New 90-Day Notice – The Full Story

The 90-day notice requirement for all home loans (effective January 14, 2010) has proven to be somewhat confusing – at least our lender and servicer friends have regularly asked questions about many of the details – all of which suggests that a thorough, pointed explanation of the directives should be useful.

Once upon a time in New York there was no statutory requirement for any notice whatsoever as a condition to instituting a mortgage foreclosure action.  That changed in part on September 1, 2008 when a then new RPAPL §1304 mandated a certain 90-day notice for home loans designated as high cost, subprime or non-traditional.  Amendment of that section on December 15, 2009 ¹ (effective January 14, 2010, deemed repealed on January 14, 2015) imposed the notice requirement as a prerequisite for all home loan foreclosure actions.  That sweeping change is nuanced enough to create some uncertainties for which clarification will be explored here.

To avoid any initial confusion about notice as it relates to mortgage foreclosure actions, the subject is confined to statutory dictates.  By contract – the mortgage – the parties can agree to notice as a condition of declaring the mortgage balance due (acceleration).  That is precisely what the ubiquitous FannieMae/FreddieMac uniform instrument has done for years in dictating a 30 day cure, or breach letter, as a condition precedent to acceleration.  Although no law demands this, because so many residential loans were traditionally sold on the secondary market, a significant number of such loans used the uniform instrument to facilitate its possible sale and many other mortgages adopted the wording as well.  The new 90-day notice is, as noted, statutory, and is in addition to any contractual notice.  So, the 30 day breach letter still needs to be sent even though a 90-day notice may have been required as well.

Nor should the issue of notice be confused with an assertion of acceleration, typically accomplished by a letter declaring the mortgage balance due. That letter is not a notice.  Rather, it is a method to manifest the intention to accelerate.  Thus, where a 90-day notice will be needed, the acceleration letter would still be sent (unless the lender chooses to accelerate via the filed complaint).

Form of Notice

The form is in the statute and needs to be followed precisely.  For ready reference, here is that form.

LENDER LETTERHEAD

RECIPIENT

PROPERTY ADDRESS:

DATED:  _____________

YOU COULD LOSE YOUR HOME.  PLEASE READ THE FOLLOWING NOTICE CAREFULLY

As of (insert date), your home loan is (insert # of days) days in default.  Under New York State Law, we are required to send you this notice to inform you that you are at risk of losing your home.  You can cure this default by making the payment of (insert $ amount) dollars by (insert date).  

If you are experiencing financial difficulty, you should know that there are several options available to you that may help you keep your home.  Attached to this notice is a list of government approved housing counseling agencies in your area which provide free or very low-cost counseling.  You should consider contacting one of these agencies immediately.  These agencies specialize in helping homeowners who are facing financial difficulty.  Housing counselors can help you assess your financial condition and work with us to explore the possibility of modifying your loan, establishing an easier payment plan for you, or even working out a period of loan forbearance.  If you wish, you may also contact us directly at (insert phone number) and ask to discuss possible options. 

While we cannot assure that a mutually agreeable resolution is possible, we encourage you to take immediate steps to try to achieve a resolution.  The longer you wait, the fewer options you may have. 

If this matter is not resolved within 90 days from the date this notice was mailed, we may commence legal action against you (or sooner if you cease to live in the dwelling as your primary residence). 

If you need further information, please call the New York State Banking Department’s toll-free helpline at 1-877-BANK-NYS (1-877 -226-5697) or visit the Department’s website at http://www.banking.state.ny.us .

Completing the Letter

There are several variables the sender of service must attend to:  in the first paragraph, enter information about the default.  In the second paragraph, include the appropriate telephone number, for institutional lenders or servicers, the workout department.

Along with the 90 day letter must be included a list of at least 5 approved housing agencies serving the county where the borrower resides.  A list of approved agencies, by county is found at:  nysdhcr.gov/Programs/ForeclosurePrevention/CounselListing.htm

Senders may find it easiest to just copy and paste the chart for each county and retain that one file.  Then the appropriate county page can be enclosed with each letter generated.

