The New York Appellate Division, Third Department, recently held that a tax sale foreclosure extinguished a mortgage on a property and, more important, the mortgage was not reinstated when the City later quitclaimed the property back to the borrowers as part of the borrowers’ bankruptcy action. See Wells Fargo Bank, N.A. as Tr. for Carrington Mortg. Loan Tr., Series 2006-NC2 Asset- Backed Pass-Through Certificates v. Budram, 188 A.D.3d 1324 (N.Y. App. Div. 2020). In 2006, defendants purchased a property and encumbered it with a mortgage that later was assigned to plaintiff. Defendant later defaulted, and plaintiff brought this foreclosure action and moved for summary judgment in July 2014. In August 2014, the City acquired title to the property via a tax foreclosure. A few days later, defendants filed for bankruptcy, staying plaintiff’s foreclosure action. At the close of the bankruptcy proceeding, the City quitclaimed the property back to defendants. Plaintiff then asked the trial court to decide its pending summary judgment motion. Defendants opposed, arguing that the mortgage was extinguished as part of the tax sale and that plaintiff’s action was moot. The trial court agreed that the mortgage was extinguished and dismissed the action.
On appeal, the Court affirmed. The Court found that the tax sale foreclosure extinguished plaintiff’s lien on the property pursuant to RPTL 1136. In doing so, the Court rejected plaintiff’s argument that defendants had redeemed the property, finding instead that defendants did not pay the required amount by the redemption date, and that “[a]ny transfer of the property from the City back to defendants after the execution of a tax deed to the City cannot be considered a redemption of the property, nor was it a rescission of the tax foreclosure.” Accordingly, the mortgage was extinguished and this action was properly dismissed.