Lenders “Livin' la Vida Loca” till HETPA Ended The Fiesta

In 2006, New York State enacted the Home Equity Theft Prevention Act (“HETPA”) for the purpose of affording greater protection to homeowners who face foreclosure proceedings against their homes. HETPA was instrumental in addressing increasingly rampant swindling where con men, proposing to “help” homeowners out of foreclosure, instead, stole homes and home equity from homeowners through deed/equity thefts and other mortgage foreclosure “rescue” scams. HETPA also gave borrowers greater protection from mortgage lenders (by adding extra steps) in those cases where borrowers couldn’t make mortgage payments and fell into default or foreclosure. HETPA changed certain parts of the Banking Law, Real Property Law (“RPL”), and Real Property Actions and Proceedings Law (“RPAPL”).

HETPA spoils all the lenders’ fun

Among the changes put into place by HETPA were:

(i) requiring that, at least 90 days before the foreclosure proceedings are brought, a written notice (the RPAPL §1304 notice*) be served upon the “borrower” by regular and certified mail;

(ii) extending the service of a similar type of “RPAPL §1304 notice” or “90-day notice” called a “pre-disposition notice” upon homeowners who own cooperative apartments, as now required by Uniform Commercial Code (UCC) Section 9-611. It is important to note that, unlike houses which are considered “real property,” cooperative apartments are considered “personalty” in some regards — a person who buys a cooperative apartment is actually buying shares of stock in the cooperative housing corporation and a proprietary lease associated with a particular apartment. Before the enactment of HETPA (as amended by the Home Equity Theft Prevention Act of 2009), a co-op unit owner’s shares and proprietary lease could be quickly foreclosed and auctioned off in a matter of a couple of months. Now, the lender has to wait at least 90 days from the pre-disposition notice to exercise its “non-judicial foreclosure” rights and auction off the collateral (the shares of stock in the cooperative housing corporation) for the loan on the cooperative apartment;

(iii) requiring the lender or mortgage servicer to file within 3 days of service of the RPAPL §1304 notice certain information with the New York State Superintendent of Financial Services and provide proof of filing; and

(iv) requiring that a statutorily-specific notice to the homeowner/mortgagor about foreclosure, be served together with the Summons and Complaint (RPAPL §1303 notice**) when foreclosure proceedings are commenced.

You’re a “borrower”? Says who?

Who is considered a “borrower” who must be served with the RPAPL §1304 notice?

All of the RPAPL noticing requirements under HETPA pertain to residential home loans and are designed to give borrowers notice of default in their mortgage payments or other obligations. Two recent court cases resolved an issue unaddressed in the enactment of HETPA and, more specifically, RPAPL §1304, namely: under the statute, what is the definition of a “borrower” who is entitled to the various notices from the lender or mortgage servicer? As you will see from these recent court cases, this is an important issue.

The Second Department held in Aurora Loan Services LLC v. Weisblum, 85 A.D.3d 95, 103 [2 Dept. 2011] that "[P]roper service of the RPAPL §1304 notice containing the statutorily-mandated content is a condition precedent to the commencement of the foreclosure action. The plaintiff's failure to show strict compliance requires dismissal." From this holding, it is certainly apparent that the failure of the mortgage lender/foreclosing plaintiff to serve the RPAPL §1304 notice is fatal to the foreclosure proceedings commenced — before the case can be filed, this first step of serving the notice must be taken.

In Aurora Loan Services LLC v. Weisblum, the mortgaged property was owned by a husband and wife. Only the husband signed the note but both the husband and wife signed the Consolidation, Extension and Modification Agreement (commonly known as a “CEMA”) to secure the note signed by the husband along with a prior mortgage. Before the mortgage lender brought its foreclosure proceeding to foreclose its consolidated mortgage upon the house, it served the RPAPL §1304 notice on the husband who signed the note. However, the lender did not serve the notice on the wife, arguing that she was not a signatory on the note, but only the CEMA. In addition, they argued that service upon her was unnecessary because the wife was not defined in the terms of the note as the “borrower” and, therefore, the plaintiff/mortgage lender was not required to serve the 90-day notice upon her pursuant to RPAPL §1304.

In Aurora Loan Services LLC v. Weisblum, the Second Department stated that the co-mortgagor wife (who signed the CEMA but not the note) was deemed a “borrower” under RPAPL §1304 who was also entitled to receive the 90-day notice prior to the commencement of the foreclosure.