Other than enclosing the list of housing agencies, the 90-day letter must be sent in a separate envelope (that is, it cannot include a billing statement, breach letter, or any other correspondence) by both first class and either certified or registered mail to each borrower at the property address and the mailing address, if the two are different.  Save a copy of the certified or registered mail receipt because it will be needed to present as proof of compliance.

Associated Notice to Superintendent

The noted section addressing the 90-day notice is confined to that subject and, though expansive, is inextricably intertwined with the mandate to provide extensive detailed notice and information to the superintendent of banks. (But that other obligation appears at RPAPL §1306.)  It in turn requires submission of the delineated information within three business days of mailing the notice.  Reading the statute alone, however, would be insufficient to comply with the directive.  The banking department’s website must be consulted as well for the necessary instructions (found at www.banking.state.ny.us/hetpdopfi.htm).  The form to be used is the “Step 1 form (individual filing)” at the bottom.  There are also instructions for bulk filing, and consultation with IT staff may be helpful.   As of this writing the banking department is said to be in the process of automating the process so that it will be easier to do the filings in the future.  For now though, filings must be through the website.

Once clicking on the “step 1 form” complete the information requested and click on the large red “submit” button at the bottom of the second page.

Saving step 1 form in a pdf offline can be an easier approach.  The it can be completed when convenient without having to click through the banking department website.  When clicking the “submit” button, the pdf form is still coded so that it will open up the sender’s email program to send the form directly to the appropriate place at the banking department.  Adding a “cc” so that the sender gets a copy of the submission for their files is recommended.  An email confirmation from the banking department confirming receipt should arrive and, printing that is likewise recommended.

As noted, the form must be submitted electronically within 3 business days of sending the 90-day notice.  If possible, sending them on the same day reduces the risk that a filing is rejected for missing information or some other reason and avoids the possibility of missing the 3-day timeframe.

Foundation for Notice

The notice obligation arises primarily from RPAPL §1304 which states that in regard to a home loan [then defined at §1304(5)] at least 90 days before legal action is commenced – inclusive of a mortgage foreclosure – notice must be given to the borrower.  The form of that notice is presented in the statute and it is apparent that the lender should use that precise version, unchanged, unaltered in any way (except that certain information as to the situation of that particular loan is to be filled in).

At least fourteen-point type must be used, and the entity bound to send the letter is a lender, an assignee of the lender or a mortgage loan servicer.

The text of the notice recites that an attachment is a list of at least five government-approved housing counseling agencies in the borrower’s area, inclusive of the last known address and telephone numbers.

Deemed given as of the date of mailing, the notice shall be sent by either registered or certified mail and by first class mail to the last known address of the borrower.  If that address is different from the property which is the subject of the foreclosure, then it must be sent to the property address as well.

No other notice can be included in the envelope with the statutory notice; therefore any 30 day breach letter which might be necessary has to be sent separately.

When Notice Not to be Sent

The 90-day notice is not required if:

• The home contains five or more dwelling units; or
• The property is not occupied by the borrower; or
• The property is not the borrower’s principal residence; or
• The borrower has filed for bankruptcy and included the lender in the bankruptcy case; or
• A notice has already been sent during the prior twelve months.

Definition of Home Loan

Because the 90-day notice applies solely to “home loans” (and to residential co-op units) the definition of a home loan is a critical aspect of analyzing the mandate.  That definition is found at RPAPL §1304(5) and is a loan, which includes an open-end credit plan, other than a reverse mortgage, with these additional factors.

• The property is located in New York.
• The borrower is a natural person. This is vital because it therefore excludes a borrower which is, for example, an LLC or a corporation or an estate.
• The debt is incurred primarily for personal, family or household purposes. So if the money was borrowed for construction of the property, or for business or commercial purposes, it is not a home loan and notice is not an issue.
• The pledged property is improved by a one to four family dwelling or condominium unit, used or intended to be used as the residence of one or more persons and which is occupied or will be as the borrower’s principal dwelling. This too creates important distinctions:  The five family dwelling (or more) does not elicit the notice, nor does a house which is the borrower’s second or vacation home.

