The New York Court of Appeals, the state’s highest court, recently reversed the ruling of an intermediate appellate court and held that the inclusion of information that is not “false, misleading, obfuscatory, or unrelated” does not void an otherwise proper notice to borrowers sent pursuant to New York Real Property Actions and Proceedings Law § 1304, and thus does not bar a subsequently filed foreclosure action.
A copy of the opinion in Bank of Am., NA v. Kessler is available at: Link to Opinion.
A borrower obtained a loan secured by a mortgage on his home and later defaulted on the loan. The mortgagee sent the borrower a notice pursuant to RPAPL 1304 and then brought a foreclosure action.
Importantly, the prescribed notice template found in RPAPL 1304 requires the lender to fill in certain information, including:
- How many days the borrower is in default;
- The total amount of the missed payments, penalties, and interest;
- A list of [five] government-approved housing counseling agencies in the borrower’s area that provide free counseling, along with the explanation that the counselors are trained to help homeowners who are having problems making their mortgage payments;
- An encouragement to take immediate steps to try to achieve a resolution, with the disclaimer that the lender cannot assure a mutually agreeable resolution is possible;
- A warning that if the borrower fails to act within 90 days (or sooner if the borrower ceases to live in the home as the borrower’s primary residence), the lender may commence legal action;
- A notification that the borrower has the right to remain in the home until the borrower receives a court order requiring the borrower to vacate; and
- A statement that the enclosure is not a notice of eviction.
The borrower filed a motion to dismiss, arguing that the inclusion of two paragraphs in his notice not found in the RPAPL 1304 template violated the statute. Specifically, the notice sent to the borrower here included the following language not found in RPAPL 1304:
“[The bank], is required by law to inform you that this communication is from a debt collector.
“If you are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, this notice is for information only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. You are not obligated to discuss your home loan with us or enter into a loan modification or other loan-assistance program. You should consult with your bankruptcy attorney or other advisor about your legal rights and options.
“MILITARY PERSONNEL/SERVICEMEMBERS: If you or your spouse is a member of the military, please contact us immediately. The federal Servicemembers Civil Relief Act and comparable state laws afford significant protections and benefits to eligible military service personnel, including protections from foreclosure as well as interest rate relief. For additional information and to determine eligibility please contact our Military Assistance Team toll free at . If you are calling from outside the U.S., please contact us at .”
The trial court agreed with the borrower and granted the motion to dismiss. The intermediate appellate court affirmed, determining that including in the envelope sent to the borrower any language not required by the statute violates the statute’s separate envelope provision. The mortgagee timely appealed.
The operative statutory language in RPAPL 1304 contains two requirements: (1) the default notice “shall include” the specified template language and information; and (2) the notice must be sent “in a separate envelope from any other mailing or notice.” RPAPL 1304 (1), (2).
However, as to RPAPL 1304’s first requirement, the Court of Appeals noted that subdivision (1) does not state that the notice must include only the cautionary language set forth in the statute, but rather that the notice “shall include” that language. Therefore, the Court reasoned that the word “include” suggests that more can be added to the notice. See Red Hook Cold Stor. Co. v. Department of Labor of State of N.Y., 295 N.Y. 1, 8 (1945).
Here, the Court of Appeals found that the notice indisputably contained all the mandatory language set forth in the version of RPAPL 1304 (1) in effect at the time the mortgagee commenced its action. Thus, the Court moved on to address the constraint imposed by the requirement that the envelope not contain “any other mailing or notice.”
The bright line rule adopted by the lower courts here effectively defined “any other mailing or notice” as “any additional material or information whatsoever.” However, the Court of Appeals determined that the statute must be given “a sensible and practical over-all construction, which . . . harmonizes all its interlocking provisions.” Matter of Long v. Adirondack Park Agency, 76 NY2d 416, 420 (1990).
In the Court’s view, the application of a bright line rule would require the use of a highly constrained definition of “other,” where it is more appropriately read to mean mailings or notices “of a different kind,” such as pre-acceleration default notices, notices disclosing interest rate changes to borrowers with adjustable-rate mortgages (12 CFR § 1026.20 [c]), monthly mortgage statements (12 CFR § 1026.41), or notices disclosing to the borrower a transfer of the loan servicer (12 CFR § 1024.33 [b]). See People v. First Meridian Planning Corp., 86 NY2d 608, 619 (1995).
Additionally, the Court of Appeals decided that application of a bright-line rule would contravene the legislative purpose of RPAPL 1304. The Court stated that RPAPL 1304 is a remedial statute that should be read broadly to help borrowers avoid foreclosure. Therefore, to the Court, prohibiting lenders from concisely informing borrowers of additional rights they may have to avoid foreclosure is manifestly at odds with this purpose.
Thus, the Court of Appeals held that accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an “other notice.”
Specifically, the Court held that “section 1304 does not prohibit the inclusion of additional information that may help borrowers avoid foreclosure and is not false or misleading,” and “[w]here a lender includes false, misleading, obfuscatory, or unrelated information in the envelope together with the 1304 notice, courts may void such notices.”
The Court determined that the additional two paragraphs at issue were directly related to the notice’s subject matter and furthered the statutory purpose by informing certain borrowers of additional protections they may have beyond those identified in the statutory notice language. The paragraphs related to and supplemented the statutory language as applied to two distinct groups of borrowers, and thus the Court concluded that they made most sense and were most helpful when read together with the notice.
Accordingly, the Court of Appeals reversed the ruling of the intermediate appellate court and remanded to the trial court for further proceedings consistent with this opinion.