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The appellate court reversed the lower court's decision. It found the plaintiff never proved he was ready and able to complete the sale on the closing date. Meanwhile, MI showed real title problems. A title company report found two issues: the referee may not have sold the property within the legal 90-day window, and proof was missing that court papers were properly served on time. An expert from the title company said these issues would block a standard title insurance policy. Because the plaintiff couldn't show clear title, and MI raised valid concerns, the court ordered the down payment returned to MI, not given to the plaintiff.
In 2006, a lender sued to foreclose a mortgage on a Brooklyn property. In 2019, a court ordered a foreclosure sale. A company called MI Buyer WB won the auction and paid a $94,100 down payment. The closing was set for 30 days later. Before closing, MI's lawyer said a title report wasn't ready and MI couldn't close on time. The plaintiff said MI missed the closing and forfeited its down payment. Later, MI got an updated title report showing two problems. It said the referee didn't follow legal rules about timing and serving court papers. MI asked the court to give the down payment back. The lower court sided with the plaintiff instead.
When a foreclosure sale closing falls through, who keeps the down payment? The seller must prove they were ready and able to deliver clean, marketable title on closing day. If the seller can't do that, and the buyer shows real title problems, can the buyer get its down payment back instead of forfeiting it?
This case shows why marketable title matters in foreclosure sales. A seller can't keep a buyer's down payment just by claiming default. The seller must first prove they could actually deliver clean title on time. Buyers who find real title defects, backed by evidence like a title report, may have strong grounds to reclaim their down payment.
Talk to a licensed real estate lawyer in New York.