Peril and Ambiguities in the New Foreclosure Statutes

90-Day Notice Requirements

The new language amends the language in the notice a lender must send to the borrower at least 90 days before commencing an action against the borrower. As amended, RPAPL 1304 requires the notice to inform the borrower that the lender may commencef legal action only “if you [the borrower] have not taken any actions to resolve this matter within 90 days ' ” But “ any action to resolve the matter” is not defined. A borrower could assert that action to resolve have been fulfilled, i.e., application for a new mortgage, seeking a mortgage modification, or sending a letter stating that a resolution is sought, or a correspondence seeking to make partial payments of the arrears. If any of these might be deemed as “seeking resolution,” the statute has introduced a challenging impediment to foreclosure.

Repeated notices will now be a problem. The new provision adds the distinction that the one notice need only be sent for the “same delinquency” and provides that:

Should a borrower cure a delinquency but re-default in the same twelve month period, the lender shall provide a new notice pursuant to this section ' .

An obvious ploy for wily borrowers is manifest. They could default, cure on the 89th day and be entitled to a new notice, and do this eternally. This would assure that the borrower could always remain at least three months in arrears on the mortgage obligation, all in contravention of the mortgage contract.

The statute also requires the lender to provide notice to the borrower in the borrower's native language if the borrower is “known to have limited English proficiency.” The statute does not indicate whether the mortgage holder must have actual knowledge of limited English proficiency, or how limited the proficiency must be. Moreover, even if the statute is read to require “actual knowledge,” would actual knowledge by an original mortgagee be imputed to assignees? If so, information about the borrower's proficiency would need to be preserved throughout the assignment process, something glaringly difficult as a practical matter.

Settlement Conferences

Although there is no good reason why a defendant in a foreclosure action should be treated any differently than any other defendant in serving a timely answer, the new statute amends CPLR 3408 to permit a defendant who appears at a settlement conference, but who did not file an answer, to be presumed to have a reasonable excuse for the default. That defendant is therefore permitted to serve and file an answer, without waiving any substantive defenses, within 30 days of initial appearance at the settlement conference. This yet further delay imposed upon the process may be unfortunate.

During the settlement process, CPLR 3408 now specifically requires that any motion made by plaintiff (or defendant) must be held in abeyance during the settlement process. The main problem here (aside from impeding plaintiffs in disposing of a borrower's answer) is the ill-advised prohibition against moving regarding other defendants. There are multitudinous examples of time-consuming procedures plaintiffs need to pursue when other defendants may answer or assail the action. Prohibiting efficient efforts against those others only further delays the foreclosure.

New Maintenance Obligation

RPAPL 1308, added by the new bill, requires most first-mortgage servicers to secure and maintain residential real property when the servicer has reason to believe that the property is “vacant and abandoned.” Because a mortgage holder possesses only a lien on the mortgaged premises, and therefore is not an owner, requiring such party to maintain the premises creates an unpredictable and unexpected expenditure, beyond what any mortgage contract contemplates. Moreover, it imposes tort liability upon such a lender because it foists care, custody, and control into its hands.

The new requirement creates a maintenance obligation at the inception of an action, even earlier if the vacancy or abandonment is or could have been determined. This obligation to maintain continues until the property has been sold or transferred to a new owner. This latter provision, however, is unclear because it is not apparent whether this means the obligation ends if the mortgagor conveys title, or whether it means the moment when someone has bid at a foreclosure sale.

A possible savings provision appears, but it too is ambiguous. The provision is that a servicer who peacefully enters a vacant and abandoned property so as to maintain it pursuant to this section “shall be immune from liability when such servicer is making reasonable efforts to comply with the statute.” Whether that means that a servicer cannot be sued for trespass or whether this is a blanket way to avoid tort liability devolving to a foreclosing party is too vague to render an opinion.

Expedited Procedure for Vacant and Abandoned Property

Because from a lender's viewpoint imposition of property maintenance shortly after a borrower becomes delinquent is so draconian, it is welcome that the omnibus bill adds a new RPAPL ' 1309 and ' 1310 offering an accelerated process to reach a judgment of foreclosure and sale where the property is vacant or abandoned. The essence of the accelerated procedure is good: An order to show cause is made after service is complete to demonstrate the vacancy (not as certain or effortless as the statute implies), asking the court to compute the sum due without necessity of appointing a referee, and to issue the judgment of foreclosure and sale. But there are some perhaps unrecognized infirmities or undue burdens in the procedure.

First, the application cannot be made until the defendant's time to answer shall have expired. If “the Defendant's” means the borrower it is one thing, quite another if it means all the other defendants in the action. This is unclear and needs remediation. And, a defendant ' particularly one who has abandoned the premises ' may be very difficult to find so that the time consumed in serving such a defendant can be surprisingly lengthy.

Next, although delineation of all the proof a plaintiff must present upon the order to show cause is extensive, the court may still require the plaintiff to appear and provide testimony in support of the application. While this is hardly irrational, it is apparent that such a procedure can cause delays with hearing dates far in the future together with the possible difficulty of producing witnesses.

Third, while the court is directed to make a written finding as soon as practicable as to whether the plaintiff has proved its case, court delays in many venues within the state are well recognized. In some counties, rendering of the judgment of foreclosure and sale will be far less swift than the procedure might have intended.

Finally, even though the property may be clearly and actually abandoned, provision is made that no judgment of foreclosure and sale can be entered if the mortgagor ' or any other defendant ' has filed an answer, appearance, or other written objection that is not withdrawn. First, filing an appearance is not an objection. Next, this gives carte blanche to any defendant to torpedo the accelerated procedure merely by serving an answer.

Conclusion

In sum, as to an abandoned or vacant property, the foreclosing party will be compelled to spend money and assume liability for a period of time greater than the statute would have predicted.

Bruce J. Bergman is with Berkman, Henoch, Peterson, Peddy & Fenchel, PC, Garden City, NY.