New Law: Makes More Room For Mistakes In Foreclosures

Servicers need not be told that even among the more difficult judicial foreclosure states, New York is high on the list of the most litigious and the most time consuming.  The procedures are already so laden with ritual and nuance that there is expansive room to stumble or otherwise suffer delay.  Well, more difficulty may be at hand via the Home Equity Theft Prevention Act (A7667, S4774), effective as of February, 2007.  Our alert of mid-May 2007 explained how this law likely means mortgage holders should no longer accept a deed in lieu of foreclosure.  Our focus here is another unfortunate aspect of the statute.

No doubt propelled by the imperative to pass consumer friendly legislation, the law is addressed overwhelmingly to quashing the avaricious who buy properties from distressed homeowners in foreclosure who are presumably unaware that they may have equity to protect.  (The legislation imposes extensive chilling requirements upon the contracts for such sales.)

We will not comment upon the merits- or lack thereof – in the basic thrust of the bill, except to observe that tersely at the end is an addition to the foreclosure statute (RPAPL §1303) which opens yet another door for borrowers to attack the foreclosure process.

This portion requires that the foreclosing party in a mortgage foreclosure action must provide notice to the mortgagor regarding information and assistance about the foreclosure process.  This notice has to be delivered with the summons and complaint.

Not only must there be delivery but the notice must be in bold, 14 pt. type and must be printed on colored paper that is other than the color of the summons and complaint.

But there is more.  The title of the notice must be in bold, 20 pt. type and be on its own page.  The statute goes on to list what the notice must say in alerting homeowners to the conduct of the foreclosure practice and how they may save themselves.

Most servicers likely recognize that homeowners are hardly so naive.  Even when they do not hire counsel, too many of them seem quite capable of slowing down the process.  It is hard to imagine that the information which must be in the notice is meaningful to anyone.  That aside, the provision has more than its share of uncertainty.  What happens if the summons is published?  Must the notice be contained in that publication in like size type?  It certainly can’t be of a different color.  And when there is publication, the ads are exceptionally expensive; this will  only add to that expense – towards no reasonable end.

Does a claimed breach of these requirements render the foreclosure void or voidable?  At the very least, we can certainly be assured that the statute offers yet another basis to attack foreclosure judgments or foreclosure sales. We can hope that the results will not be so unwelcome.  Let’s see how this develops.

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.