Second Department Clarifies: Waiving a Deficiency Judgment Does Not Eliminate the Borrower as a Necessary Party in Foreclosure

Introduction

In Wilmington Savings Fund Society, FSB v. Loubriel, 2025 NY Slip Op 05123 (App Div, 2d Dept, Sept. 24, 2025), the Second Department issued a significant procedural and substantive foreclosure ruling. The opinion addresses three recurring litigation fronts: (1) attempts to vacate orders under CPLR 5015(a)(3) and under the court’s inherent “interest of justice” power; (2) the strict statutory requirements for renewal motions under CPLR 2221(e); and (3) a pivotal clarifying point in foreclosure practice—whether a lender’s post hoc waiver of a deficiency judgment can transform a borrower/homeowner into a non-necessary party. The court answered that last question with a firm “no,” holding that the borrower remains a necessary party notwithstanding the lender’s deficiency waiver.

The case arises from a mortgage foreclosure action commenced by Wilmington Savings Fund Society, FSB (plaintiff-appellant) against, among others, borrower and record owner, Maria Loubriel (defendant-respondent). After the Supreme Court, Queens County issued an order requiring the plaintiff to serve Loubriel within a defined window or obtain leave for alternative service, the plaintiff failed to establish proper service. The court (Taylor, J.) denied the plaintiff’s motion to confirm compliance and granted Loubriel’s cross-motion to dismiss for lack of personal jurisdiction under CPLR 3211(a)(8). Wilmington then sought to undo that result through vacatur, renewal, and a proposed modification that would allow the foreclosure to proceed against remaining defendants alone. Those efforts were denied (Weiss, J.), prompting the present appeal.

Summary of the Opinion

• Appeal dismissed to the extent it challenged the denial of reargument: No appeal lies from an order denying leave to reargue (see Halvatzis v Perrone, 199 AD3d 787, 788).
• Affirmed denial of CPLR 5015(a)(3) vacatur: The plaintiff did not demonstrate that the February 25, 2022 order was procured by “fraud, misrepresentation, or other misconduct of an adverse party.” The Second Department found no abuse of discretion in refusing vacatur (see Bank of N.Y., N.A. v Scarso, 233 AD3d 739, 740; HSBC Bank USA N.A. v Kantor, 215 AD3d 643, 644; Taunton Metals of Fla., Inc. v Solutions in Stainless, Inc., 234 AD3d 726).
• Affirmed denial of “interest of justice” vacatur: The case presented no “unique or unusual” circumstances warranting the court’s inherent, discretionary vacatur (see Woodson v Mendon Leasing Corp., 100 NY2d 62, 68; Washington Mut. Bank v Baldera, 208 AD3d 1278, 1280; Cox v Marshall, 161 AD3d 1140, 1142; Spota v Cicerone, 229 AD3d 655, 656).
• Affirmed denial of leave to renew: The plaintiff failed to present new facts that would change the outcome and provided no reasonable justification for not submitting the materials earlier. In any event, the proposed evidence would not have altered the result (see CPLR 2221[e][2], [3]; Clerveaux v Kensington Ins. Co., 234 AD3d 665, 666; David v Chong Sun Lee, 106 AD3d 1044, 1045; Bank of N.Y. Mellon Trust Co., N.A. v Talukder, 176 AD3d 772, 774; Valentine v Weber, 203 AD3d 992, 994).
• Affirmed denial of modification to proceed against remaining defendants only: The plaintiff’s later election to waive a deficiency judgment did not change the borrower’s status as a necessary party. The court declined to permit the action to proceed without Loubriel or to reinstate the order of reference and judgment of foreclosure and sale against the remaining defendants (cf. Federal Natl. Mtge. Assn. v Connelly, 84 AD2d 805, 805).

Detailed Analysis

Precedents Cited and Their Role

1) Vacatur under CPLR 5015(a)(3)

The court reaffirmed that CPLR 5015(a)(3) is available where a judgment or order was procured by “fraud, misrepresentation, or other misconduct of an adverse party.” The opinion relies on:

• Bank of N.Y., N.A. v Scarso, 233 AD3d 739, 740: Restates the textual standard of CPLR 5015(a)(3) and the movant’s burden.
• HSBC Bank USA N.A. v Kantor, 215 AD3d 643, 644: Similarly underscores the scope of relief under CPLR 5015(a)(3).
• Taunton Metals of Fla., Inc. v Solutions in Stainless, Inc., 234 AD3d 726: Recent Second Department application of the standard, reinforcing that the movant must substantiate the claim of adverse party misconduct with more than conclusory allegations.
• Washington Mut. Bank v Baldera, 208 AD3d 1278, 1280; Belesi v Connecticut Mut. Life Ins. Co., 272 AD2d 353, 354: Illustrate how failure to show fraud/misconduct defeats a CPLR 5015(a)(3) application.

Applying these authorities, the panel held that Wilmington did not sustain its burden to demonstrate that the February 25, 2022 order (which had dismissed as against Loubriel for lack of personal jurisdiction) was procured by any fraud or misconduct.

