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In Wells Fargo Bank, N.A. v. Valerie J. Portu aka Valerie M. Portu, et al, the Appellate Division Third Department partially granted Defendant’s cross motion for summary judgment dismissing the complaint.http://decisions.courts.state.ny.us/ad3/Decisions/2020/528559.pdf

In April 2006, defendant Valerie Portu and her now deceased husband execution a note in the amount of $147,962 in favor of First Alternative Mortgage Corp.   The note was secured by a mortgage held by MERS as nominee for lender.   After defendant defaulted on the October 2008 payment, plaintiff sent a letter statement the loan was in default and cautioned that failure to make a payment “will result in acceleration of the Mortgage Note.”.

In August 2015, the Supreme Court found plaintiff failure to provide a reasonable excuse for default, and, lacked standing. The Court went on to dismiss the complaint by order entered July 13, 2016.

On March 2, 2016, plaintiff notified defendant as follows: “Previously your loan was accelerated and all sums . . . were declared immediately due and payable. [Plaintiff] hereby de-accelerates the [l]oan, withdraws its prior demand of immediate payment of all sums. . . and reinstates the [l]oan as an installment loan.” The letter further advised that defendant was still in default, and that plaintiff had “a variety of homeowners’ assistance programs” to discuss. No further payments were made by defendant and plaintiff commenced this second foreclosure action on October 11, 2016. Thereafter, plaintiff moved for summary judgment and defendant cross-moved to dismiss the complaint as barred by the statute of limitations. Supreme Court partially granted defendant’s cross motion by finding that the foreclosure action was time-barred, while allowing the action to continue as to plaintiff’s claim seeking reimbursement for taxes and insurance paid on the property. Plaintiff appealed.

Plaintiff’s purported de-acceleration letter was issued on the eve of the expiration of the statute of limitations. Although the letter expressly “reinstates the [l]oan as an installment loan,” it does not demand the resumption of monthly payments or provide monthly invoices for payment due. Instead, the letter specifies that defendant remained in default for failing to make the required monthly installment payments since November 1, 2008 and offers to discuss “a variety of homeowner’s assistance programs.” Not to be overlooked is that the March 2, 2016 letter was followed by two June 13, 2016 letters providing 30 days to cure the default by making a payment due of $101,831, as well as a 90-day notice required under RPAPL 1304 — a condition precedent to initiating a foreclosure action. In our view, this proffer does not constitute a valid de-acceleration, as plaintiff simply put defendant on notice of its obligation to cure an eight-year default and then promptly embarked on the notices required to initiate a second foreclosure action. It followed that plaintiff’s second action was properly dismissed as untimely.

Thus, the Court issued a firm warning against pre-textual de-acceleration letters. A reasoned that “a de-acceleration letter is not pretextual if….. it contains an express demand for monthly payments on the note, or, in the absence of such express demand, it is accompanied by copies of monthly invoices transmitted to the homeowner for installment payments, or other comparable evidence”.

For more information regarding this case, please contact Deborah Gallo, Director of Operations at [email protected]

New York Senate Bill S5160 amends the real property actions and proceedings law, in relation to the failure to raise the defense of lack of standing in a mortgage foreclosure action. It has been signed by the Governor and is effective immediately. https://www.nysenate.gov/legislation/bills/2019/S5160

Section 1 amends the Real Property Actions and Proceedings Law by adding a new section 1302-a, which would provide that any defense based on a plaintiff’s lack of standing in a foreclosure proceeding related to a home loan cannot be waived by a defendant’s failure to raise such a defense in a responsive pleading or pre-answer motion.  A defendant would not be able to raise the defense after a foreclosure sale, unless the judgment of foreclosure and sale was issued upon the defendant’s default.

This bill fundamentally changes the standing argument in New York.  There is a volume of caselaw which reflects that the Mortgagor waives affirmative defense that mortgagee lacked standing to bring foreclosure action by not raising defense in his answer or in a timely motion to dismiss, but instead raising defense for the first time in opposition to mortgagee’s motion for summary judgment. Wells Fargo Bank Minnesota, Nat. Ass’n v. Mastropaolo, Supreme Court, Appellate Division, Second Department, New York.May 29, 200742 A.D.3d 239837 N.Y.S.2d 2472007 N.Y. Slip Op. 04626.  We can be assured that this change will create a new wave of appeals and litigation as the Courts respond.

