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  • Posted on: Feb 7 2020

On numerous occasions, this Blog has addressed issues surrounding certain notice obligations imposed on mortgage lenders foreclosing on residential property.  For example, section 1303 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that, under certain circumstances relating to residential property, a foreclosing mortgagee must send statutory notice to the mortgagor and tenants advising them, among other things, that they are in danger of losing their home and how to avoid foreclosure rescue scams.

Similarly, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes (a “Home Loan”)), 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.

In “Appellate Division Second Department Tells Foreclosing Residential Lender to “SHOW ME THE EVIDENCE,” this Blog discussed M&T Bank v. Joseph, 152 A.D.3d 579, 58 N.Y.S.3d 150 (2017), in which the Second Department reversed the grant of summary judgment because lender failed to strictly comply with the requirements of RPAPL 1304.  In “The Second Department Reverses Another Grant of Summary Judgment to a Foreclosing Lender on a Home Loan Due to the Insufficiency of Proof of Mailing Statutorily Required Notices to the Borrower,” this Blog discussed Bank of New York v. Zavolunov, 157 A.D.3d 754 (2nd Dep’t 2018), where the Court again reversed summary judgment due to inadequate proof of mailing RPAPL 1304 notices.

There have been countless cases dealing with various issues surrounding compliance with RPAPL 1303 and 1304 issues.  See, e.g., U.S. Bank National Association v. Sims, 162 A.D.3d 825 (2nd Dep’t 2018) (addressing RPAPL 1303 and 1304); M&T Bank v. Biordi, 176 A.D.3d 1194 (2nd Dep’t 2019) (finding that lender failed to prove compliance with RPAPL 1304).

On January 29, 2020, the Supreme Court of the State of New York, Appellate Division, Second Department, in Charles Schwab Bank v. Winitch, decided an interesting, and slightly different, RPAPL 1304  case.  The lender in Winitch commenced a foreclosure action against husband and wife borrowers.  In response to lender’s motion for summary judgment, the borrowers cross-moved for summary judgment based on lender’s alleged non-compliance with RPAPL 1304.  Supreme court denied borrower’s cross-motion and granted lender’s motion, which resulted in the entry of a judgment of foreclosure and sale.  Borrowers appealed.

The Second Department determined that lender established “prima facie, its strict compliance with RPAPL 1304” as to husband.  A bank employee with personal knowledge swore out an affidavit averring that she mailed the 90-day notice by first-class and certified mail to husband as required by statute.   However, the lender failed to meet its burden with respect to wife.  Nonetheless, the Court agreed with lender that wife was “not entitled to receive notice pursuant to RPAPL 1304 since she is not a named borrower under the Home Equity Credit Line Agreement…, which was executed by [husband] only.”  Both husband and wife were mortgagors under the related credit line mortgage because they both owned the subject property.  In making a critical distinction in the application of RPAPL 1303 and 1304, the Winitch Court stated:

Unlike RPAPL 1303, RPAPL 1304 refers specifically to the “borrower”—not the “mortgagor.” Here, the subject credit line mortgage, which was signed by both [husband] and [wife], as mortgagors, contained the following provision: “If Mortgagor signs this Security Instrument but does not sign an evidence of debt, Mortgagor does so only to mortgage Mortgagor’s interest in the Property to secure payment of the Secured Debt and Mortgagor does not agree to be personally liable on the Secured Debt.”

The Court found that wife “could not be deemed a ‘borrower’ for the purpose of RPAPL 1304” and, therefore, was not required to be served with a an RPAPL 1304 notice.  The language of the mortgage at issue in Winitch was important in the Court reaching its decision as it made clear that wife was not a borrower.

The Winitch Court did state that wife was entitled to a RPAPL 1303 notice as a mortgagor, but no challenge was made by defendants to the sufficiency of that notice.  The failure to establish proper service of an RPAPL 1304 notice on wife was not being an impediment to the issuance of a judgment of foreclosure and sale and, the Court affirmed same.

Bank of New York Mellon v. Forman, 176 A.D.3d 663 (2nd Dep’t 2019), is a similar case recently decided by the Second Department in which a slightly different result was reached.  In Forman, like in Winitch, husband and wife executed a mortgage, but only husband executed the note.  Like in Winitch, Forman was defended the lender’s foreclosure action by arguing that wife was not served with the requisite RPAPL 1304 notice.  As one would expect, lender argued that since wife did not execute the promissory note, such notice was not required.  Unlike Winitch, however, the Second Department in Foreman agreed with Wife “under the circumstances of this case.”  While the Forman husband  “was the only ‘borrower’ in the note which is secured by the mortgage,” wife was referred to as a “borrower” throughout the mortgage and she was “designated as ‘Borrower’ under her signature on the signature page of the mortgage instrument.”  Forman, 176 A.D.3d at 665. Because wife was deemed a borrower, lender was obligated to serve her with proper notice under RPAPL 1304, and, in the absence thereof, the mortgage foreclosure complaint was dismissed.

In response to the lenders argument that wife was not a maker on the note, the Forman Court stated:

While [lender] contends that this standard mortgage form mischaracterizes the defendant as a borrower, any ambiguities in the language of the document must be construed against the plaintiff, as the plaintiff is the party who supplied the document (see generally Computer Assoc. Intl., Inc. v U.S. Balloon Mfg. Co., Inc., 10 AD3d 699, 700).

Forman, 176 A.D.3d at 665.

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