Courts Still Strong On New Foreclosure Requirements

The multitudinous new foreclosure requirements in New York mandate an array of notices and filings which create landmines threatening the process and the efficacy of too many foreclosure actions, all of which has been the focus of attention in a number of our recent alerts.  Not surprisingly, our fear has always been that the courts would treat any failure to adhere to one of these requirements as fatal – even though it might have otherwise made no difference in the outcome of the action.  In particular, our alert of July 1, 2009 entitled “New Notice Statutes Mean Business” reviewed these points in some detail and reported a case where lack of certain notice in a foreclosure summons led to dismissal of the foreclosure.

Well, it has happened again in a new case, this time for failure to establish mailing of the pre-foreclosure 90 day notice [Bank of America v. Guzman, 26 Misc. 3d 922, 872 N.Y.S.2d 846 (Sup. Ct. 2009)].

It should be recalled that until January 14, 2010, the 90 day notice was required only for loans defined as subprime or nontraditional, and that was the issue in the new case.  Nonetheless, the concept is the same now that the 90 day notice applies to all “home loans”.

Here, the defaulting borrower moved to dismiss the complaint on (among other grounds) that the foreclosing lender had not sent the required 90 day notice.  One problem the lender had was that the notice may indeed not have been sent.  This is apparent because the lender’s argument in response to the charge of lack of notice was found deficient by the court for failure  to unequivocally state compliance with the notice provision or to submit any documentary proof that the requirements of the statute had been satisfied.  Instead, the court noted, the plaintiff merely asserted that the borrowers’ arguments that plaintiff didn’t comply with the notice requirement was “insufficient to warrant dismissal of the plaintiff’s complaint.”

If the plaintiff could not prove that the notice was mailed (and obviously here it could not) the case returned to the heart of the issue – should a foreclosure be dismissed for want of the 90 day notice?  Yes, ruled the court.  The statute says that the lender or servicer “shall” give notice to the borrower and therefore it is what is called a condition precedent to commencement of the foreclosure action.  In other words, it is not something casual but something absolutely demanded for a foreclosure to be valid.

As we reviewed in the July, 2009 alert, there is much law in New York for the proposition that a mistake in a foreclosure which does not prejudice a borrower can be disregarded as merely ministerial and therefore not fatal.  But with a condition precedent, the situation is different.  The 90 day notice requirement must be met in a New York foreclosure case where it is mandated (which it is not in commercial cases, for example).  Lenders will need to adhere to the obligation and be ready to prove the mailing.  This new case confirms, unpleasantly but not surprisingly, this burden.

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.