price or the fair market value of the property.
In the case, the Court held that the lender failed to meet its burden to establish the fair market value of the property. The lender submitted a four-paragraph affidavit of the appraiser to establish the fair market value of the property at $475,000. The borrower did not file any opposition papers or appear at the deficiency judgment hearing.
The Court noted that the affidavit contained two paragraphs explaining the appraiser’s qualifications, “conclusory references to comparable sales,” and a general reference of “an examination of general economic trends, comparable rentals, and expense data.” The Court held that the affidavit failed to include the data and valuation criteria used by the appraiser in calculating the fair market value or a description of the property’s condition or the results of the inspection.
Moreover, the Court concluded that the affidavit did not attach any records to substantiate the appraiser’s conclusion as to the fair market value. The Court also ruled that the borrower’s failure to oppose the motion for deficiency judgment was “of no moment” because the lender carries the burden to establish the fair market value “through the submission of sufficient proof.” The Court, however, did hold that the trial court should not have denied the motion for deficiency judgment with prejudice, but instead should have allowed the lender an opportunity to submit additional proof.
In light of this decision, it is critical that lenders and servicers bolster their oversight of appraisers and their internal affidavit procedures to ensure that the appraiser obtains the appropriate detail and that such detail is included in the affidavit.
