Strict Interpretation Of New Foreclosure Mandates – Yet Again

This will undoubtedly be a continuing mantra:  New York courts will not hesitate to dismiss foreclosure actions for failure to adhere to the various new impositions.  (We have reviewed the requirements on a number of occasions in recent alerts.)  A new case at the appeal court level strongly underlines the message, First Nat’l Bank of Chicago v. Silver, ____A.D.3d____, ____N.Y.S.2d____ (2d Dept 2010).

We remain incredulous, but not surprised, because we believe the underlying basis for so many of the notice mandates is founded not on empirical studies that they are meaningful, but on the popular political opinion that affording ever expanding benefits for defaulting borrowers is inherently a beneficial path.

The new case addresses the requirement of the Home Equity Theft Prevention Act to append a notice to the foreclosure summons (on different colored paper and with certain type sizes) warning that the mortgaged house could be lost and to beware of mortgage rescue schemes.  That foreclosing lenders need to be the providers of this information is perhaps curious, but the requirement is hardly irrational.

In this case, the notice was not given.  But the borrower engaged counsel and answered the complaint, neglecting, however, to assert the lack of this notice as a defense.  So the question became, was failure to comply with the notice something which had to be raised as an affirmative defense in an answer, or could it be asserted at any time in the action, such as upon a motion for summary judgment?  In other words, can the defense be waived?  “No” said the court.  The notice is mandatory – a condition precedent to foreclosure, implying therefore that it could not be waived.  Thus, even though the foreclosing lender proved the note, the mortgage and the default, the case was dismissed.

Interestingly, usury is a defense that can be waived even though usury is against public policy.  Standing – the very ability to be the plaintiff in the case is also waivable – but not neglect to attach this notice to a foreclosure complaint.

The court philosophically based its conclusion upon the need to afford greater protection to borrowers according to the Home Equity Theft Act.  The suggested flaw in that reasoning, though, is that this borrower was not left stupefied by the initiation of the foreclosure so that he would stand mute and lose his house without a fight.  Rather, he hired an attorney and if there was any defense to the assertion of failure to honor the mortgage, it could be expressed.  Nor did the borrower lose the house to a rescue scammer, notwithstanding absence of a warning in that regard in the summons.  As noted, he hired an attorney and was not going to be fooled by anyone.

So the case showed clearly, beyond question, that there was no prejudice to the borrower, no harm resulting from lack of notice.  Why then should not the defense of lack of notice be waivable as other defenses are?  The apparent answer is the perceived mission of the statutes.  Like it or not, this is the unwaivering trend.  It is a continuing predictable peril for mortgage lenders and servicers.

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.