Just how oppressively draconian and dangerous the minutiae of ministerial foreclosure requirements in New York can be is disconcertingly delivered by a recent case dismissing a foreclosure solely because information due the superintendent of financial services was filed late. [TD Bank, N.A. v. Oz Leroy, 121 A.D.3d 1256, 995 N.Y.S.2d 625 (3d Dept. 2014)].
What is all this about and why is it so bizarre?
Institutional lenders will be aware that for a home loan foreclosure, a 90-day notice of default is a prerequisite to initiating a foreclosure. Another requirement (per RPAPL §1306) is that certain information about the borrower and the mortgage be filed with the New York superintendent of financial services within three business days of mailing the 90-day notice. Then, a condition precedent to a foreclosure action is an affirmative allegation in the foreclosure complaint that there has been compliance with this filing requirement. [RPAPL §1306(1)]. In the cited case, the lender filed the notice three months later, but before the foreclosure was begun – and that was ruled fatal.
It so happens that the statute on this point is decidedly ambiguous. In this regard, it reads that “[a]ny complaint served in [an action] initiated pursuant to [RPAPL article 13] shall contain as a condition precedent to such [action], an affirmative allegation that at the time the [action] is commenced, the plaintiff has complied with the provisions of this section.”
So, does the statute mean that the filing can be at any time before commencement of the action, or within the three days of mailing the default notice?
Conceding that there was indeed an ambiguity, the court reviewed legislative intent and found a bill memorandum reciting that “[i]n order to help reduce the numbers of preventable foreclosures, it is critical to identify distressed homeowners as soon as possible.”
The court interpreted this goal of speed as controlling and so deemed the three day requirement paramount. This led to the opinion that permitting a lender to start a foreclosure and allege compliance with the filing requirement later performed – so long as prior to commencement of the action – would frustrate the purpose of the statute; foreclosure dismissed.
Faced with this, lenders might ask:
The state bureaucracy has imposed this filing requirement. It seems more philosophical then anything, and some might posit that it is merely a sop. But it exists and must be complied with – strictly. This case has told that to lenders.
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.