Mortgage servicers and their counsel in the various states are a team; they share the same goal of prosecuting the foreclosure correctly, as quickly as possible, always with a view towards loss mitigation if it will be possible.
Particularly in a tough judicial foreclosure states like New York, there is much room for all parties to stumble. Because servicers sometimes ask, “Where can we reduce errors?” comment on but a few follows for your consideration.
This is a broad subject we have written about many times in alerts and articles and so we will not review the entire arena. One point, though, is that if a default (breach or cure) notice is required, of course it must be sent. This is a function not of state law in New York, but what the mortgage documents say. The oft-used standard FNMA/Freddie Mac form, does impose the requirement to send a default notice before acceleration can be accomplished. Presumably, servicers have the proper form and will be able to prove that it was mailed. If some form of proof of mailing is not retained or cannot be demonstrated, it is very easy for a borrower to say “I did not get the breach notice” and then the foreclosure can be lost.
Aside from being sure to send it, and using the precise language, and retaining proof of mailing, a common error is neglect to send the notice to all parties entitled. That means that if a husband and wife sign the note (and are thus responsible for the debt) each must get the cure letter. This applies if the property is owned by two friends or three business associates and so on. And if there is a guarantor, that person needs to be served as well so care here is in order.
Calculation of Late Charges
Late charges may or may not be a large number, but across a broad portfolio they do add up. Where the mortgage provides for late charges – as is typical – collection of them is appropriate. But the accrual late charges ends at the moment of acceleration – whether that is accomplished by the servicer having sent a letter or at the moment the summons and complaint are filed by servicer’s counsel.
If you think about it, this makes sense. The idea is that late charges compensate a mortgage holder for the expense incurred in pursuing tardy remittances. Once the balance is declared due (accelerated), however, there are no payments which can be late. The mortgage holder has demanded that the full balance be immediately paid. That is why late charges end at that moment of acceleration. Accordingly, when submitting figures for the referee’s computation, it is necessary to have earlier stopped the late charges. Neglecting to do that creates confusion and delay and the possibility that a borrower can slow up the action protesting the untoward requests for late charges which do not apply. So this is a concept to know and honor.
Assignments of Mortgage
We all know that mortgages can frequently be assigned (the helpful role of MERS notwithstanding). But the chain of assignments needs to be clear. Assignments must be properly worded and they should be a part of any servicer’s file. Consult with counsel if there is any question about how the assignment is to be drafted and it is important to be sure that the chain is unbroken and that copies of correct assignments are always available. Without that, cases can be dismissed.
At the very least, an affidavit of a servicer will be required at the referee computation stage of a New York foreclosure, with the possibility that affidavits could be required at other times (for example, when the referee is appointed or upon a motion for summary judgment).
The nature of an affidavit is that someone swears before a notary public so that the signature must be notarized. That is simple enough, but there may be a problem if the affidavit is signed by someone other than an officer of the servicer. For whatever reason, some court’s will reject an affidavit signed by someone below officer status so it is important to comply with this often imposed mandate.
Forbearance Agreements/Loan Modifications
This is another extensive topic about which we have written at length so we will speed to the point. It is recommended that forbearance agreements and loan modifications be prepared by local counsel. If this is to be done in house, however, the further suggestion is that it be reviewed by the attorney.
In any event, it is essential to retain copies of the agreement or the loan modification (sometimes a forbearance agreement does modify the loan) so that when these terms become an issue in the foreclosure, they are available to submit to the court to support the servicer’s position.
Foreclosure Sale Bidding/Calculation of Debt
Servicer’s want to understand that they should never bid in excess of what is actually due because then the servicer will have to write a check for that excess. (If the servicer wants to own the property, they can consider bidding more but that is a highly unusual circumstance.) Servicers should also understand that bidding above the value of the property reduces any deficiency judgment which might otherwise be pursued. We understand, of course, that not every servicer will wish to obtain a deficiency judgment (and this is a much larger subject which we have reviewed elsewhere) but if a deficiency is a possibility, being very careful about the bidding instructions is critical.
Probably the primary error here by servicers is calculating a sum due as total debt which is more than what the debt really is under New York law. Very briefly, full debt is what the court has decreed in the judgment of foreclosure and sale together with expenses necessary to protect the property or the lien of the mortgage incurred after the judgment (such as taxes, insurance, emergency repairs and sundry other categories of expense covered by the mortgage). Thus, it is important to recognize what the judgment says and not add sums above that. Should the servicer miscalculate, the dialogue with counsel on the eve of sale could cause a postponement or could result in a bid above what is really due.
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.