In the follow-up case of Wells Fargo Bank, N.A. v. Miller, [Sup. Ct. Rockland Co. Index No. 4256/2011, Dec. 11, 2013], the issue was whether a co-mortgagor who did not sign the note was also deemed a “borrower,” under RPAPL §1304, and, therefore, should have also been served with the requisite 90-day notice. In this case, the mortgage lender (Wells Fargo Bank) provided the court with a copy of the purported notice that it allegedly served upon one of the defendants (the husband) and did not provide any proof of service of the requisite RPAPL §1304 notice upon the other defendant (the wife). In response, Wells Fargo Bank argued that the defendant/co-mortgagor wife signed only the mortgage and not the underlying promissory note. The underlying promissory note was signed only by the husband. The bank averred that the wife was not a “borrower” within the meaning of the statute and, therefore, was not entitled to the 90-day notice.

Messing with the wrong borrowers

In response, Richard A. Klass, Esq., Your Court Street Lawyer, successfully argued to the court that both husband and wife were indeed entitled to be served with the 90-day notice required by RPAPL §1304. Specifically, the lender’s own documents were put before the court to prove that the co-mortgagor wife was a “borrower” even under the bank’s definition (on the mortgage’s first page, in the section entitled “Words Used Often In This Document,” the word “Borrower” is stated as “ISRAEL MILLER CHAYA B. MILLER”).

In Aurora Loan Services LLC v. Weisblum, the Second Department recognized the provision in the mortgage instrument that the lender had the right to “enforce its right” against the subject property. Similarly, in Wells Fargo Bank, N.A. v. Miller, the mortgage stated: “each of us is fully obligated to keep all of Borrower’s promises and obligations contained in this Security Instrument. Lender may enforce rights under the Security Instrument against each of us individually or against all of us together.”

The court was urged, by the defendants/homeowners in Wells Fargo Bank, N.A. v. Miller, that it should recognize, similar to the co-mortgagor in the Aurora Loan Services LLC v. Weisblum case involving a CEMA, that the co-mortgagor wife who did not sign the underlying note has a significant interest in protecting her home from loss in a foreclosure. The design and purpose of RPAPL §1304 is to apprise all owners of residential homes that they risk losing their homes because an obligation was not met (“fair warning”). This initial step of the 90-day notice (which is a “condition precedent” to a foreclosure proceeding) adds an extra layer of support to homeowners who face imminent foreclosure but might find a means to remedy an impending predicament: where their property is in foreclosure; their credit history is damaged; and their lending alternatives have disappeared. Moreover, the non-defaulting property owner who put up her home as collateral for a loan to her spouse deserves to know of her spouse’s default and apprised of her rights prior to the institution of the foreclosure proceeding. Otherwise, the results would be severely harsh and inequitable.

Action Dismissed

In reaching the ultimate decision to dismiss the foreclosure proceeding brought by Wells Fargo Bank, the Supreme Court Justice held: “Therefore, pursuant to the Weisblum case, supra, the Court finds that Defendant Chaya B. Miller is a ‘borrower’ for the purposes of Real Property Actions and Proceedings Law §1304, and Plaintiff’s failure to comply with the strict mandates of that statute require dismissal of the action without prejudice.”

— by Richard A. Klass, Esq.

*The language of the letter for the RPAPL §1304 notice:

The RPAPL §1304 notice must be accompanied by a list of at least five housing counseling agencies. The language of the letter for the RPAPL §1304 notice is as follows:

YOU COULD LOSE YOUR HOME. PLEASE READ THE FOLLOWING NOTICE CAREFULLY

As of ..., your home loan is ... days in default. Under New York State Law, we are required to send you this notice to inform you that you are at risk of losing your home. You can cure this default by making the payment of ..... dollars by .....

If you are experiencing financial difficulty, you should know that there are several options available to you that may help you keep your home. Attached to this notice is a list of government approved housing counseling agencies in your area which provide free or very low-cost counseling. You should consider contacting one of these agencies immediately. These agencies specialize in helping homeowners who are facing financial difficulty. Housing counselors can help you assess your financial condition and work with us to explore the possibility of modifying your loan, establishing an easier payment plan for you, or even working out a period of loan forbearance. If you wish, you may also contact us directly at .......... and ask to discuss possible options.

While we cannot assure that a mutually agreeable resolution is possible, we encourage you to take immediate steps to try to achieve a resolution. The longer you wait, the fewer options you may have.

If this matter is not resolved within 90 days from the date this notice was mailed, we may commence legal action against you (or sooner if you cease to live in the dwelling as your primary residence.)

If you need further information, please call the New York State Department of Financial Services' toll-free helpline at (show number) or visit the Department's website at (show web address)”.

