I was happy to present on a recent “Deed in a Box” case (more on that below) at the American College of Mortgage Attorneys annual meeting on the Professors’ Panel along with
- Steven W. Bender, Associate Dean for Planning and Strategic Initiatives and Professor of Law; Co-Faculty Director of Critical Justice Initiative, Seattle University School of Law, Seattle, WA
- R. Wilson Freyermuth, Robert L. Hawkins/Dale A. Whitman Chair Emeritus, Curators Teaching Professor Emeritus, University of Missouri School of Law; Executive Director, Joint Editorial Board of Uniform Real Property Acts, Columbia, MO
- Julia P. Forrester Rogers, Provost Faculty Research Fellow and Professor of Law, SMU Dedman School of Law, Dallas, TX
Professor Bender explained that Vargas v. RRA CP Opportunity Trust 1 (Wash. 2026), now under reconsideration, could limit nonjudicial foreclosure to holders of negotiable instruments, which would push lenders on HELOCs and most commercial loans toward receiverships and mezzanine structures and expose similar “holder” statutes in other states.
Professor Freyermuth provided an update on the Restatement (Fourth) of Property (for which he is an Associate Reporter). The Restatement 4th will, for the first time, address when a long delay in a foreclosure operates to time-bar the right to foreclose.
Professor Forrester Rogers previewed the Uniform Law Commission’s draft Deed Fraud Act (for which she is the Reporter), which pairs prevention tools (owner notification, title freezes, a known-filer program, and notarial verification) with an expedited court proceeding to void fraudulent deeds and mortgages.
Deed in a Box
My presentation focused on Shanghai Commercial Bank Ltd., New York Branch v. New Tent, LLC, No. 850240/2024 (Sup. Ct. N.Y. Cnty. June 13, 2026), in which Justice Masley of the Commercial Division held that a deed in lieu of foreclosure delivered as consideration for a forbearance agreement is a mortgage under Real Property Law § 320. The decision appears to be the first in New York to hold this expressly in the forbearance context.
The facts will be familiar to anyone who has worked out a troubled loan. The lenders had made about $75 million in loans secured by a mortgage on 335 West 35th Street in Manhattan. After the borrowers defaulted, the parties signed a forbearance agreement. In exchange for the forbearance, the borrowers delivered a conveyance in lieu of foreclosure that would take effect if the loan was not repaid by the end of the forbearance period. The agreement said the conveyance was absolute “in fact as well as in form” and was not intended as a mortgage or security instrument. The borrowers did not pay and then refused to cooperate with recording, so the lenders sued.
The court’s reasoning follows a long line of New York cases, including Basile, Leonia Bank, Patmos, and RTT Holdings. Those cases hold that a deed given to secure a debt creates only a mortgage, however it is labeled. Here the conveyance was given in exchange for forbearance on an existing, defaulted obligation, so it functioned as security for the debt, and the disclaimer could not change that.
The practical lesson is that a deed in lieu is not a shortcut around a NY foreclosure in a forbearance deal. Lenders who want speed should consider other tools, although they have their own limitations: a consent judgment of foreclosure, an accommodation pledge of the borrower’s equity interests that can be enforced through a UCC sale, or an assignment in lieu of the membership interests. The lenders have appealed to the First Department, so there may be further developments regarding the “deed in a box” in New York.
