Clear Title Through Federal Forfeiture: Lender’s Failure to Petition Under 21 U.S.C. § 853(n) Extinguishes Mortgage and Bars Foreclosure

Introduction

In Midfirst Bank Federally Chartered Savings Association v. McCoy, 2025 NY Slip Op 05517 (2d Dept Oct. 8, 2025), the Appellate Division, Second Department affirmed a decisive intersection of federal criminal forfeiture law and New York mortgage foreclosure practice. The court held that a mortgagee who receives notice of a federal criminal forfeiture and fails to file a timely ancillary petition under 21 U.S.C. § 853(n) forfeits its security interest. As a result, the lender’s state foreclosure claim fails as a matter of law and the lien must be canceled and discharged of record.

The case arises out of a 2007 mortgage loan secured by a Queens property later entangled in a fraudulent transfer scheme prosecuted in federal court. After the United States obtained a final order of forfeiture and then quitclaimed the property back to the borrower, the borrower moved in state court to dismiss the lender’s foreclosure and discharge the mortgage. The Supreme Court (Queens County) granted the motion and vacated a foreclosure judgment entered while the motion was pending; the lender appealed. The Second Department affirmed, articulating a clear rule: when a lender does not timely invoke § 853(n)’s ancillary process after receiving notice, the United States acquires “clear title,” the lien is extinguished, and any foreclosure action against the redeemed owner cannot proceed.

Summary of the Opinion

The Second Department affirmed the order dismissing Midfirst’s foreclosure complaint against borrower Normaline McCoy, declaring that Midfirst no longer held a valid security interest, and directing cancellation and discharge of the mortgage. The court reasoned:

Under 21 U.S.C. § 853, all right, title, and interest in forfeitable property vests in the United States upon commission of the offense (the relation-back doctrine).
After entry of a preliminary order of forfeiture, third parties with an interest must be given notice and may file a petition to adjudicate their interests in an ancillary proceeding. If no petition is timely filed, § 853(n)(7) provides that the United States acquires “clear title.”
Here, both McCoy and the lender received certified-mail notice of the preliminary order of forfeiture; McCoy filed a petition, but the lender did not.
Because the lender failed to petition, it “waived its right to assert an interest,” its lien was extinguished, and the subsequent quitclaim conveyance from the United States to McCoy conveyed title free and clear of the mortgage.
Accordingly, the foreclosure complaint failed to state a cause of action (CPLR 3211[a][7]), and the judgment of foreclosure and sale was properly vacated.

Factual and Procedural Background

2007: McCoy and another borrower executed a $471,350 note in favor of Midfirst, secured by a mortgage on residential property in Far Rockaway.
2011–2014: Title shifted from co-owners to McCoy alone (2011), then by a 2014 deed to Launch Development, LLC (later attacked as forged).
2014: Midfirst filed this foreclosure action against McCoy and Launch, among others; McCoy answered.
2016–2018 (Quiet Title): McCoy commenced a separate action alleging the 2014 Launch deed was forged; by May 2018 the Supreme Court declared McCoy the fee owner and canceled that deed.
2016–2019 (Federal Forfeiture): Launch’s principal, Amir Meiri, was federally indicted in a distressed-homeowner fraud scheme with forfeiture allegations. In April 2018, a consent preliminary order of forfeiture issued. Notice went by certified mail to McCoy and Midfirst. McCoy filed an ancillary petition; Midfirst did not. In December 2019, a final order of forfeiture vested “all right, title and interest” in the premises in the United States. In June 2021, the U.S. quitclaimed the premises to McCoy, and the deed was recorded.
2017–2022 (Foreclosure): The state court initially granted Midfirst summary judgment and later referred the matter to a referee. In August 2019, the court granted an unopposed motion for a judgment of foreclosure and sale. In February 2022, McCoy moved under CPLR 3211(a) to dismiss, declare the mortgage invalid, and discharge it; in March 2022, a foreclosure judgment issued while the motion was pending. In July 2022, the Supreme Court granted McCoy’s motion and vacated the judgment; Midfirst appealed.

