Loss Mitigation: Forbearance Agreement And Notice To The Borrower

Experienced lenders and servicers are aware that a frequently heard cry from defaulting borrowers is “the lender never gave me notice of …”.  Of course this could relate to many aspects or plateaus in the foreclosure scenario, such as notice of default, or claims about notice of acceleration, or service of process, or service of notice of various stages in the judicial foreclosure process.  For purposes of this discussion, a recent case sheds some light on the question of whether entering into a forbearance agreement by itself affords a borrower the right to receive notice of later events in the foreclosure case.  [Olympia Mortgage Corp. v. Ramirez, 9 A.D.3d 401, 780 NYS2d 611 (2d Dept. 2004)].

The particular relevance to the New York foreclosure case – and it is meaningful – is that once a borrower (or any other defendant) officially appears in an action (by filing a notice of appearance or an answer) that person becomes entitled to notice of all later actions in the case, be it an application for a referee or the referee’s hearing, or the judgment of foreclosure and sale or the notice of sale, etc.  So, if a defendant has not appeared, then the foreclosure can proceed more rapidly, that is, without notice.  Obviously, if someone has appeared then they do need notice of each stage and that leaves room for issues about whether documents were sent and also adds time to the matter, always a problem in a judicial state like New York.

So, what happens if a borrower has defaulted in the foreclosure and after the judgment, but before the sale, enters into a forbearance agreement with the lender? If the borrower defaults upon that forbearance agreement and the case goes to sale, must lenders’ counsel send a notice of sale to the borrower (or their attorney as the case may be) and would a failure to send that notice be a basis to overturn a foreclosure sale? The court in the recent case cited said no and no.

As a general legal proposition, a forbearance agreement is simply not the same as a notice of appearance in an action.  This is clearly so where the party has been in default and did not reserve in the forbearance agreement the right to receive notice of later proceedings in the case.

It should be understood, though, that if in the forbearance agreement the borrowers or their attorneys have asked for notice of later proceedings in case they default,  and it has been inserted into the agreement, then certainly notice must be given.  But absent such a provision, the forbearance agreement alone is not an appearance and no such notice need be provided.

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.