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Second Department Holds That Envelopes Containing Pre-Foreclosure Notices to Borrowers Pursuant to RPAPL 1304 Cannot Contain Any Other Notices or Information

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  • Posted on: Dec 17 2021

By Jonathan H. Freiberger

Followers of this Blog know that we frequently address issues involving residential mortgage foreclosure.  Actions involving the pre-foreclosure requirements of RPAPL 1304 are frequently decided by the Appellate Courts in New York and, accordingly, are analyzed in our articles.  See, e.g., [here], [here], [here], [here], [here] and [here].  As previously noted in our Blog:

RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to certain loans, 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 provide 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 failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint (see, e.g., U.S. Bank N.A. v. Beymer, 161 A.D.3d 543 (1st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower (see, e.g., One West Bank, FSB v. Rosenberg, 189 A.D.3d 1600, 1602-3 (2nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina, 187 A.D.3d 1095, 1096 (2nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly, 158 A.D.3d 736 (2nd Dep’t 2018) (citations omitted).

In our October 1, 2021, blog we discussed Wells Fargo Bank, N.A. v. Yapkowitz, a case in which the Appellate Division, Second Department, dismissed lender’s complaint and held that a joint notice in one envelope addressed to two borrowers residing at the same address did not satisfy the requirements of RPAPL 1304.

On December 15, 2021, the Appellate Division, Second Department, decided Bank of America, N.A. v. Kessler.  As in Yapkowitz, the Court in Kessler, strictly interpreted RPAPL 1304 and dismissed a Complaint because lender included additional notices in the envelope with the required 1304 notices.  Significantly, RPAPL 1304(2) provides 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 Kessler Court 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).

The Kessler Court relied heavily of the Court of Appeals decision in Freedom Mortgage Corp. v. Engel, and citing to, and quoting from Engel, stated that this “strict approach precluding any additional material in the same envelope as the requisite RPAPL 1304 notices not only comports with the statutory language, it also provides clarity as a bright-line rule to plaintiff lenders and ‘promotes stability and predictability’ in foreclosure proceedings.”  [Eds. Note, this Blog has discussed Engel [here] and [here].]  

The Court noted that the language of 1304 is clear and that “[i]n matters of statutory interpretation, the primary consideration is to discern and give effect to the Legislature’s intention” and that “the text of a provision is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning.”  (Citations, internal quotation marks and brackets omitted.)  The Court, after analyzing the legislative history of 1304, noted that same was consistent with its “strict interpretation” of the “‘separate envelope’” requirement.

Policy considerations, as articulated in Engel, also supported the Kessler Court’s “exacting” “‘separate envelope’” requirement because clear rules “‘will be easily understood by the parties and can be consistently applied by the courts.’”  In establishing its “bright-line” rule, the Court also expressly rejected certain suggested “flexible standards” and/or prior analyses of trial courts, including: (1) evaluation of the additional materials contained in the envelope to determine if same prejudices or assists the borrower; (2) analysis of the whether the additional information “is included as a separately paginated sheet of paper or some other physical demarcation of the information exists, or whether the additional information is on the same page as the requisite notice”; and, (3) whether the inclusion of additional notices in the envelope along with the requisite RPAPL 1304 notice is a de minimis deviation from the requirements of the statute and, thus, does not constitute a failure to comply with the separate envelope requirement.”  (Citations omitted.)  The Court concluded that such approaches could: (1) “vitiate” the unequivocal requirements of RPAPL 1304; (2) “place the burden on a defendant to show a lack of prejudice or show that the information is not relevant to the notice mandated under RPAPL  1304, rather than on the plaintiff to show compliance”; and/or (3) cause courts to engage in the “judicial scrutiny” rejected by the Engel Court by having them “interpret” what the “Legislature intended, rather than what it said.”

Finally, the Court noted that:

Nor will our determination as to strict compliance with the dictates of RPAPL 1304(2) undermine the legislative goal of providing information about additional protections and foreclosure prevention opportunities to homeowners at risk of losing their homes (see Senate Introducer’s Mem in Support, Bill Jacket, L 2008, ch 472 at 7), as nothing in RPAPL 1304 prohibits a lender from mailing, in other envelopes, notices to a borrower—whether such notices be federally mandated or consist of any other notice or information that may assist a homeowner to avoid foreclosure. RPAPL 1304(2) simply requires that the notices required by its provisions be mailed in a separate envelope from those other notices.

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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