The Appellate Division, Second Department, Holds that Banking Law 6-l is a Personal Defense that Can Only be asserted by the Borrower

• Posted on: Nov 1 2024

By: Jonathan H. Freiberger

As readers of this BLOG know, we frequently write about issues relating to mortgage foreclosure.[1] We have also written numerous articles relating to the recently enacted FAPA. See, e.g., [here], [here], [here], [here] and [here]. Today’s BLOG article relates to Wells Fargo Bank, N.A. v. Edwards, a case decided by the Appellate Division, Second Department, on October 30, 2024, and in which it determined, inter alia, that defenses based on Banking Law § 6-l are personal to the borrower and cannot be asserted by “strangers to the note”.

The borrower in Edwards borrowed $250,000 and secured his repayment obligations with a mortgage on his home.[2] The lender commenced two actions before commencing the action that is the subject of this article (the “Third Action”). The borrower died prior to the commencement of the Third Action but, nonetheless, was named as a defendant therein. During the pendency of the Third Action, however, the motion court granted leave to add the borrower’s wife (the “Wife”) as a defendant as a result of the borrower’s death. The Wife was served with a supplemental summons and the amended complaint. In her answer, the Wife, inter alia, asserted an affirmative defense based on the lender’s failure to comply with Banking Law § 6-l and an affirmative defense and counterclaim based on the expiration of the applicable statute of limitations.

The motion court granted the lender’s first motion for summary judgment on the amended complaint, dismissing the statute of limitations and Banking Law 6-l defenses and, inter alia, the statute of limitations counterclaim. On the resulting earlier appeal, the Second Department reversed the order. Two and one-half years later, the lender made a similar summary judgment motion that was also granted by the motion court and the Wife, once again, appealed. The Second Department “modified” the motion court’s order by “deleting the provisions thereof granting those branches of the [lender]’s motion which were for summary judgment on the amended complaint insofar as asserted against the [Wife] and dismissing [the Wife]’s … affirmative defense and first counterclaim [both based on the statute of limitations], and for an order of reference. The Court sustained the dismissal of the defense based on Banking Law § 6-l.

RPAPL § 1302(b) provides that “[i]t shall be a defense to an action to foreclose a mortgage that the terms of the home loan or the actions of the lender violate any provision of section six-l or six-m of the banking law or section thirteen hundred four of this article, for loans governed by these provisions.” Banking Law § 6-l was promulgated to address abuses of predatory “high cost home loans”. The Court held that the lender “correctly contend[ed] that the [Wife] lacked standing to assert a defense based on lack of compliance with Banking Law § 6-l.[3] Thus, the Court stated:

That statute was enacted for the benefit and protection of borrowers (see id. § 6-l[1][e][ii]…. Thus, failure to comply with Banking Law § 6-l is a personal defense that could not be raised by the defendant, who is a stranger to the note and mortgage. In light of the foregoing, [the lender] established, prima facie, that Banking Law § 6-l is inapplicable under the circumstances presented, and the [Wife] failed to raise a triable issue of fact in opposition. Accordingly, the [motion court] properly granted that branch of [lender]’s motion which was for summary judgment dismissing the [Wife]’s fifth affirmative defense, alleging failure to comply with Banking Law § 6-l. [Some citations omitted.]

The Court also addressed the lender’s motion as related to the Wife’s statute of limitations defense and counterclaim.[4] The lender argued that because it moved to discontinue an earlier action prior to the expiration of the statute of limitations its acceleration of the underlying debt was revoked. The Court disagreed and, finding that the Foreclosure Abuse Prevention Act (“FAPA”)[5] was inconsistent with such a position, stated:

The Foreclosure Abuse Prevention Act (L 2022, ch 821 [eff Dec. 30, 2022]; hereinafter FAPA) amended CPLR 3217, which governs the voluntary discontinuance of an action, to provide that “[i]n any action on an instrument described under [CPLR 213(4)], the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute”. Thus, applying FAPA, the voluntary discontinuance of [one of the earlier actions] did not serve to reset the statute of limitations. [Citations omitted.]

The lender also challenged the constitutionality of FAPA. Because the motion court did not address this issue, the Court remitted the matter for consideration of this issue.[6]

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.

[1] Eds. Note: this BLOG has written numerous articles addressing all aspects of residential mortgage foreclosure. To find BLOG articles related to mortgage foreclosure, visit the “Blog” tile on our website and enter “mortgage foreclosure” (or any related topic of interest) in the “search” box.

[2] Eds. Note: the facts of Edwards as recited herein are simplified for editorial purposes.

[3] Similarly, Courts have concluded that defenses under RPAPL 1304 are personal to the borrower/mortgagor. See, e.g., HSBC Bank USA, N.A. v. Tigani, 185 A.D.3d 796, 799 (2^nd Dep’t 2020); US Bank, N.A. v. Orlando, 226 A.D.3d 946, 947 (2^nd Dep’t 2024). Eds. Note: this BLOG has written numerous articles addressing RPAPL 1304 issues in foreclosure actions. To find BLOG articles related to this issue, visit the “BLOG” tile on our website and enter “RPAPL 1304” in the “search” box.

[4]Eds. Note: this BLOG has written numerous articles addressing statutes of limitation issues in mortgage foreclosure actions. To find BLOG articles related to this issue, visit the “BLOG” tile on our website and enter “statute of limitations” in the “search” box.

[5] Eds. Note: this BLOG has written numerous articles addressing FAPA. See, e.g., [here], [here], [here], [here] and [here].

[6] In a recent article, this BLOG discussed the Third Department’s holding that FAPA’s retroactive application does not violate a lender’s due process rights [here].