COURT OF APPEALS CERTIFIES TO THE SECOND CIRCUIT THE ANSWER TO, INTER ALIA, THE QUESTION: HOW CAN A BORROWER REBUT A LENDER’S PROOF OF COMPLIANCE WITH RPAPL 1304 WHEN THAT PROOF IS IN THE FORM OF A STANDARD OFFICE MAILING PROCEDURE?

• Posted on: Apr 2 2021

This Blog frequently addresses issues involving mortgage foreclosures in New York.  [HERE], [HERE] [HERE], [HERE], [HERE], [HERE] [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], [HERE],.  More specifically, we have frequently focused on the pre-foreclosure notice requirements of RPAPL 1304.  [HERE], [HERE], [HERE], [HERE], [HERE].  As is evident from prior Blog articles, the lender’s sufficiency of proof of mailing required notices is an oft litigated issue.  

On March 30, 2021, the New York Court of Appeals decided CIT Bank, N.A. v. Schiffman, in which it answered the following two questions certified to it by the Second Circuit Court of Appeals: (1) “Where a foreclosure plaintiff seeks to establish compliance with RPAPL § 1304 through proof of a standard office mailing procedure, and the defendant both denies receipt and seeks to rebut the presumption of receipt by showing that the mailing procedure was not followed, what showing must the defendant make to render inadequate the plaintiff’s proof of compliance with § 1304?” and, (2) “Where there are multiple borrowers on a single loan, does RPAPL § 1306 require that a lender’s filing include information about all borrowers, or does § 1306 require only that a lender’s filing include information about one borrower?”

Briefly, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  The CIT Bank Court noted that one purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  (Citation and internal quotation marks omitted.)

As summarized by the CIT Bank Court, RPAPL 1306:

requires that a lender’s filing include information about all borrowers on a multi-borrower loan. RPAPL 1306 provides that as a “condition precedent” to commencing a foreclosure action, “[e]ach lender, assignee or mortgage loan servicer” file with the superintendent of financial services “within three business days of the mailing of the [section 1304 notice] … the information required by subdivision two” (RPAPL 1306[1]). Subdivision two directs, in relevant part, that “[e]ach filing … shall be on such form as the superintendent shall prescribe and shall include at a minimum, the name, address, last known telephone number of the borrower, and the amount claimed as due and owing on the mortgage….” (RPAPL 1306[2]).  

The primary purpose of RPAPL 1306 is to enable the Superintendent to monitor statewide foreclosure filings, to assist in the analysis of the types of loans subject to pre-foreclosure notices and to direct counseling services to borrowers at risk of foreclosure.  CPLR 1306(4).

Facts of CIT Bank

Defendants/borrowers, a husband and wife, borrowed $326,000 and secured the loan with a mortgage on jointly owned property.  The loan was consolidated and then assigned to CIT Bank.  After borrowers’ payment default, lender commenced an action in the United States District Court for the Eastern District of New York.  Borrowers’ answer asserted that lender failed to comply with RPAPL 1304 and 1306.

Lender moved for summary judgment and argued that it met “its prima facie entitlement to a judgment of foreclosure and, as relevant here, that it had satisfied the requirements of RPAPL 1304 and 1306 in November 2015, almost a year before commencing suit, by mailing the notices and submitting the electronic filing within three days of that mailing.”  Compliance with CPLR 1304 was satisfied, Lender argued, by submitting “the affidavit of employee Rachel Hook in which she attested to her personal knowledge of [lender]’s routine office practice relating to the generation, addressing, and mailing of 90–day notices, which she described in the affidavit [and c]opies of the notices and envelopes purportedly mailed to [both borrowers] were attached to the motion papers.”  Additionally, “Hook’s affidavit stated that, as part of [lender]’s routine practice, envelopes for the 90–day notices are ‘created upon default.’”  

As to RPAPL 1306, lender submitted the required electronic filing statement, which listed only wife as the borrower “and stated that the filing was completed on the same day as the mailing of the 90–day notice”.

Borrowers opposed the motion by denying receipt of the RPAPL 1304 notices, challenging that the Hook affidavit created “a presumption of receipt” of the required mailing and by asserting that the requirements of RPAPL 1306 were not satisfied because the required filing listed only wife and not husband as “borrower.”

In deciding the motion, the District Court adopted the recommendation of the Magistrate Judge and granted summary judgment to lender, finding that the requirements of both RPAPL 1304 and 1306 were satisfied.  

Borrowers appealed to the Second Circuit and argued that “it was evident from the fact that the notices were dated almost a year after default that the bank had deviated from its routine office practice of generating the envelopes for the 90–day notices “’upon default’” [and] … that [lender] failed to comply with RPAPL 1306 because the requisite filing listed only one of their names.”  Seeking guidance from the Court of Appeals, the Second Circuit certified its two questions.

