If Your Member is Facing Foreclosure, You Should Read This Blog

April 5, 2021 at 10:38 am Leave a comment

Given the complexities of New York’s foreclosure law, minor mistakes can result in years of delay when it comes to repossessing a house that the borrower cannot afford.  Even before a foreclosure begins, for example, lenders have to be able to document that they sent out highly prescriptive pre-foreclosure notices.  The good news is that if you have consistent policies and procedures, these pitfalls can be avoided.  The Court of Appeals recently addressed this esoteric but vital area of the law.  For those of you who handle loss mitigation at the credit union the case is certainly worth reading and comparing to your policies and procedures. 

Section 1304 of New York’s Real Property Actions and Proceedings Law mandates that “…at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, or borrowers … such lender, assignee or mortgage loan servicer” shall mail a notice that they are in danger of being foreclosed on.  The notice must be sent by registered or certified mail.   

Sounds easy enough but how does a foreclosing party demonstrate that it has complied with this provision? 

In CIT Bank N.A. v. Schiffman, the Court of Appeals provided guidance on precisely this question.  One of the most common ways of demonstrating compliance with this requirement is to have a well-established documented procedure that your credit union always follows when sending out the required notices.  Use of a standardized procedure allows a third party to provide an affidavit to the court that pursuant to policy and procedure the notice was sent out in compliance with the law.  Crucially, New York law creates a rebuttable presumption that a mailed notice is received.  This means that a member can’t avoid a foreclosure action unless he can demonstrate why the notice was not received.  In this case the Court of Appeals provided guidance on precisely what type of proof meets this burden.  The court explained that “…the crux of the inquiry is whether the evidence of a defect casts doubt on the reliability of a key aspect of the process such that the inference that the notice was properly prepared and mailed is significantly undermined. Minor deviations of little consequence are insufficient.”

The type of proof necessary to meet this standard will depend on the specific facts but the more your credit union has a standard approach and doesn’t deviate from those protocols, the better off it is going to be.  In contrast, in this case CIT Bank raised the eyebrows of the borrower’s attorney by sending the 90 day pre-foreclosure notice almost a year before beginning the foreclosure. 

Another approach your credit union could take is to have the individual mailing the pre-foreclosure notice fill out an affidavit every time a notice is sent.  But even this approach should follow standard procedures and the affidavit should detail, among other things, how the notice was delivered to the post office.  There is actually a case in which a mailing was deemed to be insufficient because it did not include this information.   

Within three business days of the mailing of a pre-foreclosure notice, lenders must file a notice with New York’s Department of Financial Services (§ 1306).  The form includes basic information such as the address of the borrower.   Does the law require that this notice include all joint borrowers on a mortgage loan? I know this might seem like a little too much minutia on a Monday morning, but it is a key question for anyone who wants to foreclose on property anytime soon.  The Court of Appeals held that for purposes of the § 1306 filing, lenders satisfy this requirement by simply listing one borrower.  

Entry filed under: Legal Watch, Mortgage Lending, New York State. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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