90-Day Notice – A Trap For Lenders

Because the 90-day notice prerequisite to foreclosure (of a home loan) has been in effect since early 2010, lenders and servicers should be well aware of its dictates.  But a new case highlights just what a trap this obligation can be [Tuthill Finance v. Candlin, 120 A.D.3d 1275, 13 N.Y.S.3d 599 (3d Dept. 2015).]  The ultimate lesson is, perhaps not surprisingly, err on the side of caution: send the notice if there is any doubt about its need – and send it right.

The problem for the hapless lender here, who argued that it was in essence a commercial loan, was the lack of clarity on that subject and even though the lender did send the notice as an extra ounce of caution, it was found not to comply with the minutiae of the statute (RPAPL §1304).

The underlying definitional problem arose because the mortgaged premises was a mixed use property where the owner operated an equine business, but also lived in the property in a single family house.

One of the four requirements to define a loan as “home loan” is that the debt was incurred “primarily for personal, family or household purposes”.  The lender asserted that the loan was made to assist the owner’s equine business. But the borrower stated that only a small portion of the sums were for the business.  Meanwhile, the loan documents did not state that the proceeds were provided for a business purpose. Moreover, the language of the mortgage was (as found by the court) to have incorporated typical residential mortgage language.

Result:  There was a question of fact as to the nature of the loan (business vs. personal) and so summary judgment to the lender was denied.

Lesson #1:  If the lender believes it is making a business or commercial loan (not a home loan), in order to avoid the burden of sending a 90-day notice if default eventuates, the mortgage documents or the application papers should so clearly specify and recite.  The conclusion cannot be left to chance or wonderment.

Presumably sensing the possibility that a 90-day notice might be required, the lender cautiously (but carelessly) sent the notice.  Of course that consumed the 90-days so even if this had demonstrably been a commercial loan, the benefit of not consuming the 90-days was lost.

While the notice was sent, the court nonetheless found it wanting, for these reasons:

• The notice had type smaller than the 14-point type required by the statute. (Does this perforce mean the borrower did not learn of its default? Hardly, but one can’t play with the statute.)
• Proper mailing (first class and registered or certified is required) was not demonstrated. Lender’s partner submitted an affidavit as to the mailing, but he did not purport to have personal knowledge of the mailing.  Nor was there a contemporary affidavit of service in the record.
• Finally, the record did not show that the notice was sent in a separate envelope from any other mailing (another requirement of the statute).

End result:  A less than sedulous lender spent much time and money, only to face the likely possibility that the action would be dismissed and first require a new 90-day notice before a second foreclosure could even be initiated: truly a mess and a trap.

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.