It is well-settled that a purchaser of real property takes title subject to the outcome of a lawsuit of which that purchaser has actual knowledge. It is equally well-settled that this rule does not apply to appeals. Until now. On June 12, 2015, the Appellate Division, Fourth Department, handed down a decision that, unless reversed or modified by the Court of Appeals, is likely to send shock waves throughout the real estate industry—with direct and dramatic impact on conveyances, real estate lending, mortgage foreclosures, and title insurance.
In Altshuler Shaham Provident Funds v. GML Tower,1 the Fourth Department unwound a foreclosure sale of real property—three years after the closing—setting aside not only the referee’s deed to the successful bidder, but also a subsequent deed to its affiliate, in deference to a decision of the Court of Appeals which changed the long-standing interpretation of the subordination penalty under Section 22 of the Lien Law.2
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