The Decision of the Court of Appeals

RPAPL 1304

The Court, recognizing that RPAPL 1304 does not set forth the proof necessary to demonstrate compliance with the statute’s notice requirements in foreclosure actions, explained how to establish that a notice has been sent in analogous circumstances:

this Court has long recognized a party can establish that a notice or other document was sent through evidence of actual mailing (e.g., an affidavit of mailing or service) (see Engel v. Lichterman, 62 N.Y.2d 943, 944, 479 N.Y.S.2d 188, 468 N.E.2d 26 [1984]) or—as relevant here—by proof of a sender’s routine business practice with respect to the creation, addressing, and mailing of documents of that nature. Evidence of “an established and regularly followed office procedure” (Matter of Gonzalez (Ross), 47 N.Y.2d 922, 923, 419 N.Y.S.2d 488, 393 N.E.2d 482 [1979]) may give rise to a rebuttable “presumption that such a notification was mailed to and received by [the intended recipient]” (Preferred Mut. Ins. Co. v. Donnelly, 22 N.Y.3d 1169, 1170, 985 N.Y.S.2d 470, 8 N.E.3d 847 [2014]; see also Nassau Ins. Co. v. Murray, 46 N.Y.2d 828, 829, 414 N.Y.S.2d 117, 386 N.E.2d 1085 [1978]). “In order for the presumption to arise, [the] office practice must be geared so as to ensure the likelihood that [the] notice … is always properly addressed and mailed” (Nassau Ins. Co., 46 N.Y.2d at 830, 414 N.Y.S.2d 117, 386 N.E.2d 1085). Such proof need not be supplied by the employee charged with mailing the document (see Bossuk v. Steinberg, 58 N.Y.2d 916, 919, 460 N.Y.S.2d 509, 447 N.E.2d 56 [1983]) but can be offered in the form of an affidavit of an employee with “personal knowledge of the practices utilized by the [company] at the time of the alleged mailing” (Preferred Mut. Ins. Co., 22 N.Y.3d at 1170, 985 N.Y.S.2d 470, 8 N.E.3d 847; see also Nassau Ins. Co., 46 N.Y.2d 828, 414 N.Y.S.2d 117, 386 N.E.2d 1085). For example, in Preferred Mut. Ins. Co., we deemed an affidavit describing the procedures used by an insurance company “to ensure the accuracy of addresses, as well as office procedure relating to the delivery of mail to the post office” sufficient to support the presumption, where the affidavit explained, among other things, how the notices and envelopes were generated, posted and sealed, as well as how the mail was transmitted to the postal service (22 N.Y.3d at 1170, 985 N.Y.S.2d 470, 8 N.E.3d 847, affg 111 A.D.3d 1242, 1244, 974 N.Y.S.2d 682 [4th Dept. 2013]).

Having described how to establish the rebuttable presumption of mailing through “standard office mailing procedures,” the Court then addressed the requirements for rebutting that presumption.  The borrower argued that denial of receipt and a showing that “any aspect of the routine office procedure was not followed” is sufficient.  Lender did “not disagree that a denial of receipt and a showing of noncompliance can raise a fact issue but contends that this is true only if the deviation from procedure is material and related to the mailing process in a manner that would affect whether the document was mailed to the appropriate party.”  The Court agreed with lender and stated the general principal that:

[i]t is well-settled that “[d]enial of receipt … standing alone, is insufficient …. In addition to a claim of no receipt, there must be a showing that [the] routine office practice was not followed or was so careless that it would be unreasonable to assume that the notice was mailed” (Nassau Ins. Co., 46 N.Y.2d at 829–830, 414 N.Y.S.2d 117, 386 N.E.2d 1085).

In addressing the more specific question asked by the Second Circuit, the Court stated:

we clarify that to rebut the presumption, there must be proof of a material deviation from an aspect of the office procedure that would call into doubt whether the notice was properly mailed, impacting the likelihood of delivery to the intended recipient. Put another way, 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 Court also noted that “[w]hat is necessary to rebut the presumption that a RPAPL 1304 notice was mailed will depend, in part, on the nature of the practices detailed in the affidavit.”  “[C]ontextual considerations” may also become relevant.  In CIT Bank, for example, lender argued that “residential notes and mortgages are negotiable instruments that often change hands at various points during their duration, which may impact the timing of the creation and mailing of RPAPL 1304 notices—a contextual factor a court could consider in assessing whether a purported deviation from routine procedure was material.”  Here, there was a significant gap in time between the date of the notice and the default, despite the averment that the “routine office practice of generating the envelopes for the [RPAPL 1304] 90-day notices ‘upon default.’”  The Court also noted that the standard proposed by borrower – i.e., any deviation from established office procedure would be sufficient to rebut the presumption of mailing – would:

undermine the purpose of the presumption because, in practice, it would require entities to retain actual proof of mailing for every document that could be potentially relevant in a future lawsuit. As we recognized almost a century ago, such an approach would be financially and logistically impractical given the reality that commercial entities create and process significant volumes of mail and may experience frequent employee turnover—circumstances that apply not only to banks, but many other businesses and government agencies.

RPAPL 1306

Simply stated, borrower argued that lender’s RPAPL 1306 filing was insufficient because all borrowers are required to be listed thereon and lender only included wife.  The Court rejected borrower’s argument.  First, as a matter of statutory interpretation only one borrower is required because RPAPL 1306 references the “borrower” singularly.  This is in contrast to, for example, the related RPAPL 1304 which references “the ‘borrower, or borrowers.’”  

The Court further noted that because the primary purpose of the statute, which has been previously described, would be furthered if just one borrower is listed on a lender’s filing, listing a single borrower is sufficient.