Is It A Home Loan Or Not Redux – The Lender’s Dilemma

When a lender makes a mortgage loan in New York, if it is defined as a “home loan” – and statute is very precise as to what that is – the procedural requirements imposed upon the lender in enforcing its rights should there be a default are pointedly weighty, time consuming and expensive.  If it is not a home loan, then the foreclosure process, while never effortless in the Empire State, is at least unburdened from the special impositions of the home loan scenario, chief among them the need to send a 90-day notice and to participate in the settlement conference process.

Both of these obligations are laden with difficulty, abuse and peril, significant, broad subjects unto themselves.  In short, avoiding these roadblocks is most welcome.

If the transaction is a home loan, there is no choice involved; the lender must suffer with the mandates.  This would suggest that a lender knows in advance when it has – or has not – made a home loan.  One would think that the underwriting process would be precise enough to ferret out the distinction.  That such optimism is sometimes unavailable is confirmed by case law in the past, and again recently.  [Flushing Savings Bank v. Latham, 139 A.D.3d 663, 32 N.Y.S.3d 206 (2d Dept. 2016)]

The noted case proceeded to the order of reference stage when the borrower moved for, and was granted, permission to interpose an amended answer claiming that the mortgage was a home loan and that the required 90-day notice had not been given.  The mortgage documents described the premises as a 1-3 family with store office and also indicated that the defendant did not reside at the mortgage premises but instead at another address in the borough.  The process server, however, served the defendant at the subject premises.

Upon an appeal (which confirmed the time and expense incurred by the lender) the court observed that a foreclosing plaintiff has the burden to demonstrate compliance with the 90-day notice requirement.  Here, the finding was that they failed to establish as a matter of law that the subject loan did not qualify as a home loan.  Rather, the papers revealed triable issues of fact as to whether the debt was incurred by the defendant “primarily for personal, family, or household purposes” and whether the subject premises was a “one to four family dwelling… used or occupied or intended to be used or occupied wholly or partly” by the defendant as his principle dwelling.

It is not clear whether the borrower defendant lied about his residency, but it does seem apparent that the lender got it wrong in not absolutely assuring what the borrower’s residence was.  Obviously, one of the requirements for a home loan is that the mortgaged premises is the borrower’s primary residence.

Regarding whether the money was for personal or business reasons, there is more room for ambiguity there, although it is critical that a lender make that determination with certainty at the outset and that the mortgage documents so recite.

Lack of clarity together with possible lack of vigilance, torpedoed the foreclosing party in this case.  After incurring substantial time and expense in litigation, the action may yet be dismissed for failure to serve the notice.  Then the foreclosing party would have to begin all over again, assuredly a nightmare.  The lesson is again manifest: a lender must determine, with certainty, whether the elements of a home loan are or are not met at the inception of the action.

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.