For more information regarding this law, please contact Deborah Gallo, Director of Operations at [email protected]

On December 6, 2019, New York Governor Andrew Cuomo signed into law a bill, Assembly Bill 5626 (AB 5626), which, among other things, regulates reverse mortgages issued under FHA’s HECM program.  AB 5626 also appears to require lenders offering reverse mortgages in New York to obtain approval from the Superintendent of the New York Department of Financial Services (Superintendent) in order to make HECMs in New York.  The bill will take effect on March 5, 2020.

AB 5626 provides that an authorized lender, or any other party or entity, is prohibited from engaging in any unfair or deceptive practices in connection with the marketing or offering of reverse mortgage loans and must not: (i) use the words “government insured” or other similar language representing that reverse mortgage loans are insured, supported, and sponsored by any governmental entity in any commercial, mailing, advertisement or writing relating thereto; (ii) use the words “public service announcement” in any commercial, mailing, advertisement or writing relating thereto; or (iii) represent that any such loan is other than a commercial product.

Lenders must include certain consumer protection information, the content and form of which must be specified by the Superintendent, with any solicitation for reverse mortgage products mailed to a physical address in New York.  Lenders must also provide each actual/potential applicant with the telephone number and website address provided by HUD for HECM counseling.  Both the lender and the borrower must be represented by an attorney at closing, and each such party must have at least one attorney present to conduct the closing.

AB 5626 provides various servicing-related requirements and restrictions.  Lenders must inform and provide notice to a borrower, by telephone and first-class mail, when his or her line of credit or life expectancy set aside is depleted to 10% or less of its value.  Such notice must inform the borrower of their obligations relating to the property.  In addition, reverse mortgage lenders are prohibited from making an advance payment for any obligation arising from the borrower’s property.  Additionally, in the event a borrower defaults upon the payment of insurance premiums or real property taxes, the lender may only pay those premiums and/or taxes which are in arrears.

The bill also states that in the event a lender seeks to foreclose on a reverse mortgage loan on the basis that the property is no longer the primary residence of or occupied by the borrower, if during the verification of the borrower’s primary residence and/or occupancy no responses are received in response to mailings relating thereto, such lender must cause a telephone call to be made to the borrower, or if the borrower is unreachable by telephone, to a (designated) third-party contact.  In addition to making such call, prior to the commencement of a foreclosure proceeding, an in-person visit must also be made to the borrower.  Note that the lender may not charge a fee for any such visit and inspection.  The lender must wait at least 30 days following the in-person visit, in addition to any additional time or notice requirements specified by any other provision of law, before initiating a foreclosure action on the basis that the property is no longer the primary residence of the borrower.  If the borrower contacts the lender and provides proof of residence or occupancy after such visit, but before the commencement of the foreclosure action, the lender is barred from initiating such foreclosure action.

The bill also provides that compliance with its requirements is a condition precedent to commencing a foreclosure action, and failure to comply is a complete defense to such action.  Additionally, any person injured by any violation of the bill’s requirements or any violation of the rules and regulations of HUD relating to the HECM program may bring an action to recover treble damages, plus the prevailing plaintiff’s reasonable attorneys’ fees.

For more information regarding this law, please contact Deborah Gallo, Director of Operations at [email protected]

We are pleased to share a recent decision, on an issue of first impression, of a case handled by Friedman Vartolo, LLP entitled Wilmington Sav. Fund Socy., FSB v. Fernandez, et al. Supreme Court Ct., Appellate Decision, Fourth Department 11/15/19, 2019 WL 6042376, 2019 NY Slip Op 08290. The borrower argued that a “bankruptcy operates as the acceleration of the principal amount of all claims against the debtor” (House Report at 353, U.S.Code Cong. & Ad.News at 6309; In Re Schweitzer, 19 B.R. 860, 867-868 [Bankr. E.D.N.Y. 1982]; see also In Re Oakwood Homes Corp., 449 F.3d 588 [3d Cir. 2006]; In Re Amr Corp., 485 B.R. 279 [Bankr. S.D.N.Y. 2013] and that six-years after discharge in bankruptcy, Plaintiff’s loan was barred by the statute of limitations. The Court found that the bankruptcy did not automatically accelerate the debt, Plaintiff’s complaint was not time-barred because separate cause of action accrue for each installment payment that was not made, and the Court properly denied defendant’s motion to dismiss the complaint.

