A New York appellate court has reversed a foreclosure judgment against Valerie McDonald, affecting how mortgage foreclosures are handled in the state. The ruling, issued on May 6, 2026, by the Appellate Division of the Supreme Court, Second Department, is significant for homeowners facing similar legal challenges.
The case, Federal National Mortgage Association v. McDonald, docket number 2023-02434, involved a dispute over a mortgage foreclosure initiated by the Federal National Mortgage Association (Fannie Mae) against McDonald. The court's decision has implications for the legal standards applied in foreclosure cases, particularly regarding the admissibility of evidence and the responsibilities of lenders.
Background
The Federal National Mortgage Association, known as Fannie Mae, is a government-sponsored enterprise that provides liquidity to the mortgage market. In this case, Fannie Mae sought to foreclose on a mortgage held by Valerie McDonald for a property located in Brooklyn, New York. The dispute began in 2011 when Fannie Mae's predecessor in interest initiated foreclosure proceedings against McDonald, who responded by asserting various defenses, including a claim that the lender failed to comply with the notice requirements outlined in New York's Real Property Actions and Proceedings Law (RPAPL) 1304.
After several years of legal proceedings, the Supreme Court of Kings County granted Fannie Mae's unopposed motion for summary judgment in 2017, appointing a referee to compute the amount due to the plaintiff. However, McDonald later opposed the confirmation of the referee's report and sought summary judgment to dismiss the complaint against her, arguing that the lender did not comply with the necessary legal requirements.
The Ruling
The appellate court ruled in favor of McDonald, reversing the earlier judgment of foreclosure and sale. The court found that the referee's report, which supported Fannie Mae's position, was flawed. The judges stated, "The findings contained in the referee's report were not substantially supported by the record." They noted that the referee relied on an affidavit from an assistant vice president of Rushmore Loan Management Services, which was deemed inadmissible due to its reliance on unidentified and unproduced business records.
Justice Colleen D. Duffy, along with Justices Deborah A. Dowling, Phillip Hom, and Susan Quirk, concurred in the decision. The court emphasized that the referee's findings should be confirmed only when they are supported by the record and that the court remains the ultimate authority in resolving disputes. The ruling also highlighted that computations based on hearsay lack probative value, which was a key factor in the decision.
Impact
This ruling has significant implications for homeowners facing foreclosure in New York. It reinforces the importance of adherence to legal procedures by lenders and the necessity for credible evidence in foreclosure cases. By rejecting the referee's report, the court has set a precedent that may encourage homeowners to challenge foreclosure actions more vigorously, particularly if they believe that lenders have not complied with legal requirements.
The decision also serves as a reminder to lenders about the standards of evidence required in foreclosure proceedings. The court's insistence on proper documentation and adherence to the law may lead to more thorough reviews of foreclosure cases in the future, potentially impacting how lenders approach such actions.
What's Next
The case has been remitted to the Supreme Court, Kings County, for further proceedings, which will include a new report calculating the amount due to Fannie Mae. It remains to be seen whether Fannie Mae will appeal this decision or if there are related cases pending that could further affect foreclosure practices in New York.