Strict Compliance or Strictly Impractical, Appellate Division, Second Department Offers a New Standard for RPAPL 1304 Causing Confusion and Chaos

December 22, 2021

On December 15, 2021, the Appellate Division, Second Department answered the open question of whether a lender may include information with an RPAPL 1304 ninety-day notice that is not mandated by the statute in the negative.  In a decision that purports to be in accordance with the Legislature’s intent, the Second Department applied a strict compliance standard that is both impractical and unworkable.  Even worse, the new rule, which makes the inclusion of any information that is not “expressly delineated” in RPAPL 1304 a violation of the statute, conflicts with other federal and state legislative edicts.  Most notably, the rule conflicts with the COVID-19 Emergency Eviction and Foreclosure Prevention Act’s (“CEEFPA”) requirement that lenders include hardship declarations with ninety-day notices.  The impact of the Appellate Division’s decision cannot be overstated.  Hundreds, if not thousands of residential foreclosure actions could be subject to dismissal because this decision. 

In Bank of America, N.A. v. Kessler, 2021 NY Slip Op 06979, the plaintiff lender commenced a foreclosure action in March 2014 against, among others, the defendants/mortgagors.  The mortgagors answered the complaint asserting several affirmative defenses including plaintiff’s failure to comply with RPAPL 1304.  Following discovery, the lender moved for summary judgment dismissing the defendants’ defenses.  Defendants opposed the motion and cross-moved for summary judgment based on, among other grounds, plaintiff’s failure to strictly comply with RPAPL 1304.  The lower court denied plaintiff’s motion and granted defendants’ cross-motion, finding that the lender failed to strictly comply with RPAPL 1304.  Plaintiff appealed.

The Second Department began its analysis by reviewing the settled rules of statutory interpretation, noting that the “text of a provision is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning.”  The Court further observed “when the plain meaning of the statute is precise and unambiguous, it is determinative.”

After discussing these rules, the Appellate Division analyzed RPAPL 1304(1) and (2) and found, without the benefit of any reasoning or explanation, that both sections of the statute are clear and unambiguous.  However, based on a plain meaning reading, these sections appear to conflict with one another.  RPAPL 1304(1) provides that a ninety-day notice “shall include the following” information, whereas, RPAPL 1304(2) provides that “the notices required by this section shall be sent … in a separate envelope from any other mailing or notice.”  RPAPL 1304(1) invites lenders to include additional information by using the phrase “shall include,” while RPAPL 1304(2) appears to limit the “notices” that can be included in the same envelope.  The Appellate Division’s failure to acknowledge this ambiguity makes its strict compliance rule both impractical and unworkable. 

After sidestepping the statute’s ambiguity, the Second Department argued that its bright-line rule is consistent with RPAPL 1304’s legislative history.  Specifically, the Appellate Division contended, because the separate envelope requirement was added to RPAPL 1304(2) by amendment in 2009 and remains part of the statute today, that its strict compliance rule is consistent with the legislative history.  However, the Appellate Division failed to consider that the inclusionary language of RPAPL 1304(1) has been in the statute since it was enacted in 2008 and remains in the statute unchanged.  Had the Legislature intended to curtail RPAPL 1304(1), it could have simply amended the inclusionary language of RPAPL 1304(1) by adding the word “only” to read that a ninety-day notice “shall only include the following” information.  Instead, it added the separate envelope requirement to RPAPL 1304(2) and left the inclusionary language of RPAPL 1304(1) unchanged, indicating that the Legislature did not intend the separate envelope requirement to limit RPAPL 1304(1).

Next, the Appellate Division argued that its bright-line rule is consistent with the policy considerations highlighted by the Court of Appeals in Freedom Mortgage Corp. v. Engel.  Specifically, the Second Department contented that its bright-line rule is consistent with the Court of Appeals’ emphasis on “reliable and objective rules permitting consistent application” in Engel.  However, Engel is inapposite.  Engel dealt with the statute of limitations, not RPAPL 1304. 

