“Lis Pendens versus Good-Faith Foreclosure Purchaser” – The New Rule from Yesmin v. Aliobaba, LLC

1. Introduction

Yesmin v. Aliobaba, LLC, 2025 NY Slip Op 02964, presented the New York Appellate Division, Second Department with a difficult intersection of foreclosure procedure, appellate practice, and property transfer doctrine. The dispute revolved around whether an existing notice of pendency (lis pendens) filed in an earlier mortgage-foreclosure action could invalidate the title obtained by a third-party purchaser at the foreclosure sale once the underlying judgment of foreclosure and sale was later reversed on appeal.

The plaintiff, Hasina Yesmin (“Yesmin”), sought to reclaim ownership of her Queens four-family property after she successfully overturned the foreclosure judgment obtained by Wells Fargo Bank. The defendant, Aliobaba, LLC (“Aliobaba”), had purchased the premises at the referee’s auction for $815,000 and recorded a referee’s deed. When the judgment of foreclosure and sale was subsequently reversed, Yesmin moved to cancel the deed; Aliobaba countered that, because it was a good-faith purchaser for value and no appellate stay had been issued, its title was unassailable.

The Supreme Court sided with Yesmin, but the Appellate Division reversed, announcing a clear rule: an unexpired notice of pendency does not defeat the title of a good-faith purchaser who acquires property at a judicial foreclosure sale when the judgment authorizing the sale is later reversed.

2. Summary of the Judgment

• The court held that Aliobaba was a bona fide (good-faith) purchaser for value, insulated under CPLR 5523 from having its title divested upon appellate reversal.
• An existing notice of pendency protects arm’s-length transferees from defendants, not purchasers at court-ordered foreclosure sales who already have actual notice of the litigation.
• Because Yesmin failed to obtain a CPLR 5519 stay pending appeal, the foreclosure sale could proceed; once conducted, the referee’s deed conveyed indefeasible title to Aliobaba.
• Yesmin’s remedy is limited to monetary restitution from Wells Fargo (the foreclosing plaintiff), not recovery of the real property.
• The Appellate Division therefore (i) denied Yesmin’s motion to cancel the referee’s deed, (ii) granted Aliobaba’s cross-motion dismissing the quiet-title complaint, and (iii) declared all other requests, including an equitable lien, academic.

3. Analysis

3.1 Precedents Cited

The decision carefully wove together a body of New York case law dealing with foreclosure sales, appellate restitution, and the protection of third-party purchasers:

• Da Silva v. Musso, 76 N.Y.2d 436 (1990) – Established that, after appellate reversal, a litigant may recover the purchase price but not the property itself if it has passed to a good-faith purchaser for value.
• Puretz v. Fannie Mae, 233 A.D.3d 816 (2d Dep’t 2023) and Iovino v. Deutsche Bank, 217 A.D.3d 848 (2d Dep’t 2023) – Reaffirmed protection of foreclosure sale purchasers absent a stay.
• AS Helios LLC v. Chauhan, 203 A.D.3d 567 (1st Dep’t 2022); Singh v. Ahamad, 154 A.D.3d 683 (2d Dep’t 2017); Aubrey Equities v. Goldberg, 247 A.D.2d 253 (1st Dep’t 1998) – Applied Da Silva in various foreclosure contexts.
• Matter of Sakow, 97 N.Y.2d 436 (2002); Novastar Mtge. v. Mendoza, 26 A.D.3d 479 (2d Dep’t 2006) – Explained the function and ambit of a notice of pendency.

By relying on these authorities, the Appellate Division underscored two doctrines: (1) the need for a stay to preserve appellate rights in real property cases, and (2) the special statutory protection given to purchasers at judicial sales.

3.2 Legal Reasoning

1. CPLR 5523 and 5015(d) Framework
   Both provisions empower courts to order “restitution” after a judgment is reversed, but they expressly exempt circumstances where such restitution would disturb the title of a purchaser in good faith and for value. In those situations, only the purchase price (or its value) may be returned.
2. Good-Faith Purchaser Status Is Not Undermined by Lis Pendens
   Yesmin argued that the still-active notice of pendency supplied “constructive notice,” thereby stripping Aliobaba of good-faith status. The court rejected this, distinguishing between (a) voluntary transfers by a defendant while the suit is pending (where lis pendens has teeth) and (b) involuntary judicial sales (where buyers all know a court is selling the property). The lis pendens served its purpose: it ensured the property could not be secretly conveyed by Yesmin; it was never meant to protect her if she lost the foreclosure action and neglected to obtain a stay.
3. The Importance of an Appellate Stay under CPLR 5519
   Consistent with Da Silva, the court emphasized that a party seeking to preserve the status quo must procure a stay. Yesmin could have obtained one automatically (CPLR 5519[a][6]) by posting a bond or sought discretionary relief under 5519(c). She did neither, so the foreclosure sale proceeded lawfully.
4. Public Policy: Finality and Marketability of Title
   Allowing an open-ended cloud on titles sold at foreclosure would chill bidding, depress sale prices, and jeopardize the efficacy of mortgage enforcement—a result the Legislature purposefully avoided by enacting RPAPL 1351(1) (sale within 90 days) and the stay scheme.

3.3 Impact of the Judgment

The decision crystallizes a narrow but potent rule with far-reaching consequences:

• Foreclosure Practice: Counsel representing defaulting borrowers must prioritize obtaining an appellate stay if they intend to preserve the ability to reclaim the property. Simply appealing—even successfully—is now clearly insufficient.
• Title Industry: Title insurers can extend coverage to foreclosure sale purchasers even when a lis pendens is outstanding, provided no stay exists and statutory procedures were followed.
• Transactional Certainty: Bidders at judicial sales gain renewed confidence that their investments will remain secure, reducing the “chilling effect” caused by uncertainty during appeals.
• Litigation Strategy: Plaintiffs and defendants alike must balance (i) the cost of bonding a stay and (ii) the risk of losing outright title; monetary restitution may not adequately compensate for the unique value a property holds to an owner-occupant or developer.

4. Complex Concepts Simplified

• Notice of Pendency (Lis Pendens): A public filing alerting would-be buyers or lenders that the real estate is embroiled in litigation. It “freezes” voluntary transfers but does not halt court-ordered sales nor guarantee the filer will regain the property.
• Good-Faith Purchaser for Value: Someone who buys property (a) for a non-nominal price, (b) without participation in fraud, and (c) without legal notice that the sale violates another’s rights. Under Da Silva, knowledge of an appeal alone does not spoil “good faith.”
• CPLR 5519 Stay: A legal pause that prevents enforcement of a judgment while an appeal is pending. Some stays are automatic (e.g., governmental entities), others require a bond or court order.
• CPLR 5523 Restitution: The mechanism allowing a victorious appellant to recover what was lost because of the judgment—subject to protecting third-party purchasers.
• Equitable Lien: A judicially-imposed security interest used to prevent unjust enrichment (e.g., refunding a purchaser’s improvements if title is divested). Denied as moot here because the purchaser’s title remained intact.

5. Conclusion

Yesmin v. Aliobaba, LLC cements a practical, market-friendly doctrine: a notice of pendency alone cannot unwind the deed of a good-faith purchaser who acquires at a properly conducted foreclosure sale, even when the underlying foreclosure judgment is later reversed. The ruling harmonizes statutory text (CPLR 5523, 5015) with longstanding policy favoring stability of titles and reinforces the critical role of appellate stays. Borrowers, lenders, title insurers, and real-estate investors must heed the new precedent: absent a stay, the auction gavel confers a title that survives appellate turbulence; the losing litigant’s recourse lies in money, not in land.