At the end of 2021, the Appellate Court issued a decision in Bank of America, N.A. v. Kessler, 2021 NY Slip Op 06979 (2nd Dept. 2021) whereby the Court dismissed an action for failing to comply with RPAPL §1304. RPAPL §1304 is a condition precedent to bringing a foreclosure action in New York which requires a 90 day notice be sent to the borrower. The challenge in this particular matter was failure to comply with RPAPL §1304 (2) which states as follows:
The notices required by this section shall be sent by such lender, assignee (including purchasing investor) or mortgage loan servicer to the borrower, by registered or certified mail and also by first-class mail to the last known address of the borrower, and to the residence that is the subject of the mortgage. The notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice. Notice is considered given as of the date it is mailed. The notices required by this section shall contain a current list of at least five housing counseling agencies serving the county where the property is located from the most recent listing available from department of financial services. The list shall include the counseling agencies’ last known addresses and telephone numbers. The department of financial services shall make available on its websites a listing, by county, of such agencies. The lender, assignee or mortgage loan servicer shall use such lists to meet the requirements of this section.
The focus on this challenge was the separate envelope rule codified and highlighted above. In the case, the mailing made by the servicer included the requisite notice but also included additional language in the same envelope. The court held that the inclusion of any material in the separate envelope sent to the borrower under RPAPL §1304 that was not expressly delineated constituted a violation of the requirement. The court created a “bright line rule” that “promotes stability and predictability” in foreclosure proceedings. The court rejected the argument that the inclusion of any additional material in said envelope did not prejudice the borrower. The court felt that the language in the statute was clear and unambiguous.
As you can imagine, this case sent shockwaves throughout the New York servicers. Counsel for the servicers advised of same and each servicer had to go through their procedures and modify them accordingly. We initially expected a larger flood of files in early 2022 but same was held back in order for the servicers to scrub their files and reissue 90 days notices that complied with the statute. It appears that all of those notices have been completed and the files are increasing on a rapid basis.
Presently, this case is heading to the Court of Appeals for a final determination. In the interim, defense counsel have jumped on this and brought applications seeking dismissal of the action for failure to comply with this strict requirement with much success.
Recently, a new case was decided in federal court which gives the servicers hope that the decision will be reversed. In CIT Bank, N.A. v. Ramon Neris, 18 Civ. 1511 (VM) (SDNY 2022), the court handled a similar challenge but reached a different decision. The court addressed the “separate envelope” rule and reviewed the Kessler decision. The court stated that federal courts in New York as bound “by the law of New York as interpreted by the New York Court of Appeals”. While “the language of the state intermediate appellate courts [is a] helpful indicator of how the state’s highest court would rule”, a federal court should not disregard those decisions “unless [there is] persuasive evidence that the New York Court of Appeals, which has not ruled, would reach a different conclusion.”
The federal court concluded that the New York Court of Appeals would not agree with the bright line rule in Kessler. They addressed how the Kessler court did not contemplate how the separate envelope rule conflicts with the Fair Debt Collection Practices Act (“FDPCA”) which requires an initial communication and any subsequent communications must state that the “debt collector is attempting to collect a debt and any information obtained will be used for that purpose.” Under Kessler, that language would have to be omitted from the correspondence and violate the FDCPA. In light of the conflict, the court held that the §1304 separate envelope rule was not in violation and is of the opinion that the appeal in Kessler will be successful.
I am tracking the appeal and will advise once a decision is rendered.
Please contact David Schwartzberg, Foreclosure Counsel, at
dschwartzberg@advantagegroupny.com or 631.549.7721 with any questions.