New York Foreclosure Referrals: Get it right BEFORE you start

Commencing a foreclosure in New York State is far different from commencing other types of litigation. In addition to the usual drafting, filing and serving of the summons and complaint, a foreclosure requires the Plaintiff to be licensed, to have satisfied various “conditions precedents”, and any of its agents, including Servicers and Law Firms, must comply with the Fair Debt Collection Practices Act (FDCPA). Once the file has been referred to your attorney, you may rely on him/her to ensure compliance with the numerous filing requirements and other consumer protection laws, however, there are important matters to comply with prior to referring a loan to an attorney for foreclosure, such as the following:

• Ensure the Plaintiff or it’s Servicing Agent is Properly Licensed by New York’s Department of Financial Services (DFS). Any party that collects even a single payment from a “residential mortgage loan” must be licensed by the DFS unless they are exempt or have received a “waiver” from the DFS (see NYS DFS Regulation 418). Since commencing a foreclosure action is deemed to be an attempt to “collect payments,” the Plaintiff’s Servicer must be licensed by the Department of Financial Services unless the Plaintiff is exempt or has received the “waiver” from the DFS.

• Comply with RPAPL §1304: One of New York’s Consumer Protection statutes, RPAPL §1304, requires the Plaintiff or it’s Servicing Agent to serve a 90-day Notice before the Summons and Complaint can be filed. There are strict requirements as to the content and font size of the notice and while the statute requires a notice be sent to each “Borrower,” many Courts will dismiss the foreclosure, often “sua sponte” (meaning on its own initiative without any party requesting the foreclosure be dismissed!) unless each party who signed the Note AND each party who signed the Mortgage were properly served with the requisite90-day Notice. Should the Summons and Complaint not be filed within twelve (12) months of sending the 90-day Notice, the notice will expire, and a new one will be required.

• Comply with RPAPL §1306: Another of New York’s Consumer Protection statutes, RPAPL §1306, requires the Plaintiff or its Servicing agent to electronically file a form containing information regarding the 90-day notice with the NYS Dept of Finance. In order to do so, you must obtain a username and password from the NYS Dept of Finance, which will only issue one to parties that are licensed, exempt or have obtained a waiver.

• Comply with any Notice Requirements in the Mortgage: In addition to the “statutory notice requirements” imposed by RPAPL 1304, many mortgages contain clauses requiring notice of default and “an opportunity to cure” be provided prior to commencing a foreclosure. These “contractual notice requirements” typically, but not necessarily, require a thirty (30) day notice which can be given, and expire, during the ninety (90) day notice period.

• Comply with the Fair Debt Collection Practices Act: The Fair Debt Collection Practices Act (FDCPA) requires all consumers be provided with a notice giving them the right to “dispute the validity of the debt” within five (5) days of the initial communication between the consumer and the “Debt Collector”. Unless the Plaintiff is servicing its own mortgage, the Servicer, as well as the foreclosure attorney, is considered to be a “Debt Collector” and must comply with FDCPA. Failure to do so can result in statutory liability plus payment of the consumer’s legal fees, and, in some instances, a Class Action!

• Comply with Dodd-Frank: The Dodd–Frank Wall Street Reform and Consumer Protection Act, prohibits initiating the foreclosure until the borrower is at least 120 days in arrears. (Note that the 90 Day Notice required by RPAPL 1304 may be served, however, during the 120 days.)

• Avoid Dual Tracking: HAMP prohibits initiating the foreclosure while any Loss mitigation applications are being reviewed.

• Confirm possession of the Note, Mortgage and all Assignments of Mortgage: Not only is “Lack of Standing” the most common defense asserted today to a residential mortgage foreclosure action, based upon the failure to validly transfer ownership of the Note and Mortgage, New York CPLR 3012-b now requires a Certificate of Merit containing copies of the Note, Mortgage and any Assignments of Mortgage to be annexed to every Foreclosure Summons and Complaint at the time it is filed. While affidavits attesting to the facts and circumstances of the “loss” of these documents may be submitted, one can expect delays at best and dismissals at worst.

• Send “Pre-Foreclosure/Post-Foreclosure” Referral Letters: Certain loans (depending on the entity owning the loan) require pre-foreclosure referral letters and post-foreclosure referral letters containing specific required info & disclosures before/after referral of the loan to a foreclosure attorney.

Failure to comply with the foregoing requirements can result in fines, sanctions, loss of interest, the foreclosure being discontinued, etc. which is why it is so important toget it right BEFORE you start!