The U.S. Court of Appeals for the Second Circuit recently affirmed summary judgment in a mortgagee's favor against borrower claims that it failed to comply with pre-foreclosure notice and filing requirements of the New York Real Property Actions and Proceedings Law.
With the benefit of guidance from answers to two certified questions to the New York Court of Appeals, the Second Circuit held that:
- The mortgagee's deviation of its routine procedures by mailing the requisite RPAPL § 1304 90-day pre-foreclosure notice nearly a year after the default, and not "upon default," was immaterial, and coupled with the borrowers' claim the notice was not received, inadequate to rebut the presumption that the notice was properly prepared and mailed; and
- Because the New York Court of Appeals concluded that under RPAPL § 1306 is satisfied as long as one borrower is listed on the pre-foreclosure filing, the mortgagee's omission of information as to the co-borrower was immaterial.
A copy of the opinion is available at: Link to Opinion
After husband and wife co-borrowers ("Borrowers") ceased making payments on their mortgage loan, the mortgagee ("Mortgagee") initiated foreclosure proceedings in federal court, which resulted in entry of summary judgment in the Mortgagee's favor.
The Borrowers appealed to the Second Circuit, arguing that the Mortgagee failed to prove compliance with pre-foreclosure notice and filing requirements of the New York Real Property Actions and Proceedings Law ("RPAPL") §§ 1304, and 1306, respectively.
As to the first argument, the Borrowers argued that the Mortgagee did not adequately establish that it had served them with notice at least ninety days before commencing the foreclosure action, as required. See N.Y. Real Prop. Acts. Law § 1304(1)–(2).
Under New York law, lenders may create a rebuttable presumption of compliance with section 1304 by submitting "proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure" (Citibank, N.A. v. Conti- 6 Scheurer, 98 N.Y.S.3d 273, 277 (N.Y. App. Div. 2d Dep't 2019)), but its recipients may rebut the presumption by denying receipt and "showing that [the] routine office practice was not followed or was so careless that it would be unreasonable to assume that the notice was mailed." Nassau Ins. Co. v. Murray, 386 N.E.2d 1085, 1086 (N.Y. 1978).
In the trial court, the Mortgagee submitted copies of the 90-day notices coupled with an affidavit from its employee explaining the Mortgagee's standard procedures to create, mail and store data regarding the 90 day pre-foreclosure notice as required by section 1304, and that the Mortgagee's standard practice is to create the notice upon default.
The trial court held that the affidavit was sufficient under state law to create a presumption that the § 1304 notices had been mailed, but the Second Circuit was hesitant to affirm on this basis, noting that the Borrowers' denial of receipt, coupled with an undisputed deviation from the Mortgagee's standard procedure in that the notices were generated and mailed nearly a year after the date of default and not "upon default," may be adequate to rebut the presumption of mailing.
Because the Second Circuit found no authority from the New York Court of Appeals establishing the quantum of evidence necessary to rebut the presumption of mailing that is established by a showing of a standard procedure, it determined that it required guidance from the New York Court of Appeals to answer this dispositive question.
In support of their claims that the Mortgagee failed to comply with RPAL's pre-foreclosure filing requirements under § 1306(2), the Borrowers argued that the Mortgagee's filing with state regulators was inadequate because it did not include certain information as to all borrowers on the loan.
The Borrowers and Mortgagee did not dispute that the section 1306 filing was timely submitted and included the "name, address, [and] last known telephone number" of the co-borrower wife, as required under § 1306(2), but did not include this information as to the co-borrower husband.
Observing that neither the New York Court of Appeals nor the Appellate Division opined as to whether section 1306 required a lender to file specified information about all borrowers on a multi-borrower loan, the Second Circuit determined that this argument, too, turned on an question to be answered by New York state's highest court.
Because the Borrowers' arguments turned on unsettled questions of state law, on January 28, 2020 the Second Circuit issued its first opinion, certifying two questions to the New York Court of Appeals:
(1) "Where a foreclosure plaintiff seeks to establish compliance with RPAPL § 1304 through proof of a standard office mailing procedure, and the defendant both denies receipt and seeks to rebut the presumption of receipt by showing that the mailing procedure was not followed, what showing must the defendant make to render inadequate the plaintiff's proof of compliance with § 1304?", and
(2) "Where there are multiple borrowers on a single loan, does RPAPL § 1306 require that a lender's filing include information about all borrowers, or does § 1306 require only that a lender's filing include information about one borrower?"
After the New York Court of Appeals rendered its opinion on the two certified questions on March 30, 2021 (CIT Bank N.A. v. Schiffman, No. 11, 2021 WL 1177940 (N.Y. Mar. 30, 2021), the Second Circuit issued the instant opinion.
As to the § 1304 notification question, the New York Court of Appeals held that the presumption of mailing, once established by proof of a routine office practice, may be rebutted by a denial of receipt plus "proof of a material deviation from an aspect of the office procedure that would call into doubt whether the notice was properly mailed, impacting the likelihood of delivery to the intended recipient." Id. at *3.
In other words, "the crux of the inquiry is whether the evidence of a defect casts doubt on the reliability of a key aspect of the process such that the inference that the notice was properly prepared and mailed is significantly undermined. Minor deviations of little consequence are insufficient." Id.
Here, while the notice was created on November 18, 2015, rather than upon the Borrowers' default in December 2014, the Second Circuit concluded that merely creating the notice later than it would have been in the ordinary course was immaterial as to whether it was properly prepared and mailed.
Accordingly, under the guidance provided by the New York Court of Appeals' answer to its certified question, the Second Circuit concluded that the Borrowers failed to rebut the presumption that the Mortgagee mailed, and the Borrowers received, the required § 1304 notices.
Answering the second certified question as to whether the prefiling requirements under RPAPL § 1306 require information about all borrowers, the New York Court of Appeals concluded that "[a]lthough the statute does not specify whether information must be supplied [to the Superintendent] concerning each party when there are multiple individuals or entities on a single loan" … it "is satisfied as long as one borrower is listed." CIT, 2021 WL 1177940, at *4.
Thus, the Mortgagee's omission of information as to the co-borrower husband in its section 1306 was irrelevant, because it timely submitted the filing with all required information about the co-borrower wife in compliance with the statute.
Accordingly, following the well-reasoned opinion of the New York Court of Appeals answering its certified questions, the Second Circuit concluded that summary judgment was appropriate because no genuine dispute existed that the Mortgagee complied with the pre-foreclosure requirements of RPAPL §§ 1304 and 1306, and affirmed the trial court's judgment.
Ralph T. Wutscher
Maurice Wutscher LLP
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