30 Day Notices: Keep Those Copies!

In our last bulletin we spoke about whether the thirty day notices of default required by many mortgages should be sent by certified or regular mail. This time we address an even more important point about these notices: the necessity for keeping photocopies.

The notices we are talking about, of course, are those required in many mortgages (usually found in paragraph 17 of the standard form mortgage) which state that a Lender may only require immediate payment in full if it has sent a notice that states six things. Those things are: (i) the promise or agreement the borrower failed to keep; (ii) the action the borrower must take to correct the default; (iii) the date, at least 30 days from the notice when the borrower must take such action; (iv) that if the action is not taken , the Lender may require immediate payment in full and acquire the property by foreclosure; (v) by satisfying those conditions the borrower can have enforcement discontinued and the mortgage remain in full effect (vi) that the borrower may assert certain defenses to the action.

The sending of this notice by the Lender is a condition precedent to bringing a foreclosure action. In New York State that means that if the Lender has not sent the letter, the action will be dismissed by the Court, and the lender will have to start all over again. Not only will the action have to be started over again (with the payment of all court and service of process expenses) but the Lender will have to first send out the thirty day notice before it can accelerate the mortgage. Obviously, a Lender forced to take all of these steps a second time will not only incur substantial additional expense, but will lose considerable time in getting to a foreclosure sale.

Recently, increasing numbers of borrowers in New York, and their attorneys, have heard about this condition precedent to foreclosure and are asserting the Lender's failure to send the letter in their answer as an affirmative defense to the foreclosure action.

If the Lender has a photocopy of the letter (and it was sent properly- see our last bulletin) the defense is easily disposed of. The foreclosing attorney need only attach a photocopy to the motion for summary judgement and perhaps an affidavit of someone on staff at the servicer attesting to the mailing or copy of the return receipt.

But what if, as is increasingly becoming the case, the Lender or servicer has not retained a copy of the letter? In most cases in New York State, the action will be dismissed. Even an affidavit from the servicer's staff and a notation in the servicer's computer system that the letter went out will not be enough to convince the court that the proper procedure was followed. In one case, the Lender was even assessed costs of the action for commencing it without first fulfilling the condition precedent.

What is the moral? If your mortgage document requires a 30 day notice prior to acceleration, send the letter and always keep a copy in the servicing file. If you choose to send the notice by certified mail return receipt requested, make sure you also obtain stamped receipts from the post office and keep them in the servicing file along with a copy of the letter.

Have Your Foreclosure Attorney also Handle the Bankruptcy Action

The experience of many lenders has confirmed that when a borrower files a bankruptcy during the pendency of a foreclosure action, great savings of time and expense will accrue if the attorney who is already handling the foreclosure is designated to handle the bankruptcy action.

Usually it is the foreclosing attorney who first learns that a bankruptcy has been filed by the borrower. This is especially the case when the bankruptcy is filed on the eve of the foreclosure sale. Armed with this knowledge the attorney can act quickly on the lender's or servicer's behalf. Also, valuable time can be lost when the handling of a file is transferred from the foreclosing attorney to another attorney just for bankruptcy. Time is lost again when, after the automatic stay has been lifted, the first attorney must be notified to recommence the action or even to begin the action again where it had been left off. While these delays may be minimized by the lender's staff staying on top of both attorneys, this may still entail several days or even weeks of delay before the foreclosure action is restarted. And of course, double work by the servicer.

Your foreclosing attorney may often have gained valuable information about the borrower which can be of use in bringing on a motion to lift the stay. Those facts can involve tenants in the premises, conflicting statements in papers or loan applications. Most importantly, the foreclosing attorney will know the existence and details of prior filings by the borrower and can bring this information to the attention of the bankruptcy court. Such information may be the difference between the court awarding prospective relief to prevent or minimize damage from future filings.