Missing default records helped sink a judgment years in the making
A New York appeals court threw out a foreclosure judgment because the firm couldn't prove when it got the note or show default.
The ruling came on August 12, 2026, when the Appellate Division, Second Department, reversed a judgment of foreclosure and sale that a Kings County trial court had granted to MTGLQ Investors, L.P. The property belonged to Cong. Chemdath Tora V' Chesed, a religious corporation that had fought the case for years.
Here is how it unfolded. In November 2022, the trial court granted MTGLQ summary judgment - a decision made without a full trial - struck the borrower's answer, and appointed a referee to tally the debt. In May 2024, the court confirmed that referee's report and ordered the property sold.
Then the appeals court took it apart.
The first problem was standing. In New York, a foreclosing plaintiff must show it held or was assigned the note when it filed suit, proven through a written assignment or physical delivery of the note before the case began. MTGLQ's affidavit came up short. The panel found it "failed to establish when the note was acquired by the plaintiff." No clear timing meant no proven right to foreclose.
The second problem was default. A foreclosing party still has to show the borrower missed payments. Here, the court found MTGLQ "did not submit records evincing such default." Without those records, there was nothing to support summary judgment - or the sale that followed.
There was also a procedural twist. The borrower had appealed the 2022 order once, then let that appeal lapse - a slip that can normally block a party from raising the same points again. MTGLQ asked the court to hold the borrower to that. The panel declined, noting the borrower had "vigorously litigated the action from its inception," and reviewed the merits anyway.
For lenders, servicers, and firms that buy and enforce notes, the message is blunt. Winning at the trial level means little if the file is thin. An affidavit that skips over when the note changed hands invites reversal. A foreclosure motion without payment records invites the same. Both belong in the record before summary judgment is filed.
The appellate panel ruled unanimously. It denied the motions, modified the trial court's orders, and left MTGLQ without the sale it had secured below.
