PHH Mortgage Corporation v. Brown

Background

PHH Mortgage Corporation filed an amended complaint seeking to foreclose on a mortgage encumbering the property identified as 25 Innis Avenue, Poughkeepsie, New York 12601. The mortgage was executed by David and Maria Brown. PHH Mortgage also named the New York State Department of Taxation and Finance and the Secretary of Housing and Urban Development (HUD) as necessary party defendants because of their subordinate interests in the property.

A Clerk’s Certificate of Default was entered against all defendants on June 5, 2025. The Court later ordered the defendants to show cause why default judgment should not be entered. HUD responded by requesting a retroactive extension of time to answer. Neither the Browns nor the New York State Department of Taxation and Finance responded.

HUD’s Request to Vacate the Default

The Court treated HUD’s response both as opposition to PHH Mortgage’s request for default judgment and as a cross-motion under Federal Rule of Civil Procedure 55(c) to vacate the entry of default. Under that rule, a court may set aside an entry of default for good cause. The Court considered whether HUD’s default was willful, whether setting it aside would prejudice PHH Mortgage, and whether HUD had presented a potentially meritorious defense. The Court could also consider whether leaving the default in place would produce a harsh or unfair result.

The Court found good cause to vacate HUD’s default. HUD represented that its failure to answer or otherwise appear was caused by an administrative oversight rather than a willful decision. HUD acted promptly after receiving the order to show cause, and PHH Mortgage did not establish prejudice or oppose HUD’s request.

The Court also found that HUD had identified a potentially meritorious defense. HUD took no position on PHH Mortgage’s priority claim or request for foreclosure judgment, but asserted that its interest was limited to a possible claim for surplus funds after the foreclosure sale. The title information showed that HUD’s mortgage was recorded after the mortgage on which PHH Mortgage relied. The Court therefore allowed HUD to answer solely to preserve its subordinate interest in any post-sale surplus funds.

Rulings

Judge Halpern denied PHH Mortgage’s motion for default judgment as to HUD without prejudice. He granted HUD’s cross-motion to vacate the Clerk’s entry of default and ordered HUD to answer the amended complaint no later than October 15, 2025. The order warned that HUD’s failure to answer by that date could result in default judgment against HUD.

The Court granted PHH Mortgage’s unopposed motion for default judgment as to David and Maria Brown and the New York State Department of Taxation and Finance. The Court declined to sign PHH Mortgage’s proposed judgment. Instead, PHH Mortgage’s counsel and HUD’s counsel were ordered to meet and confer and submit an agreed Judgment of Foreclosure and Sale preserving HUD’s interest in any surplus funds remaining after amounts due under PHH Mortgage’s first mortgage. The agreed judgment was due by October 22, 2025. The Clerk was directed to vacate the Certificate of Default as to HUD only.

The opinion also noted a discrepancy in the proposed judgment’s amount. The affirmation of indebtedness stated that the total amount owed was $186,389.08, apparently including a $13.48 credit for borrower surplus funds, while the proposed judgment listed $186,402.56.