For those occasions when a mortgage lender may elect to sue on the note – as opposed to foreclosing the mortgage – saving service of the 90-day notice which might otherwise be elicited by the pervasively ubiquitous RPAPL §1304 is meaningful.
Is the notice required? The Second Department says yes [Deutsche Bank Natl. Trust Co. v. Webster, 143 A.D.3d 636, 37 N.Y.S.3d 283 (2016)] while the Fourth Department says no [M&T Bank v. Benjamin, 145 A.D.3d 1519, 44 N.Y.S.3d 301 (Fourth Dept. 2016)]. In short then, until this issue is addressed by the Court of Appeals, the answer to the question remains uncertain – although it is well worthy of resolution.
Contemplating practicalities first, there can assuredly be compelling reasons to pursue the note, among them that the mortgaged premises have already been lost (via senior mortgage or tax lien foreclosure); expected defenses will unduly delay the foreclosure, less so the action on the debt; the obligor or guarantor has readily reachable assets and is not in a position to file a bankruptcy; the secured property is worth substantially less than the debt. [For further review of this aspect, see 1 Bergman on New York Mortgage Foreclosures §7.13, LexisNexis Matthew Bender (rev. 2017).]
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 lately – 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 would appear to include mortgage foreclosure. But does it encompass a suit on a note? That is the nub of the dilemma.
Did the statute really mean that any legal action against a borrower where a home loan existed 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 highlighted earlier – focuses upon 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 is a borrower-friendly statute and it was easy to predict that when the issue would first be addressed a court would lean towards protecting borrowers given the imprecise language. That is exactly what happened in the initial trial court review of the subject. [See Cadlerock Joint Venture, L.P. v. Callendar, 41 Misc.3d 903, 973 N.Y.S.2d 539 (Sup. Ct. Kings Co. 2014)]
When the point arose in the Second Department (Deutsche Bank Natl. Trust Co. v. Webster, supra.) the theme continued: “any litigation” must have included a suit on the note. The Fourth Department got it right, however (M&T Bank v. Benjamin, supra): an action on a note is not an action for the foreclosure of a mortgage, thereby not capable of invoking RPAPL §1304’s 90-day notice edict. This implied, but did not explicitly state that the “any action” reference simply could have no application to suit on the note which did not place ownership of the mortgaged home in jeopardy.
So it is now up to the Court of Appeals. Whether a conundrum such as this will ever be pursued that far is problematic. But until it is, cases in different departments will impose different standards – pointedly confusing and unfortunate.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2018), 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.