Bankruptcy And The 90-Day Notice – What Does The Servicer Do?

We observe with dismay that the legislature dropped the ball on this one; that is, the statute [RPAPL §1303(3)] is mysteriously unclear about what happens regarding a 90-day notice when a borrower has “filed an application for the adjustment of debts” or filed “an order for relief from the payment of debts…”

Lenders and servicers have become accustomed to the obligation in a New York home loan mortgage foreclosure to send a statutory 90-day notice as a strict pre-condition to acceleration of the debt and initiating a foreclosure.  But, the statute creates some kind of exception in subdivision (3).  What precisely that is, and why it creates a dilemma is as follows.

First, note that the statutorily mandated letter (and the required text is set forth in the law itself) is in essence a warning that there is a default and that consequences result, together with a listing of governmentally approved agencies which can help and of course, the advise that the default must be cured within 90 days.  So the 90-day aspect is a part of the total notice/correspondence.

Now, to the exception in subdivision (3).  The provision is that “the ninety-day period specified in the notice… shall not apply, or shall cease to apply” in three instances:

• If the borrower has filed an application for the adjustment of debts; or
• The borrower has filed for relief from the payment of debts (i.e. bankruptcy); or
• The borrower no longer occupies the residence as the borrower’s principal dwelling.

Does this mean under the noted circumstances that the 90-day notice letter is not required?

Proceed to the next subsection, (4), addressing duration (a whole other issue) and observe reference to “the notice and the ninety-day period…”  Here then, the statute apparently underscores a difference between the notice as a correspondence, and the 90-day component of that notice.  In statutory construction, this would mean that when in subsection (3) the reference is to the ninety-day period alone – with no mention of the notice – it is confined to the 90-day portion.

If that is so, as seems to be the case, what the statute may indeed be saying is that in the instance of the noted exception (bankruptcy and the borrower no longer living at the property being two) the notice must still have been sent.  It is not discarded as a requirement.  However, the 90 day hiatus does not apply.

We therefore conclude and recommend that the 90-day notice must be sent in all home loan cases, even those where an exception is cited.  But the bar to beginning the foreclosure for 90-days will not exist when encountering the three exceptions.

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.