Long before the 90-day notice became a statutory prerequisite to initiating a home loan foreclosure in New York, the widely used Fannie/Freddie uniform mortgage imposed the obligation to first send a cure notice letter to defaulting borrowers. This was the source of much dismay for mortgage holders for a multitude of reasons, primarily the problem of proving that the letter was send in the face of denial of receipt by the borrower.
Defenses to foreclosures seem sometimes to move in and out of fashion. Some years ago, defaulting borrowers and their counsel seized upon using as a defense the claim that the required 30-day letter (when it appeared in a mortgage) had not been received. Of course, the issue was not whether it had been received, but rather, whether it had been mailed.
The uniform instrument requires the mode of transmittal to be by regular mail. Certified will not substitute and if certified is used and a wily borrower declines to sign, unless there is proof of transmittal by regular mail, the mortgage has not been complied with.
All this has always meant that the lender or servicer would be obliged to actually prove the mailing. But for whatever reason (perhaps the issue of the 90-day notice having become paramount) the defense of non-receipt of the 30-day letter became far less common.
But a new case demonstrates that the defense has not disappeared forever and can indeed succeed. Even if it does not portend a wave of new defenses in this regard, it does suggest that lenders and servicers need to be ready to deflect such counterthrusts. [Wells Fargo Bank, N.A. v. Eisler, 118 A.D.3D 982, 988 N.Y.S.2d 682 (2nd Dept. 2014).]
There, the borrowers alleged in response to a foreclosure complaint (and among other affirmative defenses) that a condition precedent required a notice of default which the plaintiff had not given. The foreclosing plaintiff moved for summary judgment and the borrowers cross-moved to dismiss the complaint for failure to comply with the condition precedent of notice of default.
The borrower won and the foreclosure was dismissed. Here is why.
The foreclosing plaintiff’s support for its motion for summary judgment, and its opposition to the motion to dismiss for failure to receive the notice of default, consisted of unsubstantiated and conclusory statements in an affidavit of one of the plaintiff’s employees indicating that the required notice of default was sent according to the terms of the mortgage, and attaching a copy of that notice. But this is not proof that it was mailed by first class mail or actually delivered. Therefore, the plaintiff could not support summary judgment and could not refute lack of notice, upon which basis the action was dismissed.
What then is the standard for demonstrating that the default notice was sent? One method is to prepare an affidavit of service for all of the notices that go out from a servicer on any given day. While it is true that this can be pointedly cumbersome, it is worthy of consideration. As an alternative, an affidavit reciting the methodology of the servicer in preparing and transmitting the letter in the normal course of business from one station to another and then to a receptacle maintained by the United States Postal Service can meet the test. Neither method was used in the cited case and so the mortgage holder lost.
While from a lender or servicer’s viewpoint it is to be hoped that this case does not portend a new wave of lack of notice defenses, whether there will be few or many, the lesson is that the mortgage holder does need to be in a position to actually prove that the notice was mailed.
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.