2) Inherent “Interest of Justice” Vacatur

Separate from statutory vacatur, courts possess inherent authority to vacate judgments “for sufficient reason and in the interests of substantial justice.” The opinion cites:

• Woodson v Mendon Leasing Corp., 100 NY2d 62, 68: The Court of Appeals’ leading articulation of courts’ inherent power, while cautioning that such relief is exceptional.
• Washington Mut. Bank v Baldera, 208 AD3d 1278, 1280; Cox v Marshall, 161 AD3d 1140, 1142; Katz v Marra, 74 AD3d 888, 891; Spota v Cicerone, 229 AD3d 655, 656: These Second Department cases emphasize that “interest-of-justice” vacatur is reserved for “unique or unusual” circumstances.

The Second Department found nothing unique or unusual here—no procedural ambush, no newly discovered injustice, and no deprivation of a fair chance to litigate—that would justify invoking this extraordinary remedy.

3) Renewal under CPLR 2221(e)

The court applied the strict statutory renewal framework:

• CPLR 2221(e)(2), (3): A renewal motion must be based on new facts that would change the prior determination and include a reasonable justification for the failure to present them earlier.
• Clerveaux v Kensington Ins. Co., 234 AD3d 665, 666: Reiterates that renewal is not a second chance to argue the same record.
• David v Chong Sun Lee, 106 AD3d 1044, 1045; Bank of N.Y. Mellon Trust Co., N.A. v Talukder, 176 AD3d 772, 774: Materials that could have and should have been submitted previously are not “new facts” for renewal.
• Valentine v Weber, 203 AD3d 992, 994: Even purportedly new material must be outcome-determinative; if it would not change the result, renewal is properly denied.

Wilmington’s “new” submissions could have been offered earlier (e.g., with its reply on the original motion or in its opposition to Loubriel’s cross-motion), and no adequate justification was given for the omission. The court additionally noted that, even if considered, the materials would not change the underlying outcome.

4) No Appeal from Denial of Reargument

The court dismissed the appeal from the portion of the order denying reargument, citing Halvatzis v Perrone, 199 AD3d 787, 788. This is a well-worn procedural rule: the denial of reargument is nonappealable.

5) Necessary Party Status in Foreclosure Despite Deficiency Waiver

The most consequential aspect of the ruling is the court’s categorical rejection of the plaintiff’s attempt to proceed against other defendants while omitting the borrower, based on a post hoc deficiency waiver. The court held that under the circumstances here, the borrower remained a necessary party notwithstanding the waiver (cf. Federal Natl. Mtge. Assn. v Connelly, 84 AD2d 805, 805).

Although the opinion does not cite RPAPL 1311 expressly, that statute is the bedrock for identifying necessary parties in foreclosure actions (including the record owner and persons with subordinate interests). The Second Department’s holding coheres with the principle that a foreclosure judgment is designed to bar and foreclose the equity of redemption of all necessary parties. A deficiency waiver eliminates the creditor’s post-sale in personam claim; it does not obviate the due process requirement to bring before the court any person whose property rights will be extinguished by the foreclosure judgment.

The court’s “cf.” citation to Connelly signals that any contrary outcomes in different factual constellations are distinguishable. Here, the borrower’s status and interest in the property remained such that the action could not proceed cleanly without her; reinstating an order of reference and a judgment of foreclosure and sale against “remaining defendants” would risk a clouded title and an ineffective adjudication of the owner’s equity of redemption.

Legal Reasoning

The decision is rooted in three interlocking themes:

• Strict adherence to motion standards. The panel treated each requested form of relief as a discrete channel with its own threshold. For CPLR 5015(a)(3), the absence of demonstrable adverse-party misconduct ends the inquiry. For “interest-of-justice” vacatur, the lack of exceptional circumstances forecloses relief. For renewal, both statutory prongs—new facts and a reasonable justification—were missing, and the proffer would not have changed the outcome anyway.
• Jurisdictional integrity. A party dismissed for lack of personal jurisdiction remains outside the court’s power; the court would not countenance end-runs through post hoc framing (e.g., a deficiency waiver) to continue litigating against others where the borrower’s interests are directly affected by the judgment sought.
• Foreclosure’s in rem core demands inclusion of those with direct property interests. The borrower/owner’s equity of redemption and title cannot be cut off without that person being made a party and properly served. A deficiency waiver alters the in personam dimension of the case, not the in rem necessity of the owner’s participation.

Impact and Practice Implications

1) Foreclosure Practice

• Deficiency waivers are not a cure for nonjoinder or failed service. Lenders cannot salvage a defective foreclosure by waiving a post-sale deficiency and proceeding against junior lienors or other parties alone. The record owner/borrower remains indispensable to cutting off the equity of redemption and delivering marketable title.
• Service orders must be scrupulously followed. Where the Supreme Court directs service within a defined window (or provides a pathway to alternative service), noncompliance invites dismissal under CPLR 3211(a)(8). Subsequent attempts to reframe or relitigate that determination face high hurdles.
• Avoiding title risk. Proceeding to judgment without necessary parties jeopardizes the efficacy of the foreclosure and clouds title. This decision fortifies the norm that clean, final foreclosure judgments depend on proper joinder and service of all necessary parties.

