June 17, 2018
Authored by: Gregory Sachnik and Cathy Welker
Editors’ Note: While this post is not a per se bankruptcy issue, matters on consumer financial services are always in the curtilage of bankruptcy and the U.S. Bankruptcy Code. Our BCLP consumer financial services colleague Cathy Welker is an expert in this area, advising banks, servicers, and other financial institutions on the Byzantine regulatory world they face, not only in New York where she practices but also at the federal level. Likewise, BCLP’s Dallas office enjoys the benefits of Greg Sachnik, a former senior banking executive deep in the front lines of TILA, RESPA, deceptive trade practices, wrongful foreclosure, and fair debt collection. We appreciate seeing this update from them, especially as reverse mortgage issues grow exponentially – according to one study, reverse mortgage foreclosures increased by over 600 percent in recent years. So we are pleased to re-publish it here, and for you to read it.
New York has signed into law an amendment redefining a reverse mortgage as a “home loan.” With this amendment (see link at the bottom of this post), statutory pre-foreclosure ninety day notices (RPAPL 1304) and a “certificate of merit” (CPLR 3012-b) will be required in all New York reverse mortgage foreclosures. Additionally, New York’s foreclosure settlement conference law (CPLR 3408) now incorporates by reference the new “home loan” definition. The legislation was signed by Gov. Andrew Cuomo on April 12, 2018 but “shall be deemed to have been in full force and effect on and after April 20, 2017.” However, the pre-foreclosure notice requirement specific to reverse mortgages has an effective date of May 12, 2018.
Under the new legislation, for actions commenced after May 12, 2018, lenders, assignees, or servicers are required to provide a pre-foreclosure notice at least 90 days before commencing legal action against the borrower or borrowers at the property address and any other addresses of record. The language of the notice is set by statute. Although the 90-day waiting period does not apply, or ceases to apply under certain circumstances (i.e. where a borrower no longer occupies the residence as a principal dwelling),the 90 Day Notice is a condition precedent which, if not strictly complied with, may subject a foreclosure action to dismissal. Further, the foreclosing party is required by statute to deliver the notices by first class and certified mail. Relevant case law makes clear that evidencing the proof of mailing may require tracking documentation for first class mail and certified receipts for notices sent by certified mail.
The inclusion of reverse mortgages in the definition of “home loan” also means that lenders seeking to foreclose on a reverse mortgage must file a “certificate of merit” with the complaint. The certificate requires that the attorney filing the complaint certifies that he or she has reviewed the relevant loan documents (note, mortgage, assignments and any other instruments of indebtedness) and has consulted “about the facts” of the case with a representative of the lender. Based on this review and consultation, the attorney must certify that “there is a reasonable basis for the commencement of this action, and that plaintiff is the creditor entitled to enforce rights under these documents.”
Finally, because New York’s foreclosure settlement conference law incorporates the new “home loan” definition, the amendment removes any lingering doubt that foreclosure settlement conferences are mandated in most reverse mortgage cases. There are some exceptions for reverse mortgage defaults, but as a practical matter, courts likely will schedule settlement conferences in all reverse mortgage cases before it can be determined whether the matter falls within an exception.
The text of the omnibus legislation that includes the changes to RPAPL § 1304 can be found here (It is a huge bill, but use the search function to get to part HH and it is right there.) Or contact Cathy or Greg through the links above and they would be happy to send it to you.