On August 17, 2007, defendant executed a note in the amount of $94,400 plus interest, payable in successive monthly installments with the final payment to be made on January 4, 2031. Defendant secured payment of the note with a mortgage encumbering certain real property. On December 8, 2009, defendant filed a petition for chapter 7 bankruptcy in Bankruptcy Court. Defendant received a discharge in bankruptcy on March 15, 2010, and obtained a final bankruptcy decree on April 1, 2010. On May 26, 2017, plaintiff, the successor to the lender, sent defendant notice that he was in default and that defendant had 90 days to cure the default. After receiving no payment during the following 90 days, plaintiff accelerated the remaining balance due under the note and, on November 1, 2017, plaintiff commenced an action seeking to foreclose on the mortgage. In his answer, defendant raised the statute of limitations as an affirmative defense.

Defendant moved to dismiss the complaint pursuant to CPLR 213 (4) and 3211 (a) (5). Supreme Court initially granted defendant’s motion, reasoning that defendant’s March 15, 2010 discharge in bankruptcy triggered the six-year statute of limitations (see CPLR 213 [4]), and that plaintiff failed to commence its foreclosure action within that period. Plaintiff then moved for leave to reargue, and defendant cross-moved to quiet title. The court granted plaintiff’s motion for leave to reargue, and ultimately held that defendant’s discharge in bankruptcy did not extinguish plaintiff’s right to commence an in rem foreclosure proceeding against defendant, that the statute of limitations began to run from the date each unpaid installment became due unless plaintiff accelerated the debt, and that plaintiff’s action was therefore timely because the debt had not been accelerated prior to 2017. Thus, on re-argument, the court reversed its prior determination, denied defendant’s motion to dismiss the complaint, reinstated the complaint, and denied defendant’s cross motion to quiet title.

The mortgage provided plaintiff the option to accelerate the debt under certain circumstances but did not state that the debt would be automatically accelerated if defendant obtained a discharge in bankruptcy. The appellate division rejected defendant’s contention that the discharge in bankruptcy automatically accelerated the debt. The Court found, that Chapter 7 discharge removes the “mode of enforcement” against the debtor in personam, but the obligation otherwise remains intact and does not impact an action in rem (Johnson, 501 US at 84).

The Court had not previously addressed the specific impact a discharge in bankruptcy has on the ability to commence a foreclosure proceeding over six years after a discharge in bankruptcy, the application of the above rules regarding the survival of in rem actions suggests that, absent terms in the mortgage to the contrary, a discharge in bankruptcy does not automatically accelerate the debt and that the terms of the mortgage survive bankruptcy. Because the terms of the mortgage survive, causes of action would thus continue to accrue with respect to each installment payment as the payments become due, although a note holder would only be able to commence an action in rem.

A great job by Zachary Gold, Esq. of our firm! For more information regarding this case, please contact Deborah Gallo, Director of Operations at [email protected]

New Jersey municipalities have a new way to preserve affordable homes – by saving those that wind up in foreclosure.  A law signed by the Governor requires that whenever a mortgage holder starts a foreclosure proceeding on a home that is deed-restricted as affordable (there is a cap on its sale price and it can only be purchased by low or moderate income purchasers) the mortgage holder must notify the municipality where the home is located, giving officials the option of purchasing the home if they believe it makes sense.  https://www.njleg.state.nj.us/2018/Bills/S0500/362_R2.PDF .  Under the Mount Laurel Doctrine, every community is required to provide its fair share of needed low cost housing and a municipality must replace lost affordable income units.

The law provides that deed restrictions on affordable housing are not extinguished by the foreclosure of the property.  It amends foreclosure laws to require notice be given to the municipal clerk and the Commissioner of Community Affairs whenever a debtor is given notice that a foreclosure is pending on residential property that is a unit of affordable housing subject to affordability controls. The foreclosing lender is also required to furnish the debtor with the address and phone number of the municipal affordable housing manager and the New Jersey Housing and Mortgage Finance Agency. The bill also removes the ability of a foreclosing lender to use alternative methods of foreclosure not requiring a public sale when the housing unit involved is subject to affordability controls.

For more information, please contact Deborah Gallo, Director of Operations at [email protected]