by Lisa Gordon, Esq.

Frenkel Lambert Weiss Weisman & Gordon, LLP *

USFN Member (FL, NJ, NY)

Bank of America, NA v. Andrew Kessler, __ AD3D ____ (D67785) (2^nd Dept. 2021), a decision rendered by the Appellate Division Second Department on December 15, 2021, has sent shockwaves through the mortgage default industry.  The case involves the validity of a 90-day notice, required by RPAPL §1304 for residential home loans, which included additional disclosures.

The 90-day notice required by NY RPAPL §1304(1) is a condition precedent to commencement of a foreclosure action in New York.  This notice requires specific language as outlined in the statute and further provides in section (2) that these notices be sent in a separate envelope from any other mailing or notice.  It was the separate envelope provision at issue in the Kessler matter.

The 90-day notice in Kessler contained seven pages.  They were all paginated.  The last page was entitled “Important Disclosures,” and it contained what most consider to be standard disclosures.  The first was a statement advising that if the recipient is a debtor in bankruptcy or a debtor previously discharged in a bankruptcy, the notice is for informational purposes only.  The second pertained to the rights of borrowers/mortgagors in the military service who are afforded significant protections from foreclosure.  The third was the debt collector statement.  The borrowers argued that the inclusion of these disclosures constituted a violation of RPAPL§1304(2).

The Appellate Division Second Department agreed with the defendants/mortgagors and held that the “inclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in [the statute] constitutes a violation of the separate envelope requirement of RPAPL 1304(2).”  The Court further stated that it was irrelevant whether the additional material was on the same page as the notice or separately paginated as other lower courts have held and rejected the argument that the statute does not prevent additional language from being added to the notice, provided the language required by the statute is included. 

Based upon this decision, it is evident that a 90-day notice containing any language, other than the language prescribed by the statute itself, is not compliant with RPAPL §1304.  We know of few creditors and/or mortgage servicers who do not provide such disclosures in their 90-day notices. 

Aside from disclosures being added to the 90-day notice, another potential issue is raised by this opinion.  Hardship declarations are required to be included “with every notice pursuant to …RPAPL §1304” pursuant to the Emergency Eviction and Foreclosure Prevention Act of 2020 (Chapter 381 of the Laws of 2020) as amended on September 2, 2021.  The Kessler opinion makes for an inevitable conflict surely to be the subject of litigation.

The number of cases that could potentially be challenged, citing Kessler as authority, is enormous.  The ramifications of this decision will have far reaching economical and substantive impacts on mortgage servicers and everyone practicing mortgage foreclosure in the State of New York. We are hopeful that immediate leave to appeal to the New York Court of Appeals, by way of order to show cause, will be sought. We then must hope that leave to appeal is granted and the decision is overturned consistent with the well-reasoned sole dissenting opinion in Kessler.

The dissent noted that the additional disclosures in no way violated the content provisions of RPAPL §1304, nor did they frustrate the statute’s purpose or intent, and the statute does not explicitly prohibit the additional language.  The dissent went on to state that the plain language of the statute provides that the required language be “included” and does not prohibit the inclusion of other language beyond that which is required.  The term “include” is a term of enlargement, not limitation and thus, in the absence of a specific statutory prohibition against additional content, there is no basis for reading one into the statute.  The language was “clear and unambiguous, and did not serve to negate, confuse or otherwise impair any of the information that the statute requires be included…”  For all these reasons, the dissent did not agree that the additional disclosures constituted a separate “mailing or notice” in violation of RPAPL §1304.