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THE DEFAULT NOTIFICATION LETTER DID NOT ACCELERATE THE DEBT BECAUSE IT DID NOT STATE THE DEBT WAS DUE AND PAYABLE IMMEDIATELY; THE BANK DID NOT DEMONSTRATE THE PROPER MAILING OF THE RPAPL 1304 NOTICE (THIRD DEPT)

The Third Department, reversing Supreme Court, determined plaintiff bank was not entitled to summary judgment in this foreclosure action. The court held the action had never been dismissed pursuant to CPLR 3216 because no 90-day notice requiring the filing of a note of issue had been given. The foreclosure action was timely because the letter which defendants argued had accelerated the debt did not unambiguously state that the full mortgage debt had become due and payable immediately. However proof of the mailing of the the RPAPL 1304 notice was not sufficient:

The December 28, 2009 letter advised Mausler [defendant] that he was in default and that he could cure this default by making a payment “within thirty days from the date of this letter.” The letter further stated that “[i]f you do not cure this default within the specified time period, your obligation for payment of the entire unpaid balance of the loan will be accelerated and become due and payable immediately” … . Additionally, the letter provided that if the amount due was not paid, “foreclosure proceedings may commence to acquire the [p]roperty by foreclosure and sale” … . The Court of Appeals, however, recently explained that such language does not evince an intent by the noteholder to “seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event”… . Accordingly, contrary to defendants’ contention, the December 2009 letter did not constitute a valid acceleration of the debt so as to trigger the applicable statute of limitations. …

Plaintiff relies on the affidavit from the loan servicing associate to demonstrate compliance with RPAPL 1304. The associate, however, “did not attest to familiarity with or provide any proof of the mailing procedures utilized by the party that allegedly mailed the RPAPL 1304 notice” … . Wilmington Trust, Natl. Assn. v Mausler, 2021 NY Slip Op 01296, Third Dept 3-4-21

 

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BECAUSE THE ORDER DISMISSING THE INITIAL COMPLAINT DID NOT SPECIFY CONDUCT CONSTITUTING NEGLECT TO PROSECUTE, THE SIX-MONTH TOLL OF THE STATUTE OF LIMITATIONS PURSUANT TO CPLR 205 (a) APPLIED AND THE ACTION WAS TIMELY; THE DISSENT DISAGREED (SECOND DEPT).

The Second Department, over a strong dissent, determined that the foreclosure was timely commenced pursuant to CPLR 205 (a) within six months of the dismissal of the initial complaint. The six-month toll of the statute of limitations pursuant to CPLR 205 (a) does not apply to a dismissal for neglect to prosecute. However, the order dismissing the action for neglect to prosecute must specify the conduct constituting neglect. The majority concluded the order did not include any specific findings of neglect. The dissent disagreed:

Contrary to the defendant’s contention and the finding of our dissenting colleague, the 2010 action was not dismissed for neglect to prosecute, a category of dismissal that renders CPLR 205(a) inapplicable. “Where a dismissal is one for neglect to prosecute the action . . . , the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation” (CPLR 205[a]). Here, the order dated April 6, 2017, “did not include any findings of specific conduct demonstrating ‘a general pattern of delay in proceeding'” … . Moreover, by dismissing the 2010 action without prejudice, the Supreme Court “permitted the plaintiff to avail itself of CPLR 205(a) to recommence the foreclosure action” … . Deutsche Bank Natl. Trust Co. v Baquero, 2021 NY Slip Op 01246, Second Dept 3-3-21

 

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RPAPL 1304 AND 1302-a DO NOT APPLY WHERE THE LOAN SUBJECT TO FORECLOSURE IS NOT A “HOME LOAN;” COMPLIANCE WITH RPAPL 1303 IS A CONDITION PRECEDENT TO FORECLOSURE BUT FAILURE TO COMPLY CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL; FAILURE TO PROVIDE NOTICE OF DEFAULT CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in this foreclosure action should have been granted. The Second Department noted: (1) RPAPL 1304 (re: notice) and 1302-a (re: standing) do not apply where the subject loan is not a “home loan” because the property was not defendant’s principal dwelling;  (2) compliance with the notice requirements of RPAPL 1303 is a condition precedent to the commencement of a foreclosure action, but the issue cannot be raised for the first time on appeal; (3) the failure to provide notice of default as required by the mortgage cannot be raised for the first time on appeal. Nationstar Mtge., LLC v Gayle, 2021 NY Slip Op 08194, Second Dept 2-24-21