~ ~ ~

**The specific notice for RPAPL §1303:

The specific notice, to be delivered with the Summons and Complaint, must be printed in big bold letters on colored paper and read as follows:

HELP FOR HOMEOWNERS IN FORECLOSURE

New York State Law requires that we send you this notice about the foreclosure process. Please read it carefully.

Summons and Complaint

You are in danger of losing your home. If you fail to respond to the summons and complaint in this foreclosure action, you may lose your home. Please read the summons and complaint carefully. You should immediately contact an attorney or your local legal aid office to obtain advice on how to protect yourself.

Sources of Information and Assistance

The State encourages you to become informed about your options in foreclosure. In addition to seeking assistance from an attorney or legal aid office, there are government agencies and non-profit organizations that you may contact for information about possible options, including trying to work with your lender during this process.

To locate an entity near you, you may call the toll-free helpline maintained by the New York State Department of Financial Services at (enter number) or visit the Department's website at (enter web address).

Foreclosure rescue scams

Be careful of people who approach you with offers to “save” your home. There are individuals who watch for notices of foreclosure actions in order to unfairly profit from a homeowner's distress. You should be extremely careful about any such promises and any suggestions that you pay them a fee or sign over your deed. State law requires anyone offering such services for profit to enter into a contract which fully describes the services they will perform and fees they will charge, and which prohibits them from taking any money from you until they have completed all such promised services.

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copyr. 2014 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Good Guy Guaranty and Surrender Dates

When a tenant enters into a lease, they agree to pay all rent sums and in some cases additional rent as they become due and owing. When a tenant defaults on a lease, New York law does not require a landlord to mitigate their damages if they elect not to re-let the space, and the tenant remains liable for unpaid rent throughout the duration of the lease term.

Commercial leases executed between the landlord and tenant often include a personal guaranty executed by the tenant personally to ensure the payment of rent. A “Good Guy Guaranty” is a document executed by an individual or individuals of a corporation leasing space which, on the one hand, protects the tenant by limiting their liability under the lease in the event of default, and on the other hand, protects the landlord by allowing them to proceed against an individual person for any non-payment of rent that may accrue during the lease term.

In any scenario, Good Guy Guaranty generally apply to obligations that have accrued prior to the surrender of the leased space, and the accrued obligation remains due and owing even after the tenant has vacated the space. Russo v. Heller, 80 A.D.3d 531.

The surrender of the space, also known as the “Surrender Date” in a Good Guy Guaranty is a defined event in the guaranty that a guarantor/tenant is required to follow in order to limit his liability under the lease. Although the landlord cannot utilize a “hyper-technical interpretation” of the Surrender Date requirements, a tenant remains required to follow the conditions specified in the guaranty to surrender the space and thereby end any further personal obligations under the lease. 150 Broadway v. Shandell, 27 Misc.3d 1234(A).

If the tenant fails to abide by the terms of the Good Guy Guaranty, he may likely remain obligated for rent that will continue to accrue even after the tenant surrendered the space to the landlord. Broadway 36th Realty, LLC v. London, 29 Misc.3d 1238(A).

In Broadway, the “Surrender Date was defined as follows: “The date that Tenant shall have performed all of the following: (a) vacated and surrendered the demised premises to the Landlord free of all subleases or licensees and in broom clean condition (b) delivered the keys to the doors to the demised premises to Landlord, and (c) paid all sums due and payable under the Lease as Base Annual Rent or Additional Rent or other such charges to Landlord up until the date of (a) and (b) above.

In Broadway, the Court determined that since there were outstanding payments of additional rent due and owing, the tenant failed to comply with the requirements of the Surrender Date and the limitation of liability pursuant to the Good Guy Guaranty would not apply, thus tenant is liable for all rent that will accrue for the remainder of the lease term. Broadway at *5.

In this case, the Good Guy Guaranty provides as follows:

“Guarantor hereby absolutely, unconditionally, and irrevocably personally guarantees to Owner the full and prompt payment of rent due under the Lease payable by Tenant, its successors and assigns and the performance of all of Tenant’s other obligations under the Lease (including, without limitation, Tenant’s obligation to insure that the security deposit held in connection with the Lease shall be equal to the amount as required under the Lease). Notwithstanding the foregoing, if Tenant has performed all of its obligations under the Lease and is not in default AFTER August 1, 2011 (or if Tenant is in default but cures such default before the expiration of the applicable grace, notice and cure period), then the obligations of Guarantor thereafter shall only extend through the period up to and including the Surrender Date.’