2) Motion Practice

• CPLR 5015(a)(3) is not a backdoor to relitigate the merits. The movant must show the prior order was procured through fraud, misrepresentation, or other misconduct by the adverse party. Mere disagreement with the court’s ruling or belated factual assertions will not suffice.
• “Interest of justice” vacatur remains exceptional. Woodson’s safety valve is reserved for the rare case, not a routine avenue after adverse rulings. The Second Department will scrutinize such requests for truly unique or unusual circumstances.
• Renewal requires diligence and materiality. Parties must marshal all available evidence the first time. Materials that could have been placed in the original motion or opposition are generally not “new facts,” and the movant must explain the earlier omission. Even when “new,” the facts must be outcome-determinative.
• Know the appealability rules. Denials of reargument are nonappealable. Preserve issues through appropriate motions and craft the record thoughtfully at each stage.

Complex Concepts Simplified

• Necessary party in foreclosure: A person whose property rights (such as ownership or junior lien interests) are to be cut off by a foreclosure judgment. In New York, the record owner/borrower is a paradigmatic necessary party. Without their presence and proper service, a foreclosure cannot extinguish their equity of redemption.
• Equity of redemption: The owner’s right to redeem the mortgaged property by paying the debt before the foreclosure sale is finalized. Foreclosure judgments terminate this right as to all parties bound by the judgment.
• Deficiency judgment: A money judgment against the borrower for the shortfall between the debt and the foreclosure sale price. Waiving deficiency affects the creditor’s personal claim against the borrower but does not negate the need to join and serve the borrower to cut off their property rights.
• CPLR 3211(a)(8) (lack of personal jurisdiction): A ground for dismissal when the court lacks power over a defendant, often because of improper or untimely service. A dismissal on this basis prevents the court from adjudicating that person’s rights.
• CPLR 5015(a)(3) vacatur: A mechanism to set aside a judgment/order obtained through fraud, misrepresentation, or other misconduct by the adverse party. It is not a substitute for appeal or for failure to present evidence timely.
• “Interest of justice” vacatur (Woodson): Courts’ inherent authority to vacate a judgment for sufficient reason and in the interests of substantial justice, reserved for unique or unusual circumstances.
• Renewal (CPLR 2221[e]): A motion based on new facts that, with a reasonable justification for prior omission, would change the outcome. It is not an opportunity to sandbag the record and supplement later.
• Order of reference: An interlocutory order in foreclosure appointing a referee to compute the amount due (RPAPL 1321). It presupposes proper joinder and service of necessary parties.
• Judgment of foreclosure and sale: The final judgment directing sale of the mortgaged property, which cuts off the equity of redemption and the interests of parties properly before the court.

Conclusion

Wilmington Sav. Fund Socy., FSB v. Loubriel is an instructive, multi-faceted decision. Procedurally, it reinforces the high bars for vacatur under CPLR 5015(a)(3), the narrowness of “interest of justice” relief under Woodson, and the exacting requirements for renewal under CPLR 2221(e). Substantively, it clarifies a key foreclosure principle: a lender’s waiver of a deficiency judgment does not alter the borrower’s status as a necessary party. The borrower’s property rights—including the equity of redemption—cannot be adjudicated in absentia. As a result, courts will not permit lenders to proceed or to reinstate foreclosure milestones (orders of reference, judgments of foreclosure and sale) against “remaining defendants” when the borrower has been dismissed for lack of personal jurisdiction.

The opinion thus advances two overarching values: fidelity to procedural rigor in motion practice and protection of due process and clean-title norms in foreclosure adjudications. For lenders and their counsel, the message is clear—ensure timely, proper service on all necessary parties and build a complete record the first time, because post-judgment or post-order rescue attempts face formidable, often insurmountable, doctrinal constraints.

Key Citations

• Halvatzis v Perrone, 199 AD3d 787, 788
• Taunton Metals of Fla., Inc. v Solutions in Stainless, Inc., 234 AD3d 726
• Bank of N.Y., N.A. v Scarso, 233 AD3d 739, 740
• HSBC Bank USA N.A. v Kantor, 215 AD3d 643, 644
• Washington Mut. Bank v Baldera, 208 AD3d 1278, 1280
• Belesi v Connecticut Mut. Life Ins. Co., 272 AD2d 353, 354
• Woodson v Mendon Leasing Corp., 100 NY2d 62, 68
• Cox v Marshall, 161 AD3d 1140, 1142; Katz v Marra, 74 AD3d 888, 891
• Spota v Cicerone, 229 AD3d 655, 656
• Clerveaux v Kensington Ins. Co., 234 AD3d 665, 666; CPLR 2221(e)(2), (3)
• David v Chong Sun Lee, 106 AD3d 1044, 1045
• Bank of N.Y. Mellon Trust Co., N.A. v Talukder, 176 AD3d 772, 774
• Valentine v Weber, 203 AD3d 992, 994
• Federal Natl. Mtge. Assn. v Connelly, 84 AD2d 805, 805