 

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A MORTGAGE DEBT CAN BE ACCELERATED ONLY BY AN UNEQUIVOCAL OVERT ACT, I.E., COMMENCING A FORECLOSURE ACTION OR A DOCUMENT MAKING IT CLEAR THE ENTIRE DEBT IS IMMEDIATELY DUE (NOT THAT IT WILL BE DUE IN THE FUTURE); A MORTGAGE DEBT CAN BE DE-ACCELERATED BY A VOLUNTARY DISCONTINUANCE, EVEN IF ITS PURPOSE IS TO STOP THE STATUTE OF LIMITATIONS FROM RUNNING (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge DiFiore, over a partial dissent and a concurrence, clarified how courts should handle two recurring issues in the sea of foreclosures which have inundated the courts: (1) how is the mortgage debt accelerated such that the entire amount becomes due and the six-year statute of limitations for a foreclosure action starts running; and (2) how is the debt de-accelerated such that the statute of limitations for a foreclosure action stops running and the borrower can resume monthly installment payments? The Court of Appeals held that acceleration of the debt must be done by an unequivocal overt act. In the Vargas case, the foreclosure action did not refer to the correct loan, which had been modified and did not therefore accelerate the debt. In the Wells Fargo case, the letter did not ask for immediate payment of the entire debt and therefore did not accelerate the debt. As for de-acceleration, that can be accomplished by voluntarily discontinuing the foreclosure action:

There are sound policy reasons to require that an acceleration be accomplished by an “unequivocal overt act.” * * *

[Re: Acceleration, the Vargas case] … [W]here the deficiencies in the [foreclosure] complaints were not merely technical or de minimis and rendered it unclear what debt was being accelerated—the commencement of these [foreclosure] actions did not validly accelerate the modified loan … . * * *

[Re: Acceleration, the Wells Fargo case] … [T]he letter did not seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event, indicating the debt was not accelerated at the time the letter was written.  * * *

[Re: De-acceleration or Revocation of the Acceleration ] … [W]hen a bank effectuated an acceleration via the commencement of a foreclosure action, a voluntary discontinuance of that action—i.e., the withdrawal of the complaint—constitutes a revocation of that acceleration. In such a circumstance, the noteholder’s withdrawal of its only demand for immediate payment of the full outstanding debt, made by the “unequivocal overt act” of filing a foreclosure complaint, “destroy[s] the effect” of the election … . …

We reject the theory … that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. A noteholder’s motivation for exercising a contractual right is generally irrelevant. Freedom Mtge. Corp. v Engel, 2021 NY Slip Op 01090, CtApp 2-18-21

 

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THE ESTATE IS NOT A NECESSARY PARTY IN THIS FORECLOSURE ACTION; THE REFEREE’S FINDINGS WERE BASED UPON UNPRODUCED BUSINESS RECORDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the estate was not a necessary party in this foreclosure action and the referee’s finding were based on unproduced business records:

“The rule is that a mortgagor who has made an absolute conveyance of all his [or her] interest in the mortgaged premises, including his [or her] equity of redemption, is not a necessary party to foreclosure, unless a deficiency judgment is sought on his [or her] bond” … . Here, [decedent] conveyed all of the interest in the subject property prior to his death, and prior to the commencement of the instant action. Moreover, the plaintiff moved to amend the complaint to remove any language seeking a deficiency, and the court granted that motion.

