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New York Court of Appeals Makes a Significant Ruling on RPAPL 1304

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  • Posted on: Feb 17 2023

By Jonathan H. Freiberger

Because there have been a number of appellate decisions interpreting RPAPL 1304, this Blog has written frequently on that topic.  See, e.g., [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here] and [here].   By way of background, and as previously noted in the Blog, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a “lender, assignee or mortgage loan servicer” 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.

In one such article we wrote about Wells Fargo Bank, N.A. v. Yapkowitz, 199 A.D.3d 126 (2nd Dep’t 2021), in which the Court held that if there are more than one borrower, each one must receive a separate RPAPL 1304 notice because the “practice [of jointly addressing such notices] is insufficient to satisfy the requirements of RPAPL 1304, and that the plaintiff is required to mail a 90–day notice addressed to each borrower in separate envelopes as a condition precedent to commencing the foreclosure action.”  Yapkowitz, 199 A.D.3d at 128.  In our February 11, 2022, Blog article [here], we discussed U.S. Bank National Ass’n v. Gordon, 202 A.D.3d 872 (2022), in which the Second Department held that the lender failed to strictly comply with the requirements of RPAPL 1304 because it failed to demonstrate that the 90-day notices it sent to the borrowers contained the requisite list of five housing counseling agencies serving the county in which the subject property is located.  Numerous subsequent cases (and Blog articles) have been decided (and written) that have strictly construed RPAPL 1304.

Discussion of the strict interpretation of RPAPL 1304 was present in our December 17, 2021, article concerning the Second Department’s decision in Bank of America, N.A. v. Kessler, 202 A.D.3d 10 (2021), reversed, 2023 NY Slip Op 00804 (Feb. 14, 2023).  [Eds. Note: we also wrote about Kessler here, here, here.]  The Second Department in Kessler, strictly interpreted RPAPL 1304 and dismissed a Complaint because lender included additional notices in the envelope with the required 1304 notices in contravention of RPAPL 1304(2)’s requirement that “[t]he notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice.”  (Emphasis added.)  Thus, the notice in Kessler contained short debt collection, bankruptcy and military personnel assistance language in addition to the required language of the RPAPL 1304 notice. The Second Department, in Kessler, held that “inclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in these provisions constitutes a violation of the separate envelope requirement of RPAPL 1304(2).”  Kessler, 202 A.D.3d 10 at 14.  In so doing, the Second Department adopted a “bright-line rule.”  Kessler, 202 A.D.3d 10 at 16.  

On September 5, 2022, we wrote about Kessler in, “Supreme Court, Suffolk County, Refuses Lender’s Request to Stay a Foreclosure Action Pending the Court of Appeals’ Decision in Bank of America, N.A. v. Kessler” where we discussed JPMorgan Chase Bank, N.A. v. Sapienza, 76 Misc.3d. 1207(A) (Sup. Ct. Suffolk Co. August 30, 2022). There, lender included short debt collection and bankruptcy notices with its 1304 notice.  Lender had commenced a foreclosure action but sought a discretionary stay while awaiting the Court of Appeals’ decision in Kessler.  Lender argued, inter alia, that Kessler would likely be reversed and that additional notices such as those at issue in Kessler and Sapienza, would be permitted with 1304 notices.  Accordingly, supreme court should await guidance from the Court of Appeals on this issue.  Lender further argued that the Court’s strict interpretation  of 1304 reflected a significant departure from existing law.  Supreme court did not agree, found, among other things, that Kessler’s strict interpretation of 1304 had ample support in the case-law and rejected the Sapienza lender’s position.

On February 14, 2023, the Court of Appeals reversed Kessler.  In so doing, the Court held that “the inclusion of concise and relevant additional information [does not] void[] an otherwise proper notice to borrowers sent pursuant to [RPAPL] § 1304, thus barring a subsequently filed foreclosure action.”

The Court noted that “Section 1304 was enacted to address the pre-foreclosure lack of communication between borrower and lender, which often leads to needless foreclosure proceedings in cases where a foreclosure alternative might otherwise have been possible.”  (Citations and internal quotation marks omitted.)  

Interpreting statutes, the Court said, should be done in a manner that “avoid[s] an unreasonable or absurd application of the law.”  Citing to RPAPL 1304(1) and (2), the Court went on to indicate that the “operative statutory language here contains two requirements: (1) the notice “shall include” the specified language and information; and (2) the notice must be sent “in a separate envelope from any other mailing or notice”.  “As to the first requirement, subdivision (1) does not say that the notice must state only the cautionary language set forth in the statute, but rather that the notice ‘shall include’ that language.”  (Emphasis in original.)  The “include” language, the Court noted, “suggests that more can be added to the notice”.

Nor did the Court did not find that subdivision (2), addressing “any other mailing,” supported the strict rule espoused by the Appellate Division in Kessler.  Thus, the Court stated:

The question then is the constraint imposed by the requirement that the envelope not contain “any other mailing or notice.” The bright line rule adopted by the lower courts effectively defines “any other mailing or notice” as “any additional material or information whatsoever.” Although it might be possible to read “other notice” as the lower courts did—such that any deviation from the statutory language, however minor, would void the notice—that interpretation would stand in great tension with “shall include,” a phrase that contemplates the addition of something else. The statute must be given a sensible and practical over-all construction, which harmonizes all its interlocking provisions. Application of a bright line rule here would require the use of a highly constrained definition of “other,” where it is more appropriately read to mean mailings or notices “of a different kind.” Here, “other mailing or notice” more aptly refers other kinds of notices, such as pre-acceleration default notices, notices disclosing interest rate changes to borrowers with adjustable-rate mortgages (12 CFR 1026.20 [c]), monthly mortgage statements (12 CFR 1026.41), or notices disclosing to the borrower a transfer of the loan servicer (12 CFR 1024.33 [b]).  [Some citations, internal quotation marks and ellipses omitted.]

In the Court’s view a “bright-line rule would also lead to nonsensical results” because adding language such as “THIS IS EXTREMELY IMPORTANT, PLEASE PAY ATTENTION!” would be fatal to a 1304 notice.

Additionally, the Court found that a bright-line rule would be inconsistent with the “remedial purpose” of RPAPL 1304 and, held that “accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an ‘other notice.’”  In determining that the additional language about which the borrower in Kessler complained furthered the policies behind RPAPL 1304, the Court stated:

Here, the additional two paragraphs are directly related to the notice’s subject matter and further the statutory purpose by informing certain borrowers of additional protections they may have beyond those identified in the statutory notice language. The paragraphs relate to and supplement the statutory language as applied to two distinct groups of borrowers, and thus make most sense and are most helpful when read together with the notice. In addition, the paragraph relating to bankruptcy proceedings may be particularly useful to avoid confusing borrowers who are subject to the automatic stay in bankruptcy court and to avoid potential violation of such stays by the lender. The added language is specifically directed at that concern: it states that if the borrower is in bankruptcy, the section 1304 notice “is for information only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt.” It thus functions as both a protection for lenders and an explanation to borrowers of additional rights they may have. Moreover, a bright-line rule against any additional language in the same envelope could conflict with certain disclosure requirements under federal law [for example, warnings concerning the Fair Debt Collection Practices Act]. 

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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