Court Grants Reargument And Vacates Foreclosure Order, Holding That Deed In Lieu Of Foreclosure Must Be Treated As A Mortgage Under Real Property Law § 320

Posted: July 8, 2026 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Court Rules/Procedures, Breach of Contract

Court Grants Reargument And Vacates Foreclosure Order, Holding That Deed In Lieu Of Foreclosure Must Be Treated As A Mortgage Under Real Property Law § 320

On June 13, 2026, in Shanghai Commercial Bank Ltd., et al., v. New Tent, LLC, et al., Index No. 850240/2024, Justice Andrea Masley granted defendants’ motion for reargument, vacated the court’s prior summary judgment order, and ruled that the deed in lieu of foreclosure executed under the parties’ Forbearance Agreement must be treated as a mortgage under Real Property Law (“RPL”) § 320, requiring plaintiffs to proceed by foreclosure and sale.

Plaintiffs, the lender banks, had previously obtained summary judgment directing transfer of title to a Manhattan development property pursuant to a deed in lieu of foreclosure that defendants had delivered in consideration for the banks’ forbearance. Defendants moved to reargue, raising RPL § 320 for the first time. The court acknowledged that reargument is not a vehicle to advance new legal theories and that defendants’ counsel had made a strategic choice not to raise the statute. Nevertheless, the court found the right conferred by RPL § 320 so fundamental that it could not be waived. Defendants’ equity of redemption—the right to reclaim the property by repaying the loan—could not be extinguished by the deed in lieu, even though the Forbearance Agreement explicitly stated that the conveyance was “absolute” and “not . . . a mortgage . . . or security instrument of any kind.” The Court explained:

“[T]his right cannot be waived or abandoned by any stipulation of the parties made at the time, even if embodied in the mortgage. This is a doctrine from which a court of equity never deviates. Its maintenance is deemed essential to the protection of the debtor, who, under pressing necessities, will often submit to ruinous conditions, expecting or hoping to be able to repay the loan at its maturity, and thus prevent the conditions from being enforced and the property sacrificed.” (citations omitted)

Because the deed in lieu functioned as additional security for the underlying mortgage, the court held that plaintiffs were required to proceed by foreclosure and sale to extinguish defendants’ interest, and vacated the prior order accordingly.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning deeds in lieu of foreclosure, the equity of redemption, or motions for reargument.