Among the borrower friendly legislative acts of the last decade and beyond in New York is a requirement that the foreclosing plaintiff give certain notice information to tenants – even if they are not named in the action and even when their tenancy will not be affected by the foreclosure. It was always recognizable that this would create problems for foreclosing lenders and of course it has.
Overview of Requirements
Pursuant to RPAPL § 1303, the foreclosing party in a foreclosure action upon residential real property must provide certain notice as to the tenants’ rights to any tenant of a dwelling unit. While the similar notice to a mortgagor is to be served with the summons and complaint, notice to the tenant must be delivered within ten days of service of the summons and complaint.
The notice is required to be on its own page in bold, fourteen-point type, to be printed on colored paper other than the color of the summons and complaint. The title of the notice must be larger, in bold twenty-point type.
If the building has less than five units, delivery is to be by certified mail, return receipt requested and by first class mail to the tenant at the property, if the tenant’s identity is known. If the identity is not revealed, the mailing is to be by first class mail addressed to “occupant.” Should the building consist of five or more units, the notice must be posted “on the outside of each entrance and exit…”
There is, not surprisingly, more to the statute, but the purpose here is to highlight the essence of the requirements.
Problems for Lenders and New Case Confirmation
A careful examination of the entire statute in detail exposes both ambiguities and a myriad of problems for lenders to successfully comply. Because the purpose of this alert is not to delineate all of those (we have addressed them in prior publications), we will refer readers who want to have more on this subject to 1 Bergman on New York Mortgage Foreclosures §2.01(3)(a), Lexis Nexis Matthew Bender (rev. 2019) – a subsection entitled “Practice Tips Regarding Notice to Tenants”.
In that section we predicted some years ago that it would be easy for the defaulting owner, or tenants, to remove the posted announcements, then claiming that they had never been present. Whether that happened in the recent case to be mentioned or not, the end result was that the lender lost – see 938 St. Nicholas Avenue Lender, LLC v. 936-938 Cliffcrest Housing Development Fund Corporation, 178 A.D.3d 623, 98 N.Y.S.3d 53 (1st Dept. 2019). In this case (the foreclosure of an underlying co-op mortgage) various unit owners swore that they had never seen foreclosure notices posted at the building. It is apparent that the plaintiff’s process service had submitted an affidavit that the notices were posted. Nonetheless, the court found that the denials by the unit owners were sufficient to rebut the process server’s affidavit, in turn warranting what is called a traverse hearing – the determination of whether the service (in this case posting) was valid or not.
Here, the finding was that there had not been a posting and that led to dismissal of the entire complaint because the plaintiff had failed to establish compliance with the subject statute, RPAPL §1303. This is certainly a draconian result, setting the whole case back to its very beginning with all the resultant cost and interest accrual. Was the notice actually posted? Well, that is a philosophical question. The court found that it was not. But this exposes one of the problems with the tenant notice requirement. There is always room for denial of compliance by defaulting borrowers or their tenants, which can lead to a battle on that peripheral point alone which in turn can threaten the integrity of the foreclosure.
This is yet another burden that foreclosing lenders must cope with in New York and whatever value being aware of such requirements affords, they are presented here.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.