Just Who Gets Those Pesky Foreclosure Notices, Anyway?
In Monday’s blog, I talked about new regulations clarifying your responsibility to send out federally mandated notices to Successors-in-Interest in real property – people who have a right to property by operation of law but who may or may not decide to assume responsibility for the property. The CFPB adopted an expansive definition of successors-in-Interest and wants you to continue to provide them necessary notices – such as loss mitigation options, if their property is delinquent.
The CFPB’s regulations got me thinking about a recent case my colleagues at OwnersChoice Funding, the Association’s mortgage arm, gave me a heads-up on. It underscores that for those of you responsible for mortgage compliance, you need two separate charts: one detailing your federal requirements and a second outlining your NYS obligations.
As many of you know, New York Law requires the following: Notwithstanding any other provision of law, with regard to a home loan, at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower in at least fourteen-point type. See N.Y. Real Prop. Acts. Law § 1304 (McKinney). The statute mandates that the notice is to be sent to the borrower by registered or certified mail and by first class mail to the last known address of the borrower. Proper notice is a condition precedent to a foreclosure.
Incidentally this notice requirement was imposed long before the general public had any idea who Elizabeth Warren was, let alone her wacky idea of creating a federal consumer watchdog agency. As a matter of fact, New York was one of the states that informed the CFPB’s loss mitigation regulations.
The problem is that the statute doesn’t define who a borrower is and this has created the opportunity for mischief-making as more lawyers get involved in foreclosure defense, which not too many years ago was an oxymoron, as farfetched as a Trump Presidency. For example, what happens if a parent dies with an outstanding mortgage? The property is willed to the kids, who become successors-in-Interest, but they don’t assume the mortgage or take out a new one. A few years later the bank decides it’s time to foreclose on the property. Do they have to send out a pre-foreclosure notice to the kids? This is exactly what happened in US Bank N.A. v. Levine, No. 54232/2015, 2016 WL 3677195, at *2 (N.Y. Sup. Ct. July 11, 2016). The court said the answer is no. The judge adopted the logic of a similar earlier ruling, which explained that “While the statute does not define that term, logic dictates that a ‘borrower’ is someone who, at a minimum, either received something and/or is responsible to return it.”
Chalk one up for common sense. But all this comes with a huge caveat. No appellate court – the ones that set most binding precedents – has addressed the issue, so if you find yourself foreclosing on an estate, you may find yourself having to deal with similar arguments for years to come.