90-Day Notice: Not Needed For Borrower’s Buyer

As we have written about so often, the requirement for a lender to first send a 90-day notice as a condition precedent to initiating a foreclosure action is the source of much trouble and consternation, lenders too often found unable to prove that the notice was sent.  But a new case makes a very helpful point, perhaps best presented by asking the question:  If the borrower sells the mortgaged property (involving a home loan of course) and then a foreclosure is begun, must the 90-day notice be sent to anyone?  The case tells us it does not.  [Wells Fargo Bank, N.A. v. Eitani, 179 A.D.3d 866, 117 N.Y.S.3d 88 (2d Dept. 2020)]

Here, the borrower, A, defaulted on the mortgage in August 2005.  In March 2011 A sold the property to B.  Why the lender waited all this time to begin its foreclosure is unknown (but it wasn’t a factor really); it filed its foreclosure action only after B became the owner.

 A (the borrower) defaulted in the foreclosure but B answered, raising failure to serve the 90-day notice (pursuant to RPAPL §1304) as a defense.  Presumably he was arguing that the notice had to be served both upon the borrower (who was named as a defendant in the foreclosure for his liability on the note) and B as the owner of the property (who was properly in the case because he owned the property and would lose it in a foreclosure).

Yes, said the court, B is appropriately a defendant in this case, but it doesn’t necessarily follow that he can assert, either in his own right or on behalf of A (the borrower) any defense that was or could have been asserted by the borrower.

Instead, the 90-day notice requirement of RPAPL §1304 was enacted for the benefit and protection of borrowers who are natural persons.  The defense that the proper notice was not sent is a personal defense which could not be raised by B, a stranger to the note and the underlying mortgage.

While we don’t want to get too obscure here and blur the message of the case, A, the borrower, no longer lived at the property so he wouldn’t have been entitled to the notice in any event.  Even if he were so entitled, because he defaulted in the case and didn’t raise any such defense, it was critical to observe that the new owner, B, had no standing to assert the defense in behalf of A.  Moreover, and this was a key, as a stranger to the note and mortgage, B simply wasn’t entitled to the protection of the RPAPL §1304 notice provision.

This is a critical point to understand when a lender addresses the everyday issue of “who do I serve with the 90-day notice?”

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.