However, “the referee’s findings with respect to the total amount due upon the mortgage were not substantially supported by the record inasmuch as the computation was premised upon unproduced business records” … . Federal Natl. Mtge. Assn. v Home & Prop. Works, LLC, 2021 NY Slip Op 01031, Second Dept 2-17-21

 

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PLAINTIFF MORTGAGE COMPANY DID NOT DEMONSTRATE STANDING TO BRING THE FORECLOSURE ACTION AND THERE WAS A QUESTION OF FACT WHETHER PLAINTIFF NEGOTIATED IN GOOD FAITH PURSUANT TO CPLR 3408 (f) (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff mortgage company did not demonstrate standing to bring the foreclosure action and did not establish it had negotiated in good faith pursuant to CPLR 3408 (f):

The plaintiff was not in possession of the note at the time of commencement of the action. Further, the plaintiff failed to submit evidence establishing, prima facie, that it was authorized to act on behalf of FHLBC to commence the foreclosure action, since the plaintiff did not submit any power of attorney, servicing agreement, or other agreement authorizing the plaintiff to commence this action … . Moreover, the affidavits relied upon by the plaintiff contained only conclusory assertions that the plaintiff was the loan servicer, without asserting the existence of any agreement delegating to the plaintiff the authority to commence this action on FHLBC’s behalf in 2012. * * *

… [T]here is no evidence that the plaintiff attempted to obtain a waiver of the investor’s self-employment restriction, which, according to the plaintiff’s own denial letter, was the reason for its denial of the defendant’s first and second loan modification applications. …

Since the defendant’s submissions raise a factual issue as to whether the plaintiff failed to negotiate in good faith and deprived him of a meaningful opportunity to resolve this action through loan modification or other potential workout options … , the Supreme Court should have held a hearing to determine this issue before deciding that branch of the defendant’s cross motion which was to dismiss the complaint insofar as asserted against him … . Citimortgage, Inc. v Lofria, 2021 NY Slip Op 01026, Second Dept 2-17-21

 

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THE AFFIRMATIONS OF DISCONTINUANCE AND CANCELLATION WERE SILENT ON THE ACCELERATION OF THE MORTGAGE DEBT AND THEREFORE DID NOT STOP THE STATUTE OF LIMITATIONS FROM RUNNING; THE FORECLOSURE ACTION WAS TIME-BARRED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the foreclosure action was time-barred despite the affirmations of discontinuance and cancellation which were silent on the acceleration of the debt:

“A lender may revoke its election to accelerate the mortgage, but it must do so by an affirmative act of revocation occurring during the six-year statute of limitations period subsequent to the initiation of the prior foreclosure action” … . As this Court held in Engel, a lender’s mere act of discontinuing an action, without more, does not constitute, in and of itself, an affirmative act revoking an earlier acceleration of the debt … . Rather, in order to be effective as a notice of revocation, the notice must contain an indication that the lender would accept installment payments from the homeowner in satisfaction of his or her prospective monthly payment obligations … .

Here, … the six-year statute of limitations began to run on the entire debt in November 2010, when JP Morgan commenced the prior action to foreclose the subject mortgage. Accordingly, the statute of limitations expired in November 2016, and the instant action, commenced in July 2017, was untimely. Contrary to the Supreme Court’s determination, the affirmations of discontinuance and cancellation did not constitute an affirmative act of revocation, since they are silent on the issue of the election to accelerate, and did not otherwise indicate that JP Morgan would accept installment payments from the borrowers … .  FV-1, Inc. v Palaguachi, 2021 NY Slip Op 00838, Second Dept 2-10-21

 

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COMPLIANCE WITH THE NOTICE REQUIREMENT OF RPAPL 1304 WAS NOT PROVEN IN THIS FORECLOSURE ACTION; PROOF REQUIREMENTS EXPLAINED IN SOME DETAIL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff mortgage company did not demonstrate compliance with the notice requirements of RPAPL 1304:

RPAPL 1304(1) provides that, “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.” “The statute further provides the required content for the notice and provides that the notice must be sent by registered or certified mail and also by first-class mail to the last known address of the borrower” … . Strict compliance with RPAPL 1304 notice to the borrower is a condition precedent to the commencement of a foreclosure action … . “By requiring the lender or mortgage loan servicer to send the RPAPL 1304 notice by registered or certified mail and also by first-class mail, the Legislature implicitly provided the means for the plaintiff to demonstrate its compliance with the statute, i.e., by proof of the requisite mailing, which can be established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure” … .

