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TAKE NOTICE OF THE NOTICE PROVISIONS IN YOUR MORTGAGE

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  • Posted on: Apr 9 2021

Promissory notes and mortgages, like many other contracts, frequently contain provisions requiring a non-breaching party to provide the breaching party with notice of their default as a condition precedent to taking any action to enforce rights as a result of the breach.  Such action can include, but is not limited to, commencing legal action and/or accelerating the unpaid balance due under the note.  Similarly, default notice provisions may require that, in certain circumstances, the breaching party be afforded an opportunity to cure the default.  These provisions typically provide for the precise manner in which, and the address to which, the notices must be sent.

Suffice it to say, notice provisions are material aspects of many contracts.  As a result, courts strictly enforce such notice provisions.  Accordingly, the failure to adhere to the provision’s requirements, and/or the failure to prove that you have adhered to the provision’s requirements, could have serious consequences.

Such was the case in Deutsche Bank Nat. Trust Co. v. Bucicchia, a case decided by the Appellate Division, Second Department, on April 7, 2021.  The borrower wife in Bucicchia defaulted in her repayment obligations under a promissory note secured by a mortgage on real property owned by her and her husband.  Sections 22 and 15 of the mortgage “require service of a specified default notice as a condition precedent to the acceleration of the mortgage loan” (citation omitted) and “[p]ursuant to Section 15, the notice of default must be ‘mailed by first class mail or … actually delivered to [the defendants’] notice address if sent by other means” (some brackets and ellipses in original).  As is typically the case, the mortgage in Bucicchia also provided “the notice address is the address of the mortgaged property unless the plaintiff is notified of another address by the borrower.”

Lender commenced a mortgage foreclosure action.  Defendants, in their answer, asserted various affirmative defenses including, but not limited to, the failure to comply with the default notice provisions in the mortgage and failure to comply with the statutory notice provisions of RPAPL 1304.  This BLOG has written extensively on RPAPL 1304 [HERE], [HERE], [HERE], [HERE], [HERE], [HERE], and, accordingly, such issues will not be addressed in today’s article.

Lender moved for summary judgment on the complaint and to dismiss defendants’ affirmative defenses and defendants cross-moved for summary dismissing the complaint.  Supreme court granted lender’s motion and dismissed defendants’ affirmative defenses except for the two defenses related to notice under the mortgage and under RPAPL 1304 and, as to those, the court scheduled a non-jury trial.  Defendants’ cross-motion was denied.

After the trial, the court, inter alia, ruled in lender’s favor and struck defendants’ answer.  A referee was subsequently appointed to compute the amounts due to lender.  The referee’s report was confirmed and a judgment of foreclosure and sale was entered.  

On defendants’ appeal, the Second Department, inter alia, reversed the judgment of foreclosure and sale, reinstated the affirmative defenses related to improper notice under the mortgage and RPAPL 1304, denied lender’s motion to the extent that it sought to confirm the referee’s report of sale and dismissed the complaint as against defendants.  The Court found that lender “failed to establish it complied with the notice requirements of the mortgage agreement.”  The Court explained:

At the nonjury trial, the plaintiff relied upon the testimony of its sole witness, who testified as to the standard office mailing procedure of the plaintiffs prior and present loan servicer, but did not and could not attest to the practices and procedures of Walz Group, a third-party entity that was hired to undertake the requisite service of the notices on the defendants in accordance with the requirements of the mortgage agreement …. The plaintiffs witness expressly testified that she did not have familiarity with Walz Group’s mailing practices “outside of their communications with” the loan servicer. In addition, the witness attested that she never mailed anything through Walz Group, was never employed by Walz Group, and was never trained by Walz Group in their procedures for mailing notices. Further, she testified that she could not say if Walz Group mailed the notices by first-class mail. 

Thus, since the plaintiffs sole witness did not have “knowledge of the mailing practices of the entity which sent the notice[ s ]” (Deutsche Bank Natl. Trust Co. v Nelson, 183 AD3d 557, 558; see HSBC Bank USA, NA. v Sawh, 177 AD3d 959, 961), and the business records that were submitted in evidence failed to show that … the notices of default were actually made to the defendants or that the default notices were actually delivered to their “notice address,” the plaintiff failed to establish … that the notices of default were sent in accordance with the terms of the mortgage agreement (see US Bank NA v Cope, 175 AD3d [527] at 530; LNV Corp. v Sofer, 171 AD3d [1033] at 1037). 

Similarly, the Court in Deutsche Bank Nat. Trust Co. v. Crimi, 184 A.D.3d 707 (2nd Dep’t 2020), addressing this issue, stated that “the attorney’s affirmation submitted by the plaintiff which stated that the purported 2010 notice was ‘in full compliance with the terms of the mortgage’ was unsubstantiated and conclusory [and that n]either the attorney’s affirmation nor the copy of the purported 2010 notice established ‘that the required notice was mailed by first class mail or actually delivered to the notice address if sent by other means, as required by the mortgage agreement.’”  See also, U.S. Bank Nat. Assoc. v. Sabloff, 153 A.D.3d 879, 881 (2nd Dep’t 2017).

TAKEAWAY

Care should be taken to follow the default notice provisions in promissory notes and mortgages (as well as other notice provisions).  Similarly, evidence of compliance should be maintained and presented to the court to demonstrate such compliance.

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