Precedents and Authorities Cited

Statutory Framework: 21 U.S.C. § 853

§ 853(a)(1): Property subject to criminal forfeiture includes property constituting or derived from criminal proceeds.
§ 853(c): Relation-back – all right, title, and interest in the forfeitable property vests in the United States upon the commission of the offense.
§ 853(n)(1)–(2): After an order of forfeiture, the United States publishes and may provide direct notice; third parties asserting legal interests may file petitions for ancillary proceedings to adjudicate those interests.
§ 853(n)(7): If no timely petition is filed, the United States acquires “clear title” and may warrant good title to any purchaser or transferee.

Federal Case Law

De Almeida v. United States, 459 F.3d 377, 381 (2d Cir.): Cited for the scope and operation of § 853 and the ancillary proceeding as the exclusive mechanism for third parties to assert interests in forfeited property.
United States v. Marion, 562 F.3d 1330, 1337 (11th Cir.): Cited for the principle that failure to timely file a § 853(n) petition results in extinguishment of the third party’s interests and a waiver of the right to assert them.

Related Forfeiture Statutes Referenced in the Record

18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461: The indictment sought forfeiture of property constituting proceeds of the charged offenses under these provisions. The appellate court’s analysis proceeded under the § 853 criminal forfeiture framework.

State Procedural Law

CPLR 3211(a)(7): Dismissal for failure to state a cause of action. The court held that because the lien was extinguished by operation of federal forfeiture law, Midfirst no longer had a viable cause of action to foreclose.

Legal Reasoning

1) Relation-Back and Exclusivity of the Ancillary Proceeding

The court begins by situating the dispute within the well-established § 853 framework: when a defendant commits a forfeiture-triggering offense, the United States’ interest vests at that moment (§ 853[c]). After a preliminary order is entered, any third party with an interest must pursue relief exclusively through the § 853(n) ancillary proceeding. That exclusive pathway is critical, because it is not enough to possess a prior lien or even a potentially superior interest; the third party must timely assert it.

2) Notice and Timeliness Are Dispositive

The record showed certified-mail notice of the preliminary forfeiture to both McCoy and Midfirst. The preliminary order required petitions within 60 days of first publication on the government website or within 35 days of mailing of actual notice, whichever was earlier. McCoy timely filed; Midfirst did not. Under § 853(n)(7), the consequence of a missed deadline is categorical: the United States acquires “clear title.”

3) Extinguishment of the Mortgage and Free-and-Clear Conveyance

The final order of forfeiture vested “all right, title and interest” in the United States, expressly noting notice to Midfirst. Because Midfirst never petitioned, any security interest it may have had was extinguished. When the United States later quitclaimed the property back to McCoy, it did so free and clear of Midfirst’s mortgage lien by force of § 853(n)(7). Thus, as of the 2021 deed, McCoy’s fee title was unencumbered by the mortgage.

4) Consequent Failure of the Foreclosure Cause of Action

A foreclosure cause of action requires a valid, enforceable lien. With the lien extinguished, Midfirst could not state a claim upon which relief could be granted. The Second Department therefore affirmed dismissal under CPLR 3211(a)(7) and the vacatur of the judgment of foreclosure and sale entered while McCoy’s motion was pending.

5) Prior State-Court Rulings Do Not Salvage the Lender’s Claim

The court’s earlier grants of summary judgment and referral to a referee did not insulate the claim from subsequent, superseding federal forfeiture consequences. The supremacy and preclusive effect of § 853’s “clear title” provision meant the mortgage no longer existed as a cognizable interest, rendering the foreclosure action unsustainable regardless of interim state-court milestones. The panel found the lender’s remaining arguments either meritless or unnecessary to reach.

