Is this a big deal? We think so, and opine as well that it is quite unfortunate. Is it a surprise? Not at all.
So what is this about and why need mortgage lenders and servicers take note of this [via a recent case: Cadlerock Joint Venture, L.P. v. Callendar, 41 Misc.3d 903, 973 N.Y.S.2d 539 (Sup. Ct., Kings Co. 2013)]?
By this time lenders and servicers will be very familiar with the obligation to send a 90-day notice in any home loan mortgage foreclosure action. (This is pursuant to RPAPL §1304, but applies only in the case of a defined “home loan” which means it does not apply in commercial cases.) In any event, it is overwhelmingly common in the pursuit of most foreclosures and is clearly a prerequisite; it cannot be skipped. For those lenders and servicers who simply send these automatically – and haven’t looked at the notice – the heading reads: “YOU COULD LOSE YOUR HOME. PLEASE READ THE FOLLOWING NOTICE CAREFULLY.”
The statute provides in relevant part (again, RPAPL §1304) that “…with regard to a home loan, at least ninety days before a lender… commences legal action against the borrower, including mortgage foreclosure…”, going on to say that the 90-day notice must be sent. So the language requires the notice for “legal action against the borrower” which certainly includes mortgage foreclosure as they say. But does it encompass a suit on a note? That is the nub of the dilemma.
To be sure, lenders do not so often elect to sue on the note rather than foreclose the mortgage, although sometimes it is the best path to pursue. Although this has been covered in earlier alerts, a lender or servicer might wish to sue on the note if it holds a second mortgage, particularly if there is no equity and/or if the senior mortgage has foreclosed taking away the property and thereby precluding any foreclosure. Or, if the borrower or guarantor have “deep pockets” a suit on the note tends to be faster than a mortgage foreclosure and may be the more efficient methodology.
If the suit on the note will be burdened by the 90-day notice, then the faster action just got a little bit slower and in any case, lenders and servicers would prefer not to add ninety days onto every process they pursue.
Did the statute really mean that any legal action against a borrower in a home loan situation required a 90-day notice? We think not. We believe that this never occurred to the legislature and that the language is just imprecise. Indeed, the notice – as we highlighted earlier – talks about losing one’s home. When a judgment ensues after a suit on the note, the one asset the lender can not execute against is the home. So in an action on a note the home is immune from attack. Therefore, there is a major disconnect between what the notice says and a requirement to employ it when there is a suit on the note.
But then, this was a borrower-friendly statute and it was easy to predict that when the issue finally came up, a court would lean towards protecting borrowers given the imprecise language. That is exactly what happened in the mentioned case. We cite it as important because it will add ninety days to every suit on the note action. But we cite it too as not surprising for the reasons noted.
It would be pleasing if this decision, or another one like it, went up to an appeals court for something truly definitive, but it would seem unlikely that any lender or servicer would wish to undertake such an expense just to avoid a 90-day notice in one case. For the moment at least, and perhaps for much longer, the burden of sending a 90-day notice as a prerequisite to a suit on the monetary obligation prevails.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.