Foreclosing lenders in home loan cases in New York are faced with more than a few roadblocks in the foreclosure process. Prominent among them is the obligation to send a certain 90-day notice (RPAPL §1304) before acceleration can be declared or a mortgage foreclosure action can be initiated. No matter how egregious and obvious the borrower’s default may be, there is no remedy until this notice is sent. Even then, once the commonplace defense of proper notice not having been received is interposed, the burden is then upon the plaintiff to make a showing of prima facie compliance.
A new case tells us yet again how difficult it apparently is for the mortgage holder to meet this test. [Bank of America, N.A. v. Wheatley, 158 A.D.3d 736, 73 N.Y.S.3d 88 (2d Dept. 2018)].
First as to the comment about it all being such a mess in this case the omnipresent standing defense was raised – and the motion court found it to be a good defense! This was reversed on appeal, but the lender had to suffer the time and expense of the defeat and the need to even appeal the case. Principles enunciated in the decision are meaningful, but standing is something we have addressed in many other alerts and need not be examined here for the moment.
Turning to the point actually under discussion, a foreclosing party can demonstrate service of the 1304 predicate notice rather simply by having an affidavit of service for each one. Apparently, though, that is not convenient or economical to do. There is an alternative, however, and that is testimony by someone with knowledge of the plaintiff’s or servicer’s procedures as to how such notices are mailed. Unfortunately, lenders and servicers often run afoul of glitches in presenting this proof. Such is precisely what happened in this case.
Here, having confirmed that service of a 1304 notice is a prerequisite to any foreclosure, and that the burden shifts to the plaintiff to prove the mailing once the borrower submits the defense, the court observed that the plaintiff failed to make the requisite showing. Plaintiff submitted an affidavit of an officer of its servicer together with two copies of the 90-day notice addressed to borrower defendant (as well as proof of filing of the financial statement with the New York State Banking Department – another issue). The court conceded that the mailing of the notice could be proven by documents meeting the requirements of the business exception to the hearsay rule, but the person swearing would have to demonstrate familiarity with the plaintiff’s mailing practices and procedures. Having not shown that, the affidavit did not establish proof of standard practice and procedure designed to ensure that items were properly addressed and mailed. In addition, the plaintiff was unable to demonstrate that the notices included a list of five housing counseling agencies as required by the notice provision. Although the servicer’s affidavit stated that such a list was included, the copies of the notices submitted merely contained information about contacting a hotline that would provide advice from counseling agencies – but not the list.
In sum, the plaintiff somehow managed not to offer proof which meets the standards. The result was that the court found that the required notice was not proven, therefore the denial of summary judgment by the trial court was affirmed.
At this point the hapless lender will either need to proceed to a trial to prove the mailing, or discontinue the action, serve the notice anew, being certain that it can be proven, then starting the action all over again. To be sure, such a result is most unfortunate for lenders.
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.