When Neither Lender Nor Borrower Know If It Is A Home Loan

What happens when neither the lender nor the borrower can demonstrate whether the loan was or was not a home loan?  A time consuming mess occurs, as a recent case confirms.  [U.S. National Bank Association v. Richard,  151 A.D.3d 1001, 57 N.Y.S.3d 509 (2d Dept. 2017)]

The case in the end really was a typical foreclosure.  The borrower was in default (no issue about failure to pay) but when the inevitable foreclosure was begun, among the borrowers’ many usual defenses (most not even worthy of review on appeal) was standing.  The court rejected that defense citing the typical principles, although the lender plaintiff had to fight this at both the trial court and appeals court level.

Then the “home loan” bugaboo arose.  If it was a home loan, then of course a 90-day notice is mandated (pursuant to RPAPL §1304).  As has been the subject of a number of these alerts, there is a significant difference between pursuit of a foreclosure which is not a home loan (it is much faster) as to opposed to one which is so defined.  And if it is a home loan, then the lender must go through the hoops:  the 90-day notice and the settlement conference procedure – and plan for that.  In sum, a mortgage holder must know, and be able to demonstrate that the transaction is not a home loan if such is to be the case.

Did the lender have the support for what should be elemental?  Apparently not.  The court ruled that the plaintiff failed to show that the notice (per RPAPL §1304) was inapplicable because there was no home loan.  The result was that an order of reference for the lender was denied upon appeal for want of showing no home loan.

Meanwhile, the defaulting borrowers had cross-moved to dismiss the foreclosure, alleging that this was a home loan for which the required notice had not been afforded.  Their thrust was doomed too.  They could not prove that it was a home loan.

So no one was entitled to judgment and after all the time and expense, this case was headed back to the trial part to unwind the issue – a wildly disproportionate expenditure of time and money.

That the notice obligation attendant to home loans would beget such a morass was easily predictable.  The only thing lenders can do to avoid the quagmire is comply meticulously with the mandates when it is a home loan, but when it is not, be sure to be armed to back that up.

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.