Introduction

On February 14, 2023, the New York Court of Appeals overturned the Appellate Division, Second Department’s decision in Bank of America v. Kessler, which had applied a very strict reading of §1304 of New York’s’ Real Property Actions and Proceedings Law or RPAPL. This section of the law contains the requirements for New York’s pre-foreclosure 90-day notice. In 2017, when the Plaintiff in Kessler’s  foreclosure case moved for summary judgment, Kessler cross-moved to dismiss the complaint, arguing that the inclusion in his 90-day notice that addressed bankruptcy status and military membership, violated § 1304(2)’s “separate envelope” provision. The trial court agreed and dismissed the case, and the Plaintiff appealed to the Appellate Division. In December of 2021, the Second Department of the Appellate Division affirmed on the same grounds. The court’s opinion held that the inclusion of any material in the separate envelope sent to the borrower that is not expressly delineated in RPAPL §1304 is a violation of the “separate envelope” requirement. The lender then appealed to the Court of Appeals, New York’s highest court.

While the case was being appealed, many homeowners and foreclosure defense attorneys used the Appellate Division decision to oppose, reargue or vacate summary judgment orders. Some homeowners even succeeded in dismissing foreclosure lawsuits filed against them by showing that they were not properly served under §1304. As a result, the Kessler decision created a lot of uncertainty for attorneys representing mortgage lenders and services. By overturning the Appellate Division’s decision in Kessler, the Court of Appeals has put an end to this defense strategy and turmoil.

The Court of Appeals Decision

The Court of Appeals heard oral arguments on January 4, 2023, and issued its decision on February 14, 2023, in an opinion written by Judge Rowan D. Wilson. The Lender challenged whether the inclusion of concise, relevant and factual information voids an otherwise proper notice to borrowers sent under RPAPL §1304. The Court of Appeals reversed the decision of the Appellate Division and found that accurate statements intending to further the underlying statutory purpose of providing information to borrowers that is or may be relevant to avoiding foreclosure do not constitute “other notice” which would be a violation of the statute.

In contrast to the Second Department decision, the Court of Appeals found that some additional information could actually be beneficial to homeowners. For example, the paragraph relating to bankruptcy could be particularly helpful to borrowers who are subject to the automatic stay in bankruptcy court and could help avoid potential violation of the automatic stay by the lender. Moreover, the Court of Appeals warned that a bright-line rule against any additional language accompanying the required § 1304 text within the same envelope could potentially conflict with disclosure requirements under federal law, particularly the Fair Debt Collection Practices Act or FDCPA. Instead, the Court of Appeals was in favor of a rule that balances the practical considerations of both the lender and borrower and would alert the borrower in default to their pre-foreclosure status under their mortgage note and would inform them of the steps they could take to avert the filing of a foreclosure action.

Coming to this conclusion, Wilson reviewed the legislative history of the RPAPL, reviewed the operative statutory language, and focused on the constraint imposed by the requirement that the envelope not contain any other mailing or notice. Specifically, the RPAPL §1304 requirement “does not say that the notice must state only the cautionary language set forth in the statute, but rather that the notice ‘shall include’ that language.” Further, Wilson reasoned that the “word ‘include’ suggests that more can be added to the notice.”

The Court of Appeals reversed the Second Department’s decision with costs. It denied Kessler’s motion for summary judgment dismissing the complaint and granted Bank of America’s motion for summary judgment.

Conclusion

In light of this Court of Appeals’ decision, both lenders and servicers may now review any foreclosure actions that were dismissed based on the prior decision in the Kessler and potentially seek leave to reargue or renew based on a change in the law. The decision will also allow many plaintiffs to proceed with foreclosure without going through the additional step of reissuing 90-day notices or reviewing the files to try to see if they properly served the 90-day notice to begin with. Of greater consequence. The numerous motions to dismiss and motions for summary judgment that are based upon the Kessler Appellate Division case will now be moot.

While the Court of Appeals decision in Kessler reduces the defense options for New York homeowners, the new Foreclosure Abuse Prevention Act (FAPA) gives some homeowners some additional rights in the foreclosure process. The new law restores balance in the foreclosure process since the New York Court of Appeals’ decision in Freedom Mtge. v. Engel in 2021. Before FAPA went into effect, mortgage lenders had the unilateral ability, under Engel, to manipulate and evade the statute of limitations. The new law does not alter New York’s six-year statute of limitations on mortgage foreclosure actions from the date the loan was accelerated (meaning the entire loan became due). It simply restores a common-sense principle: no party may unilaterally stop and restart the statute of limitations to revive what would otherwise be a time-barred action. A voluntary discontinuance by a loan owner or servicer of a foreclosure lawsuit will no longer reset the six-year statute of limitations to bring an action to foreclose.

Contact the Law Offices of David I. Pankin, P.C.

If you are in or facing foreclosure or have any questions regarding this new Court of Appeals decision, please feel free to contact the Law Offices of David I. Pankin, P.C. We have over 25 years of experience fighting for the rights of homeowners in both state court and federal bankruptcy court. You can contact us at (888) 529-9600 or by using our easy online contact form.

Read the decision: https://www.nycourts.gov/ctapps/Decisions/2023/Feb23/4opn23-Decision.pdf