Does The Conference Mandate Apply To All Residential Property?

The short answer to the question raised by the title of this alert is “no”.  A new case confirms this concept, but it merits further comment here. [Independence Bank v. Valentine, 113 A.D.3d 62, 976 N.Y.S.2d 504 (2d Dept. 2013)].

The focus of the issue is differentiating between a commercial case and what is called a home loan foreclosure.

In particular, the facts here involved a not uncommon commercial loan transaction.  The borrower is a corporation or an LLC, obtaining a loan for some business purpose.  Owning no real estate to pledge (or real estate of insufficient value) the lender requires a guaranty (usually from the principal of the borrower entity) with that guaranty then secured by the pledge of the principal’s home. (It could be other property of course, but most often with smaller corporations the officer’s only real property asset is the home.)

So when there is a default and a foreclosure is begun, does the usual requirement to conduct a settlement conference (a very time consuming process) apply?  The decision here confirmed the rule as in the negative, something well understood by servicers’ attorneys, but readily ignored or disputed by borrowers’ counsel.

The answer comes from the statutory requirement for the conference which in turn refers to the foreclosure statute for the definition of a home loan.  The conference imperative originates in New York’s practice statute, the CPLR, at §3408.  This requires a settlement conference to be conducted in “any residential foreclosure action involving a home loan as defined by RPAPL 1304 and where the defendant resides at the property”.  Referring then to RPAPL §1304, a home loan, among other things, is one made to a natural person and for which the debt is incurred primarily for personal family or household purposes.

Here, the borrower was a corporation which obviously was not a natural person.  Moreover, the purpose of the loan was for business (purchase of equipment to set up a store) and therefore this other branch of the definition of home loan was not met either.

In sum, while the conference obligation applies to many residential foreclosures, it does not apply to every residential foreclosure.  It therefore never applies to a commercial case, nor does it apply to this type of commercial case even though the property mortgaged is ultimately a home.

All of this is good to know for such lenders and servicers involved with commercial loans.  But it also underscores the continued tribulation that lenders and servicers suffer in New York. The host of borrower oriented statutes passed in recent years have, in many instances, created traps for the foreclosing plaintiff which either slow up the process or defeat it.  Here, both the trial court judge and the appellate division were correct and the lender was victorious.  But the case was slowed up and the lender had to suffer the time and expense of the appeal process to be vindicated.  This has been and will continue to be an ongoing problem.

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.