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

• Posted on: Sep 5 2022

By Jonathan H. Freiberger

Regular readers of this Blog are familiar with Bank of America, N.A. v. Kessler, 202 A.D.3d 10 (2021)(“Kessler”), a case about which we have previously written [here, here, here] and which addresses the pre-foreclosure notice requirements of RPAPL 1304 (a topic that is a frequent subject of this Blog – see [here] and the articles linked therein).  Briefly, as noted in prior Blog articles, 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.

As has been discussed in this Blog’s prior articles, New York courts have strictly construed RPAPL 1304.  For example, in our October 1, 2021, Blog article [here], we discussed Wells Fargo Bank, N.A. v. Yapkowitz, 199 A.D.3d 126 (2021), in which the Appellate Division, Second Department held that strict compliance with RPAPL 1304 required that separate notices be sent to each borrower and, accordingly, a jointly addressed notice to multiple borrowers was deemed insufficient.  Similarly, in our December 17, 2021, Blog article [here], we discussed Kessler, in which the Second Department strictly interpreted RPAPL 1304 and dismissed a foreclosure complaint because the lender included a bankruptcy notice and a debt collection notice under the Fair Debt Collection Practices Act (“FDCPA”) with the RPAPL 1304 notice sent to the borrower.  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.

On August 30, 2022, the New York Supreme Court, Suffolk County, decided JPMorgan Chase Bank, N.A. v. Sapienza, a mortgage foreclosure action in which the lender sought “a discretionary stay because plaintiff believes that controlling Appellate Division case law will adversely affect plaintiff’s case, but the Court of Appeals will, in plaintiff’s estimation reverse” Kessler.  The lender in JPMorgan included debt collection and bankruptcy notices with its RPAPL 1304 notices.  The extra notice, which was obtained from the NYSCEF system, provides as follows:

We are a debt collector

This communication is an attempt to collect a debt and any information obtained will be used for that purpose. However, to the extent your original obligation was discharged or is subject to an automatic stay of bankruptcy under Title 11 of the United States Code, this notice is for compliance with non-bankruptcy law and/or informational purposes only and does not constitute an attempt to collect a debt or to impose personal liability for such obligation. Nothing in this letter (including our use of the words “your, ” “loan, ” “mortgage,” or “account”) means that you’re required to repay a debt that’s been discharged. Any payment you make on the account is voluntary, but we may still have rights under the security instrument, including the right to foreclose on the property.

The lender’s argument in JPMorgan was premised on the notion that Kessler’s “strict compliance” requirement was somehow new.  The supreme court disagreed and, in so doing, rejected the lender’s “warp drive hyperbole that ‘Kessler represented a world-shifting deviation from prior precedent and one that had not been foreshadowed in any way.’” 

The JPMorgan court analyzed a litany of pre-Kessler cases advocating strict compliance with RPAPL 1304 – demonstrating a judicial history of strict compliance.  Further, the court noted that “Kessler itself provides compelling evidence that it sets forth no new rule” to the extent that the Kessler Court “described the case as requiring ‘the Court to determine how exacting the requirement of strict compliance is with respect to the ‘separate envelope’ requirement of RPAPL 1304 (2).’”

Among other things, the JPMorgan court rejected the lender’s argument that Kessler would not be applied retroactively.  In order for a case to be applied retroactively, a determination must be made that it has espoused a new rule.  The JPMorgan court made plain its view that no new rule was created in Kessler.

Further, the court also minimized the lender’s reliance on CIT Bank, N.A. v. Neris, ___ F. Supp.3d ___, 2022 WL 1799497 (S.D.N.Y. 2022).  The borrower in CIT Bank defended a foreclosure action based on lender’s failure to comply with RPAPL 1304 because it included a debt collection notice along with its RPAPL 1304 notice.  The Lender argued, and the CIT Bank Court agreed,that the additional notice was required by the FDCPA.  The CIT Bank Court noted that, “[i]n particular, Section 1692e(11) of the FDCPA requires that an ‘initial written communication with the consumer,’ and any ‘subsequent communications,’ must state that the ‘debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.’”  Thus, the CIT Bank Court concluded that “the New York Court of Appeals would not follow the bright-line rule that the Second Department adopted in Kessler” because federal law required the debt collection notices with the 1304 Notices.  In questioning the holding in CIT Bank, however, the JPMorgan court noted that the CIT Bank Court’s assumption that “the 1304 notice is, in fact, a communication from a debt collector subject to the FDCPA requirements” “may be incorrect”.  Among other analyses made by the JPMorgan court supporting the conclusion that strict compliance with RPAPL 1304 does not conflict with the FDCPA, the court stated:

Mortgage foreclosures fall within the FDCPA’s definition of debt collection. The FDCPA requires the so-called mini-Miranda warning only in the initial communication with the debtor. As to subsequent communications, “failure to disclose that the communication is from a debt collector” is forbidden (15 USC § 1692e [11]). Thus, Kessler‘s point about staging the sequence of communication has incredible force—in plain words, if a 1304 notice is a communication as defined in the FDCPA, then do not use the 1304 notice as the initial communication. Of course, that leaves the question of how a debt collector complies in the subsequent communication (i.e., the 1304 notice) that the debt collection not fail to disclose that the communication is from a debt collector. The answer may be that a 1304 notice is not subject to the disclosure requirement.  [Citations, internal quotation marks and footnote omitted.]

Finally, the JPMorgan court addressed the bankruptcy language included with the lender’s RPAPL 1304 notice.  The court found, inter alia, that such language was unnecessary.

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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.