Posts tagged ‘Pre-foreclosure notice’

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

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.  

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

CFPB’s Regs Pack An Extra Wallop For NYS

With new mortgage regulations set to kick in in January, the most plausible interpretation of the law as it applies to New York credit unions is that financial institutions will have to wait 210 days before they even begin the formal foreclosure process.  Hopefully this is an unintended consequence of the CFPB’s mortgaging regulations that will be fixed before they take effect.  But as it stands right now, your concern is justified.  Here’s why.

For several years now, New York State has required lenders to send out a 90-day pre-foreclosure notice to delinquent homeowners.  No foreclosure action can be commenced in this state without doing so.  As I’ve explained in previous blogs, the CFPB examined New York’s existing statutes in devising national loss mitigation regulations.  As a result, 1024.41(f), which takes effect next year, provides that “a servicer shall not make the first notice or filing required by applicable law” for any foreclosure unless a borrower is more than 120 days delinquent.  This means that if New York’s pre-foreclosure notice is considered “the first notice or filing” to trigger the foreclosure process, then New York credit unions are going to have to wait an additional 90 days after the CFPB’s mandated 120 days before starting to foreclose.  New York already has one of the longest, most expensive foreclosure processes in the country.  If these regulations go into effect without clarification, the process will become virtually unusable.

The good news is that in a July comment letter to the CFPB, New York State’s Department of Financial Services outlined the problem and asked the Bureau to clarify its existing commentary.  Under the DFS’s solution, the 120-day period would run concurrently with any state mandated pre-foreclosure period.  This is probably what the CFPB intended in the first place.  The bad news is that now that this issue is out in the open, unless CFPB makes the changes requested, the best interpretation of state and federal regulation is that when you’re doing a foreclosure in New York a delinquent homeowner gets 210 days before any legal process begins.

By the way, there are some people out there who think that this result would be pro-consumer.  However, it’s in no one’s interest to make the foreclosure process, which already has numerous protections for homeowners in New York, so onerous that the price of delinquencies has to be borne by all homeowners both in the form of more expensive mortgages and deteriorating housing stock that brings down the value of housing prices in an entire neighborhood.  Hopefully, the CFPB understands this.

Have a nice weekend.

August 9, 2013 at 7:46 am Leave a comment

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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