No Notice Means No Notice

Embattled mortgage lenders are regularly bound to give sundry notices of default – some by their own doing (in the mortgage documents), some by statute. The problems with this are that the notices impose delay upon the foreclosure process and then give borrowers ammunition to claim they never received the notice.  (Receipt is not the issue; sending the notice is, but denial of receipt puts the mortgagee to its proof in demonstrating the notice transmission.)

In some realms though, such as commercial mortgages, lenders can refrain from obliging themselves in the mortgage documents to give notice of default.  And here, statute in New York imposes no notice requirement to borrowers.  If a mortgage requires no notice of default or an opportunity to cure to a borrower, it could likewise not mandate notice to the guarantor.

If this is the fact, might a guarantor find a way to finesse itself out of liability, relying upon some theory to trump the no notice aspect of the documents?  Pleasingly for lenders, a new case says “no”.  [Niazi v. JP Morgan Chase Bank,  66 A.D.3d 438, 886 N.Y.S.2d 404 (2009)]

As is typical, the facts tell the story.  X was a construction loan borrower.  Y was the guarantor of the loan and gave a letter of credit to the lender to secure a portion of the debt.  The mortgage documents did not require the lender to send any notice of default to either the borrower or the guarantor.

There came a time when the loan matured but the borrower did not pay the sum due.  Consequently, the lender drew down the letter of credit and applied it to the debt.  This was done without notice of default or an opportunity to cure to either the borrower o the guarantor.

The guarantor responded by suing the lender, asserting among other things that although the documents may not have provided for notice, the lender owed the guarantor a fiduciary duty to notify it of the borrower’s default.  There was no such duty ruled the court and the documents needed to be honored.  No notice meant no notice.

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.