A closer analogue is CIT Bank, N.A. v. Schiffman, which was decided by the Court of Appeals after Engel in March 2021.  In CIT Bank, N.A. v. Schiffman, the high court was asked by the Second Circuit Court of Appeals to respond to two certified questions concerning RPAPL 1304 and 1306.  With respect to RPAPL 1304, the Court of Appeals was asked to the answer the open question of what evidentiary showing a borrower must make to rebut a lender’s proof of a standard office procedure to demonstrate compliance with RPAPL 1304’s notice requirement.  After analyzing RPAPL 1304’s text, legislative history and analogous cases, the Court of Appeals held, for the first time, that:

there must be proof of a material deviation from an aspect of the office procedure that would call into doubt whether the [RPAPL 1304] notice was properly mailed, impacting the likelihood of delivery to the intended recipient.

The high court explained that “the crux of the inquiry is whether the evidence of a defect casts doubt on the reliability of a key aspect of the process such that the inference that the notice was properly mailed is significantly undermined.”  Thus, the court concluded, “Minor deviations of little consequence are insufficient.”  Needless to say, the Second Department’s strict compliance standard turns Shiffman on its proverbial head, rendering minor deviations dispositive.

 Nonetheless, in reaching its decision, the Appellate Division rejected the lender’s request for a flexible standard.  Under the proposed flexible standard, courts would be tasked with determining whether the additional information is beneficial or prejudicial to the borrower.  If beneficial, inclusion of the information would not violate the statute.  If prejudicial, the information would violate the statute.  Although the flexible approach is consistent with Schiffman and takes into account RPAPL 1304’s ambiguity, the Appellate Division rejected it for three primary reasons: (1) the standard would vitiate the separate envelope requirement; (2) a burden could be placed on a borrower to demonstrate prejudice rather than on a lender to demonstrate benefit; and (3) the analysis would require trial courts to interpret what the Legislature intended rather than what was stated in the statute.

These reasons are not persuasive.  First, a flexible standard would not vitiate the separate envelope requirement any more than the court’s strict compliance rule vitiates the inclusionary language of RPAPL 1304(1).  The Appellate Division’s contention that a lender could simply send the additional information in a separate envelope misses the point, and fails to consider that doing so could violate other state and federal statutes, including the CEEFPA.  Second, a judicial determination of whether the additional information is beneficial or prejudicial does not necessarily place a burden on the borrower.  Indeed, as the Second Department acknowledged, lenders already have the burden to demonstrate strict compliance with the mailing requirements of the statute.  Finally, under settled rules of statutory interpretation, an analysis of the legislative intent is appropriate when, as here, a statute is ambiguous.  When considered, as acknowledged by the Appellate Division, the legislative goal to provide information about additional protections and foreclosure prevention opportunities to homeowners at risk of losing their homes supports application of a flexible approach rather than its strict compliance standard.

Nevertheless, in applying the strict compliance standard to the facts, the Second Department found that the lender violated RPAPL 1304(2)’s separate envelope requirement by including information beneficial to borrowers in the military and/or bankruptcy in the same envelope as the ninety-day notice.  Consequently, the Appellate Division affirmed the lower court’s decision denying the lender’s motion for summary judgment and granting defendants’ cross-motion for summary judgment dismissing the complaint.  Justice Miller dissented.

Although it is too early to tell how the trial courts will interpret the Second Department’s decision, it will likely spell trouble for many pending foreclosure actions.  Based on the Appellate Division’s strict compliance standard, conceivably any information provided in or with a ninety-day notice that is not “expressly delineated” in the statute could be a deemed a violation subjecting the action to dismissal.  Examples of such information may include, but is not limited to, the borrower’s loan number, mortgaged property address, borrower’s address if different from mortgaged property address, notices pursuant to federal and/or state law, information for borrowers in the military or bankruptcy, clarifying and/or explanatory information, copies of ninety-day notices in languages other than English for borrowers that are not known to lack English proficiency, collection agency license numbers, lender logos, lender addresses and/or hours of operation.  Because of the potentially dire consequences, we recommend that lenders review their ninety-day notices moving forward to ensure compliance with the Appellate Division’s strict compliance standard.  Any information, language and/or material that is not “expressly delineated” in the statute should be removed.  The failure to do so may ultimately result in dismissal.

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This Legal Update is intended to keep readers current on developments in the law, and is not intended to be legal advice. If you have any questions, please contact author Morgan R. McCord at 914-286-2630 or, or any other attorney at Eckert Seamans with whom you have been working.

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Morgan R. McCord

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