Foreclosing lenders really do have to dot every “i” or possibly face dismissal of their actions.
Because the New York legislature believes that borrowers neither recognize nor understand the consequences of defaulting on a mortgage, a number of statutes have been passed over the last few years imposing special and extensive notice requirements upon foreclosing lenders. While we have explored in these Alerts the extraordinary 90 day notice requirement for subprime mortgages – because it is an obligation of the lender or servicer – we have only touched upon the others because they are solely the province of lender’s counsel.
In analyzing the various statutes, our expressed concern was always that a court might dismiss a foreclosure if there was any degree of non-compliance. Our fear has now been realized in a very recent case [WMC Mortgage Corp. v. Thompson, _Misc.3d_, 877 N.Y.S. 2d 855 (Sup. Ct., Kings Co. 2009)]. This was at the trial court level and we suggest that an appeal is unlikely; it is faster and less expensive to just begin the action anew. So this is likely to set an unwelcome standard.
What the case said, and why it is an unsettling precedent for lenders and servicers follows.
Among the many new mandates is one to provide notice to the mortgagor in a residential case advising of help available for homeowners. The text is somewhat extensive, must be presented in certain size typefaces, must accompany the summons and must be on a different colored paper [RPAPL § 1303 (1)]. Counsel needs to assure that this is done.
In the new case, the notice was not appended. When this non-compliance was revealed upon application for the order of reference, lender’s counsel asked that the summons be amended from the inception. In order words, “we will send the notice now, consider it sent at the beginning of the case”. No, ruled the court, this is a defect which can only be corrected by proper service of the notice with the summons and complaint – case dismissed.
What was ignored by the court, if argued by lenders counsel, was extensive case law holding that without demonstrated prejudice, neglect to comply with statute or procedure can be considered ministerial and not fatal. Was prejudice demonstrated here, that is, was the borrower actually denied anything? Then too, there are specific statutes allowing courts to permit correction of errors. Was this mentioned by counsel? Did the court consider it? [For a full discussion of case law and statute on these points see 1 Bergman On New York Mortgage Foreclosures § 2.06A, LexisNexis Matthew Bender (rev. 2009).]
Our point is that there was authority for the court to refrain from dismissing the foreclosure for failure to include the notice at the beginning. But it chose not to.
Yet there is more: This particular notice is only for the borrower. Assuming failure to append the notice to the summons meant the action was invalid against the borrower, it does not affect the validity of service upon all the other defendants. Thus, the action itself could have survived via unassaulted valid service on the other defendants with need to serve only the borrower anew.
The final upshot of all of this which will likely be with us for some time: The “new” statutes are probably viewed strictly. This may not be surprising, although we would disagree with the conclusion. It does, however, underscore the obvious. Lenders’ counsel must meticulously comply with all the mandates. Rescue from the courts in this arena is unlikely.
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.