After a long stretch of inactivity in the default space, the New York Court of Appeals recently returned to the subject with an opinion addressing its expectations regarding affidavits used by parties seeking deficiency judgments in foreclosure actions. While the Court did not opine on what would be necessary for such an affidavit to pass judicial muster, it did provide a stark example of what would not in a unanimous opinion issued on June 4.

The case, Flushing Savings Bank, FSB v. Pierre Bita involved interpretation of Real Property Actions and Proceedings Law § 1371, which, in the words of the Court “delineates the steps a lender must take in a mortgage foreclosure action before securing a deficiency judgment against a borrower.” In particular, the Court was faced with the question of what was sufficient to establish “fair market value” to support the deficiency judgment. The lender argued that, in the absence of contradictory evidence, that court was obligated to accept the appraiser’s evaluation submitted to the court by the lender. Put another way, the lender argued it did not have any particular burden of proof unless there was active opposition to their affidavit.

In its opinion, the Court of Appeals emphasized the conclusory nature of the affidavit:

Although the appraiser opined that the property had a fair market value of $475,000, that opinion was unsupported by any detailed analysis of the data and valuation criteria he utilized in reaching his valuation. Nor did the appraiser affix to his affidavit any evidence substantiating his opinion, which would have assisted the court in reaching a determination as to the property’s fair market value. Moreover, although the appraiser claimed to have examined the interior and exterior of the building, he made no attempt to describe the building’s condition or what his inspection of the property revealed. Simply put, the appraiser’s affidavit consisted of little more than conclusory assertions of fair market value, and, therefore, Supreme Court properly refused to accept the appraiser’s valuation.

The Court specifically rejected the lender’s argument that the affidavit should have been sufficient in light of the absence of any opposition to it. Instead, the Court held that the lender had an initial burden to meet before the trial court could make a fair market value determination. In this case, the Court concluded that the lender had failed to meet this burden.

The good news is that, when the lender fails to make an adequate factual showing, the trial court must provide the lender an opportunity to submit additional proof in order to satisfy its burden. Accordingly, failure of a lender or servicer to meet their initial burden of proof will not be sufficient for the court to deny the motion, at least the first time around. In terms of what proof is sufficient, the Court was somewhat vague: “It is, of course, within the court’s discretion to elucidate the type of proof it requires so it can render a proper determination as to fair market value.” At a minimum, however, lenders and servicers should review the fair-market-value affidavit forms they use when seeking deficiency judgments to ensure the valuations stated in those affidavits have sufficient evidentiary support.