It is no surprise. The onslaught of legislation designed to protect borrowers continues. Most recent is a bill proposed by the Office of Court Administration to add a new section (3012-b) to New York’s practice statute (the CPLR) entitled “Certificate of Merit in certain residential foreclosure actions”.
The memorandum in support presupposes that borrowers are being foreclosed upon by lenders who do not actually hold the mortgages at issue, thereby presumably requiring remedial action to involve attorneys at the outset to confirm the plaintiff’s standing to bring the action – and to so certify in a certificate executed by the attorney, to be filed with the complaint in the action.
While this may be viewed as just another step imposed upon the foreclosure process that attorneys must take, it is somewhat more insidious than that. For one thing, the statute is ambiguous in certain respects (discussed below) which may make it difficult for counsel to certify and may therefore add yet further delay and confusion to the process.
The certificate mandate applies solely to a home loan (as defined in RPAPL §1304) so at least this point is clear.
Another prerequisite, though, and an appropriate one we might add, is that the defendant (presumably they mean the mortgagor) is a resident of the property. A problem with that, however, is that it is often not at all certain whether the borrower lives at the property. The drafters’ assumption is that borrowers are always forthright with lenders advising when they may live elsewhere. Lenders and servicers know this is not true and so determining with precision whether the situation meets the mandate to file the certificate will sometimes, perhaps often, be unknown.
The attorney is then to prepare a certificate to accompany the complaint, executed by the attorney – which means signed and notarized – certifying counsel review of the facts of the case and that based upon consultation with authorized representatives (suggesting it has to be more than one person, although who precisely is authorized may be uncertain) that there is (a) a reasonable basis for commencement of the action and (b) that the plaintiff is currently the creditor entitled to enforce the rights under the documents. In addition to the consultation, the attorney is required to have reviewed “pertinent documents”. This is then characterized by citing that these include the mortgage, security agreement and note or bond underlying the mortgage executed by the residential defendant, as well as all instruments of assignment, if any, and any other instrument of indebtedness. This listing, however, creates immediate issues.
First, the review has to be of “pertinent documents”. While we then know what it is defined as being included, it is not at all clear that “pertinent documents” is limited to the items delineated. Can an attorney review the noted documents and be safe in opining as to the legitimacy of the action? What might defaulting borrowers, others or courts deem to be pertinent besides the cited papers? It is hard to tell and this places counsel in a more than awkward – and perhaps dangerous – position. It can be suggested that the statute should articulate with exactitude what counsel is to review.
Turning now to the recited documents that are clearly included, after the mortgage is a recitation of “security agreement”. What that is supposed to be is likewise uncertain. A mortgage is often thought of and indeed denominated also as a “security agreement”. But the suggestion of the statute is that there is some separate document so denominated and what it may be is pointedly elusive. This is certainly a problem.
Examination of the note or bond is required, understandably. But not infrequently a note can be lost. What is an attorney to say in this situation? Traditionally, a lost note affidavit has been acceptable in a mortgage foreclosure action. But the statute does not deal with substitution of a lost note affidavit for the required review of the “note”. Moreover, it is possible, albeit not so common, that a mortgage obligation can be fully binding in the absence of a note. The mortgage contains a promise to pay and it would be possible to structure the transaction with a mortgage, but without a note. So the statute doesn’t take this into consideration either.
Still further is the obligation for counsel to review “any other instrument of indebtedness”. That too is unclear. Does the statute mean other notes? It is reasonable to assume that if there are a series of notes or restated notes those would be examined, but whether they are categorized as “other instruments of indebtedness” is uncertain. Mindful that counsel is required to attach all the documents to the certificate, any uncertainty as to what they are only exacerbates the problem.
Attorneys are well aware of an administrative order, circa 2010, requiring an attorney’s affirmation of the merit of a case to be interposed at a certain stage of an action depending upon its relationship to the date of the passage of that order. If this new statute is intended to replace the attorney affirmation, which would certainly be appropriate, it is helpful. But it is not at all clear that the statute in any way harmonizes its requirement with that of the administrative order. This too is well worthy of attention.
Next, is a subdivision (d) providing that should a plaintiff willfully fail to provide copies of the papers and documents required, and if a court finds that those papers and documents (again what precisely are they?) ought to have been provided, the court is empowered to deem the complaint an unverified pleading, then subject to remedies of another rule (CPLR Rule 3022). But that other rule provides that where a pleading is defectively verified, the court can treat it as a nullity. However, as a matter of law, a foreclosure complaint need not be verified so it is a non sequitur to declare that the court can treat the complaint as unverified. Again, this is an area worthy of re-examination by the drafters.
WILL IT PASS?
Predicting political outcomes is never an easy task, but there are two reasons why opining that this is likely to become law is not so trying. In no particular order, the prevailing view is as stated in the memo in support of the bill. There is a widespread belief that lenders are foreclosing mortgages they don’t own. Because this will help provide a remedy to that perceived problem, it is likely to be viewed with favor by the legislature. Moreover, it is very difficult to argue against a requirement which seems to be reasonable and fair. How could one readily oppose care in examining documentation so that an action is properly brought?
Of course, if the statute is laden with ambiguities and dangers, then it can be readdressed to clear those up so that the resultant statute will be wiser and more appropriate. Such changes may indeed be in order so that the statute to be passed might be somewhat different from this current version. We will see what the future holds.
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.