Here, the only purported evidence submitted by the plaintiff in support of its motion to show that it complied with RPAPL 1304 was a hearsay statement in the affidavit of the plaintiff’s legal affairs representative. Moreover, contrary to the plaintiff’s assertions, the 90-day notice which was attached to her affirmation does not demonstrate that the mailing requirements of RPAPL 1304 were met … . The plaintiff failed to submit an affidavit of service or proof of first-class mailing by the United States Postal Service evidencing that the defendant was served by first-class mail in accordance with RPAPL 1304 … . The plaintiff not only failed to provide proof of the actual first-class mailing, but its legal affairs representative also lacked personal knowledge of the purported mailing and did not aver that she was familiar with the mailing practices and procedures of the entity that purportedly sent the notices … . Thus, the plaintiff submitted no evidence that the letter had been sent to the defendant by first-class mail more than 90 days prior to commencement of the action … . 21st Mtge. Corp. v Broderick, 2021 NY Slip Op 00825, Second Dept 2-10-21

 

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FAILURE TO INCLUDE THE LACK OF STANDING DEFENSE IN THE ANSWER IS NO LONGER DEEMED A WAIVER OF THE DEFENSE; DEFENDANT IN THIS FORECLOSURE ACTION SHOULD HAVE BEEN ALLOWED TO AMEND HER ANSWER (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined defendant should have been allowed to amend her answer to add the lack of standing defense. Pursuant to RPAPL 1302-a the failure to include the lack of standing defense in the answer is no longer deemed waiver of the defense:

… [T]he defendant did not waive the affirmative defense of lack of standing. RPAPL 1302-a … provides that, notwithstanding the provisions of CPLR 3211(e), “any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss.” Under the circumstances of this case, the Supreme Court should have granted that branch of the defendant’s cross motion which was pursuant to CPLR 3025(b) for leave to amend her answer to assert the affirmative defense of lack of standing … . Further, the defendant’s affidavit was sufficient to raise a triable issue of fact as to whether the plaintiff was the holder or assignee of the note at the time the action was commenced … . In response, the plaintiff failed to demonstrate its standing as a matter of law … . US Bank N.A. v Blake-Hovanec, 2021 NY Slip Op 00893, Second Department 2-10-21

 

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DETAILED EXPLANATION OF HOW MAILING OF THE RPAPL 1304 NOTICE CAN (SHOULD) BE PROVEN (SECOND DEPT).

The Second Department, in affirming the judgment of foreclosure in favor of Nationstar, offered a detailed explanation of how mailing of the RPAPl 1304 notice can be proven:

The Supreme Court … properly determined that … Nationstar proved sufficient mailing of the statutory 90-day preforeclosure notice as required by RPAPL 1304. RPAPL 1304(1) provides that, “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.” The statute further provides the required content for the notice and provides that the notice must be sent by registered or certified mail and also by first-class mail to the last known address of the borrower (see RPAPL 1304[2]). Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action … . By requiring the lender or mortgage loan servicer to send the RPAPL 1304 notice by registered or certified mail and also by first-class mail, “‘the Legislature implicitly provided the means for the plaintiff to demonstrate its compliance with the statute, i.e., by proof of the requisite mailing,’ which can be ‘established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure'” … . The notice must also be in 14-point type … . Here, at the framed-issue hearing, Nationstar submitted evidence that a third-party vendor mailed the 90-day preforeclosure notice through the testimony of a witness who had personal knowledge of the vendor’s standard business practice with regard to sending the 90-day preforeclosure notice to borrowers, and who affirmed, based on the business records she reviewed regarding the subject loan, that the notices had been sent to the defendant in compliance with the requirements of RPAPL 1304 … . Notwithstanding the use of a third party to mail the 90-day preforeclosure notice, Nationstar tendered sufficient evidence demonstrating strict compliance with RPAPL 1304. Nationstar Mtge., LLC v Paganini, 2021 NY Slip Op 00852, Second Dept 2-10-21

 

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