While by now this should be an old story for lenders and servicers involved with New York mortgages, the need to send a pre-foreclosure notice to the borrower in the home loan case is a constant source of lender and servicer defeats when foreclosures are started. It is truly astonishing. While there is no doubt that lenders get it right at least some of the time (maybe most of the time) almost all the reported cases – primarily the ones that are appealed – rule against the mortgage holder.
That is to say, the mortgage holder is found unable to demonstrate mailing of the 90 day pre-foreclosure notice. That results in denial of a motion for summary judgment (or an order to appoint a referee) with the necessity then to either conduct a trial on the issue of service of the notice, or the need on the part of the mortgage holder to discontinue the action and start all over again. It should be apparent that either choice is both expensive and time consuming.
The requirements for the 90 day notice are actually not that difficult to achieve – it needs to say certain things (pursuant to the statute) in a certain size type and it needs to be mailed by regular mail and certified mail. While there should be little doubt that lenders and servicers do send the notice, the difficulty is proving it when borrowers challenge compliance with the statute – which they do regularly. It is recognized that this is a fertile area of defense and borrowers’ attorneys seize upon it with regularity.
This has been the subject of a number of our alerts and the infirmity seems to be the person selected by the lender or servicer to demonstrate the mailing. Too often, that individual is not familiar enough with the business records of the mortgage holder, or does not produce those records.
An affidavit of service of mailing the pre-foreclosure notice would suffice, as would testimony regarding the lender’s or servicer’s standard mailing procedures. But, as noted, most of the time the mortgage holder is not up to the task.
A recent case, however, offers some solace, under concededly limited but not so uncommon circumstances. [HSBC Bank USA, N.A. v. Shah, 185 A.D.3d 794, 128 N.Y.S.3d 32 (2d Dept. 2020)]
In this case, the borrower had died and an executor of his estate had been appointed. That defendant argued that the foreclosing plaintiff failed to demonstrate strict compliance with the 90 day letter pre-foreclosure notice provision.
The court disagreed and ruled for the foreclosing plaintiff. The essence of the holding is that while a home loan in foreclosure used as the borrower’s principal residence requires a pre-foreclosure notice, it is a notice that must go to the borrower. In this case, though, the defendant was not a borrower for the purposes of the controlling statute. The defendant – the executor – did not sign the home equity line mortgage or the amendments to the agreement and is not named a borrower on the mortgage instrument. The party who died – the actual borrower – was the only one who had signed all the documents. Therefore, the court ruled that the pre-foreclosure notice is inapplicable in this instance, i.e. where the defendant is not the borrower. And here the executor of the estate was not the borrower.
Foreclosing plaintiffs still need to do their best to assure the ability to demonstrate service of the pre-foreclosure notice – when needed – and we now have confirmation that it is not needed where the borrower is deceased and the defendant is the estate representative.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2021), 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.