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There are two ways a lender can foreclose a mortgaged property: a judicial foreclosure through the court system or a non-judicial foreclosure without a court order. For this article, we’ll focus only on the judicial foreclosure process, which is both more common and more complex.
Default Notice Requirement
One of the most important requirements for the foreclosure process is the Pre-Foreclosure Default Notice. RPAPL §1304 states that a lender must provide a minimum of 90 days with a detailed notice to the borrower that the lender will take legal action on their failure to make a mortgage payment.
For example, if the default is due to delayed payment, it must include: the number of days the payment is delayed, the amount due and when it must be paid. There must also be a list of at least five recommended, government-approved, local counseling agencies, which will provide a convenience for the mortgagor to counsel in his/her area. Failing to include such detailed information typically leads to the motion for foreclosure and sale to be denied.
Who Should Receive the Notice
The law is very particular as to whom the default notice should be sent to. The lender may only send the notice to an actual borrower who is listed on the Note and Mortgage – as opposed to occupants of the property or anyone else.
RPAPL §1304 may not be applied to someone other than the borrower, including the borrower’s spouse if they did not sign the note. In US Bank v. Hasan, the court held that “… the notice need only be sent to a ‘borrower.’ While the statute does not define the term, logic dictates that a ‘borrower’ is someone who, at a minimum, either received something and/or is responsible to return it.”
Another question to ask is whether the notice provisions of RPAPL §1304 should still apply when the borrower is deceased. In The Bank of New York Mellon v. Ana Roman as Ex’r of the Estate of Pablo Roman, the motion found that such notice requirement is not required if the borrower is deceased.
The purpose of these two rules is to aid the homeowner in an attempt to avoid litigation. In the Aurora case, the court opinion mentioned, “The legislative history noted a typical lack of communication between distressed homeowners and their lenders prior to the commencement of litigation, leading to needless foreclosure proceedings.”
Consequently, the default notice aims to provide a standardized, mandatory mechanism for both parties to communicate prior to any foreclosure action. This makes it one of the most important requirements in the foreclosure process.
Physical Possession of Original Promissory Note
It’s also important for borrowers to know that their mortgage may be assigned to other, third-party lenders. This means that if a borrower takes out a loan with one bank, that loan may later be assigned to another bank. This is legal and very common in New York.
The third-party lender is known as the “assignee.” In order to initiate the foreclosure, the assignee must prove that it has physical possession of the note – prior to the commencement of proceedings. Such standing can be demonstrated by attaching a copy of the bank-endorsed note to the complaint. The borrower may examine the note to confirm it is original.
If the Lender or Assignee did not annex the copy of the note to the complaint, some courts hold that he is required to prove its physical possession by an affidavit with the specific date of delivery of the note to the Lender. Similar to the default notice requirement, this mechanism is intended to better protect the mortgagor’s position.
These requirements are critical to comply with the foreclosure process for the plaintiff. Ultimately, this will influence the motion for the foreclosure and whether the sale is granted or denied.