Impact and Practical Implications

For Lenders and Loan Servicers

Non-negotiable deadlines: Upon receipt of notice of a criminal forfeiture, lenders must promptly file a § 853(n) petition or irrevocably lose their liens—even if the mortgage pre-dates the criminal conduct and even if a meritorious defense exists.
Operational protocols: Institutions should implement intake and escalation procedures for forfeiture notices (including certified mail) and track the shorter of the 35-day actual-notice or 60-day publication deadline.
Risk management: Loan documents, servicing agreements, and title insurance coverage should account for the possibility of forfeiture-based extinguishment.

For Title Insurers and Real Estate Practitioners

Reliance on “clear title”: A final order of forfeiture with no timely third-party petitions confers clear title on the United States; subsequent government conveyances can be treated as free and clear of preexisting liens of non-petitioners.
Due diligence: Where a property’s chain includes a federal forfeiture, confirm whether any lienholders filed § 853(n) petitions; absent such filings, prior liens are extinguished.

For Borrowers and Owners

Ancillary petition avenue: Even where ownership was clouded by fraudulent transfers, a timely ancillary petition can preserve and later restore ownership rights.
State-federal interplay: Relief achieved in federal forfeiture (e.g., a stipulation to reconvey title) can supersede ongoing state foreclosure proceedings if lienholders did not protect their interests in the federal proceeding.

For Courts

Recognition of federal preeminence: State courts must give full effect to § 853’s “clear title” provision and recognize the extinguishment of liens in subsequent state actions.
Procedural posture: Even after interlocutory rulings favorable to a lender, superseding federal forfeiture effects justify dismissal under CPLR 3211(a)(7) when the lien ceases to exist as a matter of law.

Complex Concepts Simplified

Criminal forfeiture (21 U.S.C. § 853): A punishment attached to a criminal conviction under which property connected to the crime is forfeited to the United States. It proceeds in personam (against the defendant) and uses an ancillary proceeding for third-party claims.
Relation-back doctrine (§ 853[c]): The government’s interest is deemed to vest at the moment of the crime, not at the time of the court’s order. This prevents defendants from defeating forfeiture through transfers.
Ancillary petition (§ 853[n]): The exclusive process for third parties (such as mortgagees) to assert interests in forfeited property. Missing the deadline generally waives the claim.
“Clear title” (§ 853[n][7]): If no timely ancillary petitions are filed, the government’s title is free of adverse claims, and transferees from the government take free and clear.
Quitclaim deed: A deed that transfers whatever interest the grantor has, without warranties. When the United States has “clear title,” even a quitclaim deed effectively conveys unencumbered ownership.
CPLR 3211(a)(7): New York’s procedural mechanism to dismiss a claim that, even taking its allegations as true, does not state a legally cognizable cause of action.

Nuances and Notable Points

Potential merit does not cure untimeliness: A lender that could have shown a superior interest under § 853(n)(6) still loses if it fails to file on time; the court does not reach the merits when the statutory window closes.
Interplay with quiet title: McCoy’s separate quiet title victory (canceling a forged deed) and the federal forfeiture ran on parallel tracks; the decisive extinguishment of the mortgage came from the federal process and Midfirst’s non-participation in it.
Supremacy in practice: The decision reflects the practical supremacy of federal forfeiture outcomes over concurrent state foreclosure proceedings involving the same property interests.

Conclusion

Midfirst Bank v. McCoy establishes a clear, stringent rule in New York’s Second Department: when a mortgagee receives notice of a criminal forfeiture but does not timely file an ancillary petition under 21 U.S.C. § 853(n), its lien is extinguished, the United States obtains clear title, and any later government conveyance transfers the property free and clear of that mortgage. Consequently, a foreclosure action premised on the extinguished lien fails to state a cause of action and must be dismissed; any foreclosure judgment must be vacated.

The opinion powerfully underscores the imperative for lienholders to vigilantly respond to federal forfeiture notices. It also provides title clarity: a final forfeiture order, unchallenged by timely third-party petitions, enables the United States to deliver unencumbered title. Going forward, this decision will guide courts and practitioners confronting the intersection of federal forfeiture law and state real property foreclosure, ensuring that § 853’s deadlines and “clear title” mandate are given full force.