Although not in the definition of a home loan, the notice is also required where the security is a residential cooperative interest used by the debtor, whereby the notice must be sent not less than ninety days prior to the date of disposition of the collateral.  For a lender who may propose to take the co-op without a sale, or if the borrower offers the equivalent of a deed in lieu of foreclosure, there are like requirements.

Definition of Lender

Obscured at RPAPL §1304(5)(b) is a definition of a “lender” — the only party (besides the lender’s assignee or its mortgage servicer) who is obliged to send the 90-day notice.  A lender covered by  the statute is meant to be a mortgage banker as defined in Banking Law §590(1)(f) or an exempt organization defined in Banking Law §590(1)(e).  In turn, Banking Law §590(1)(f) recites a “licensee” or “mortgage banker” to be a person or entity licensed pursuant to §591 of Article 12D of the Banking Law to engage in the business of making mortgage loans in New York.

The definition of “exempt organization” in Banking Law §590(1)(e) includes any insurance company, banking organization, foreign banking corporation licensed by the superintendent or the comptroller of the currency to transact business in New York, national bank, federal savings bank and loan association, federal credit union, or any bank, trust company, savings bank, savings and loan association, or credit union organized in another state, or any instrumentality created by the United States or any other state to make mortgage loans.  Although subject to banking board regulations, also includable in the definition of exempt organization is any subsidiary of such an entity.

In short, only what might be thought of as institutional lenders are subject to the notice imperative.  At least the occasional lender or the individual who happens to make a mortgage loan is not ensnared by the obligation to give this notice.

Issue of The True Purchase Money Mortgage

Unaddressed by the statute, the question arises as to whether a lender which may sell a property and take back a purchase money mortgage is bound by the 90-day notice requirement.  This is, if anything, a more common occurrence nowadays with foreclosing lenders constrained to be the purchaser at their own foreclosures, then sometimes obliged to fund a portion of the resale (the true purchase money mortgage) when a new buyer lacks the cash or the credit to obtain his own financing.  The answer to the query should be no.

A true purchase money mortgage has been defined as “a mortgage executed at the time of purchase of the land and contemporaneously with the acquisition of the legal title, or afterward, but as part of the same transaction, to secure an unpaid balance of the purchase price.” In order to create a true purchase money mortgage, the lender must be the actual seller of the real property and he must take back a mortgage to secure money borrowed to acquire the property.  But a true purchase money mortgage does not constitute a “loan or forbearance”, certainly within the meaning of usury proscriptions. It is just part of the consideration for the sale.

Consequently, if the true purchase money mortgage is not a loan, then it cannot fit the definition of a home loan and in turn cannot fall within the 90-day notice requirement.

Strict Interpretation

While parsing the statute reveals any number of instances where a 90-day notice will not apply, it is obvious that the notice will be required for most typical “residential” loan cases.  What might be the consequence of a lender failing to send the notice, or having sent it, being unable to prove compliance with the mailing dictates?

Although the new foreclosure statutes were devoid of any empirical foundation for the necessity or efficacy of their mandates, initial cases dealing with various sections shave construed the requirements quite strictly.  Regarding the 90-day notice, albeit involving its obligation as part of the Home Equity Theft Act, an appeal level court in New York has ruled failure to send the notice fatal to foreclosure and thereby dismissed an action.  Even though the borrower demonstrated no prejudice resulting from lack of the notice (he engaged counsel who interposed an answer but did not assert a lack of notice defense) the notice defense was ruled not subject to waiver.  Mindful that a non-prejudicial defect can be treated as merely a ministerial error, the decision suggests most strongly that the 90-day notice provision will continue to be treated by the courts with exceptional stringency.

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.