New 90 Day Notice Requirements A Perilous Morass For Lenders
An omnibus foreclosure bill signed by New York’s governor on June 23, 2016 (and effective 180 days thereafter) creates a host of new, serious problems for any lender holding a mortgage in default. We will address all aspects in a series of alerts, beginning here with the changes to the 90-day notice requirement.
Even though foreclosures in New York now consume more time than ever, and even though borrowers are protected by a myriad extensive notices, the legislature was not content. Rather, they believed that the 90-day notice provision had to be expanded to provide yet broader benefits to borrowers who presumably are still perceived to be uninformed and shorn of protection.
A few of the changes are essentially innocuous, creating further details and burdens, but not existential; anyway, they involve minutiae that staff can attend to.
But some of the changes are very serious and create perhaps unintended consequences, as follows.
Impending Notice Issuance
It had always been understood that the 90-day notice had to be sent and expire before a lender could accelerate the balance due on the mortgage and in turn initiate a foreclosure action. Even though case law had construed the 90-day notice to be a condition precedent, the new version of the statute now says that specifically. Bearing that in mind, one new change calls into question the ability to ever begin a foreclosure action.
The former language – strong enough it would seem – was that “if this matter is not resolved within 90 days from the date this notice was mailed, we may commence legal action against you…” This certainly was clear enough; the default had to be resolved. The new language, however, allows commencement of legal action only “if you have not taken any actions to resolve this matter within 90 days…” But “any action to resolve the matter” is not defined. Why could not a borrower assert that action to resolve is fulfilled by an application for a new mortgage with some other lender, or seeking a mortgage modification with the current lender, or sending a letter stating that a resolution is sought, or a correspondence seeking to make partial payments of the arrears for a while, or other innumerable and undefinable actions? Any of these might be deemed as “seeking resolution” and if they were, the ability to begin a foreclosure would not exist. How many of these borrower attempts serving as a bar to mortgage enforcement could be invoked – and their duration – are imponderables. It is easy to conclude, though, that a challenging impediment to foreclosure has just emerged.
Directing Borrowers to Remain
Fulsome though the 90-day notice has always been, a still further warning has been added by the new legislation. The key portion recites as follows:
“You have the right to remain in your home until you receive a court order telling you to leave the property. If a foreclosure action is filed against you in court, you still have the right to remain in the home until a court orders you to leave. …”
It is apparent that the solons feared that borrowers assumed that initiation of a foreclosure action was perceived by them as meaning immediate departure from the premises was required. But the language is likely to be interpreted by a layperson as an invitation – a direction, really – to continue to repose at the home until an actual order of eviction is served. This will surely increase considerably the number of holdovers and the resultant time and expense of post foreclosure special proceedings – hardly welcome and a patent burden.
Repeated Notices
The statute had always been affirmative in sagely providing that only one 90-day notice was required to be sent within a twelve month period – obviously to avoid the constant sending of notices. The new provision, however, adds the distinction that the one notice need only be sent for the “same delinquency”. Where that was leading is underscored by the language immediately following:
“Should a borrower cure a delinquency but re-default in the same twelve month period, the lender shall provide a new notice pursuant to this section. …”
An obvious ploy of which wily borrowers will avail themselves becomes manifest. If, for example, there is a default on January 1, the 90-day notice (which probably would not be sent for a month or two in any event) will be delivered. On the 89th day, the borrower could cure the default – and then immediately re-default two or three days later. With the new mandate, the mortgage holder will be obliged to send a newly minted default notice. The borrower could respond, again, by awaiting the 89th day when there would be a cure, followed seriatim by eternal defaults. This would assure that the borrower could always remain at least three months in arrears on the mortgage obligation, all in contravention of the mortgage contract.
Dismayingly, that is what this surely will allow. It can be offered that it is one thing to provide a notice to a borrower about their default, but quite another to provide a path to abuse the system. The foreclosing party would be paralyzed and stuck with a constant and eternal delinquency, powerless to pursue a remedy.
Notice in Another Language
Finally, there is this new provision:
“For any borrower known to have limited English proficiency, the notice required by subdivision one of this section shall be in the borrower’s native language (or a language in which the borrower is proficient), provided that the language is one of the six most common non-English languages spoken by individuals with limited English proficiency in the state of New York, based on United States census data. The department of financial services shall post the notice required by subdivision one of this section on its website in the six most common non-English languages spoken by individuals with limited English proficiency in the state of New York, based on the United States census data. …”
This carries political correctness beyond any conceivable limit. The 90-day notice may have to be in some language other than English. How, though, is the mortgage holder to know whether any borrower has “limited English proficiency”? How limited does it have to be? How will that be determined? Who would determine it? Presumably this assessment would have to be made by someone present at the time of the closing (even though some closings are done by mail). Who would have that ability and how accurate the contemplation might be is unclear. Assuming one can articulate how limited is limited, and determine what the native language is, such is information that would have to be preserved eternally in the mortgage file, to be used at some future date if a default eventuated necessitating a 90-day notice. And if the mortgage were to be assigned (as is common, multiple times) the information would need to be preserved throughout the assignment process, something glaringly difficult as a practical matter.
If the borrower’s native language has not been determined, or is somehow indeterminable, or has not been retained, the alternative of a language of which the borrower is proficient is provided. But the same problem prevails: how to determine what other language the borrower is proficient in. But even to avail oneself of that alternative that language has to be one of the six most common non-English languages spoken in New York based upon census data. Assuming the determination of the alternate language can be obtained, at least the state will be posting the notice in one of these possibly employable languages – but of course knowing anything about language requirement will be exquisitely elusive. Here too, the new notice requirement is an exceptionally fertile arena for borrowers to object that the notice failed to meet statutory dictates.
For borrowers intent on gaming the system, massive new avenues are opened by the expanded version of the 90-day notice provision. If such consequences were intended by the drafters, it is frightening. If the apparent consequences represent a surprise, then a diligent revisiting of the verbiage is respectfully invited.
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.