Even though the New York Department of Finance did not see it, and although prevailing “wisdom” at the time missed the point, it was always apparent to us: If a 90-day notice was sent, but the foreclosure was not commenced until more than a year later, the 90-day notice was still effective. This was the subject of our alert on April 15, 2015, “Duration of the 90-Day Notice and Why it Matters” (copy available in alert archives on our website but copy attached here for ready reference) which was presented in greater detail in our New York Law Journal article of February 19, 2014 entitled “The Duration of the 90-Day Notice”. A new Appellate Division case has finally addressed the point, agrees, and solves a very thorny problem for lenders and servicers. [Deutsche Bank Natl. Trust Co. v. Webster, 142 A.D.3d 636 (2d Dept. 2016)]
Before the noted resolution, here is the dilemma which confronted mortgage holders. In a home loan situation, a 90-day notice had to be sent as a prerequisite to acceleration and commencement of a foreclosure action. For any number of compelling reasons, however, including inadvertent ones, lenders sometimes had to refrain from instituting a mortgage foreclosure action for a period in excess of one year. Because the statute’s language gave pause to many (see analysis that follows) the choice was whether to just begin the foreclosure without sending a new notice, or incurring yet another 90 day delay to send that letter because it might have been required. Lenders typically opted for the safe path, that is, sending the new letter, thereby incurring that additional 90 day detainment. It is that which is now gone.
The source of the confusion had been RPAPL § 1304(4) providing that:
“The notice and the ninety day required by subdivision one of this section need only be provided once in a twelve month period to the same borrower in connection with the same loan.”
What this means was immediately manifest to experienced practitioners and represented a welcome avoidance by the legislature of abusive borrower shell games. When the ninety day notice is sent, should the borrower cure the default, as in remitting the sums in arrears for example, then of course the mortgage is reinstated. If, however, a month thereafter the borrower defaults again, the mortgage holder need not send a new ninety day notice as a prerequisite to foreclosure. This then averts the bizarre exercise of a default followed by a ninety day hiatus, followed by cure, then another notice with concomitant three month delay, all repeated ad nauseam. Such a scenario would effectively change the payment requirements of the mortgage loan and permit wily borrowers to constantly, indeed interminably, postpone payment obligations.
So, any subsequent default within a year does not elicit a notice obligation. If, however, the borrower has cured and more than a year has passed, then it is simply a new situation and a notice would be required.
This is quite different, though, from saying that if a year has gone by and the borrower has ignored the notice, the mortgage holder is obliged to send the notice yet again in order to initiate a foreclosure. The statute does not say that, although it readily could have done so if the legislature had that intention. In other words, a 90-day notice never cured does not lose its efficacy merely with the passage of time.
In the new case the 90-day notice was dated April 15, 2011. The foreclosure was not begun until January 2014, obviously far more than a year later. The borrower argued, based on the statute, that the notice had expired one year after it was sent. Here is where the court faced the issue and, as noted, resolved it. It found that the language concerning providing a notice once in a twelve month period stood for the proposition that where there were multiple defaults during that time, only once notice was required. In addition, it ruled that
“The statutory language does not state that the action must be commenced within 12 months for the RPAPL § 1304 notice. Thus, contrary to the defendant’s contention the plaintiff did not fail to comply with the statute by sending RPAPL § 1304 notice within 12 months prior to commencement of the action.”
But, readers aware of the new amended foreclosure statutes in New York may wonder if this resolution still applies. The answer is yes. As of December 20, 2016, the first part of RPAPL § 1304 survives – that is the need for but one 90-day notice within a twelve month period to the same borrower on the same loan, to which is added only “and same delinquency”. But the new language does empower the offending shell game in providing that
“Should a borrower cure a delinquency but re-default in the same twelve month period, the lender shall provide a new notice pursuant to this section.”
Thus, a borrower will be free to default, receive a 90-day notice, cure the default just before expiration of the 90 day period, default anew, receive a new notice and default again, all in perpetuity, thereby always remaining three months behind on the mortgage. Why the legislature saw the wisdom in this is perplexing indeed, but it does not effect the instance of a 90-day notice sent followed by no cure, followed by initiation of the action more than a year later.
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.