The definition of Surrender Date pursuant to the lease is as follows:

“The date upon which Tenant shall have: (a) vacated, and caused all subtenants, assignees, and other parties claiming through or under tenant (other than those that have entered into a written occupancy agreement with Owner) to have vacated the demised premises and surrendered the same in the condition required pursuant to the Lease; (b) delivered all keys to the demised premises to Owner (c) executed and delivered to Owner an agreement pursuant to which Tenant agrees that the lease and any right of tenant to use or occupy the demised premises have terminated; and (d) all of Tenant’s obligations under the Lease shall have been performed including, without limitation, payment of all Rent then due and owing (the date on which all of the foregoing to occur shall be referred to herein as the ‘Surrender Date’).”

The facts in the instant case are as follows: From the execution of the lease on June 30, 2010 through September 30, 2011, tenant paid his rent (August and September rents were paid together on or about October 5, 2011). At that time, correspondence was received by the landlord from the guarantor, who had agreed to pay the rent due and owing provided the late fees were removed from the past balance.

Beginning with October’s rent, no further rent payments were made by the tenant. On April 25, 2012, the Marshal entered the property as part of an eviction and inventoried the premises. The premises were found vacant.

Landlord seeks payment of rent from October 2011 to the present, as it has not yet re-let the space, although the space has been marketed and is listed with a broker.

Conclusion:

Based upon the language of the Good Guy Guaranty combined with the case law, the tenant has failed to comply with the terms of the Good Guy Guaranty and Surrender Date and thus the accrual of rent continued throughout the term of the lease (June 30, 2015) for the following reasons:

1. Tenant was required to be current with rent AFTER August 1, 2011;
2. Guarantor was required to return the keys to the Landlord upon Surrender;
3. Guarantor was required to execute an agreement whereby tenant states all rights to the premises have terminated; and
4. All rent due and owing has been paid in full.

— by Elisa S. Rosenthal, Esq.,

Associate

Law Office of Richard A. Klass

Copyright 2013 Richard A. Klass, Esq.

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Abandonment under the Estates Powers and Trusts Law ("EPTL")

A parent is not supposed to outlive his/her children. This is a tragic truth that can only be enhanced when determining that child's estate. Due to the statute EPTL 3-1.1, a child under 18 dies intestate, meaning without a will.(1) The laws of intestacy clearly state that in the event the decedent is not married and has no children, his estate shall be inherited by the decedent's parents. But what happens when one of those parents has not been there for the child? Either due to divorce or other circumstances the child and parent do not have a relationship; is that parent still entitled to collect his distributive share of the child's estate?

The statute is clear. EPTL 4-1.1(a)(1) provides: "No distributive share in the estate of a deceased child shall be allowed to a parent if the parent, while the child is under the age of 21 years has failed or refused to provide for the child or has abandoned such child, whether or not such child dies before having attained the age of 21 years, unless the parental relationship and duties are subsequently resumed and continue until the death of the child."

In interpreting and applying this statute, the courts have been clear in their determination. The disqualification of a parent is premised upon either (1) a failure or refusal to support the child or (2) abandonment of the child.(2) Either of these can be the basis for denying a parent their right a distributive share of the child's estate, although neither is a necessary element in order to prove the other.(3) A parent's disqualification is determined by their relationship before the child turns 18, regardless of whether or not the child dies after 18. If the child dies intestate and one parent asserts abandonment by the other parent, an analysis is necessary to determine whether the parent asserting abandonment has sustained her burden.(4)

A parent has the duty to support his minor child in accordance with his means.(5) A failure or refusal to support a child financially can prevent that parent from receiving his distributive share. Financial support of a minor child must be shown by monies paid by the non-custodial parent to the parent with custody. Direct payments to the child are not included, nor are payments made to the child by others. Relying on others, including the state in the form of public assistance will result in the parent forfeiting his rights to any distributive share. The statute "imposes an equitable penalty upon parents who fail to fulfill their obligations of support under FCA 413."(6)

It is relatively easy to determine whether a parent takes on the responsibility of financially supporting his child. It is more difficult to determine whether a parent has abandoned his child. What is abandonment? The statute does not provide a definition of abandonment, so a review of the case law is necessary to determine how the term 'abandonment' is interpreted.

Case law has been clear on what constitutes 'abandonment.' Abandonment is a voluntary breach of neglect of the duty to care for and train a child and the duty to supervise and guide his growth and development."(7) There are limitless interpretations of the relationship between a parent and child and each one is unique. Therefore, how can a court determine that a particular parent has abandoned his child under the statute? There must be an analysis of the facts and circumstances of the parent/child relationship in order to make a determination.

A father who paid child support, but made no effort to contact his son for the seven years between his remarriage and the child's death, despite living nearby was found to have abandoned his son, despite the fact that he paid child support.(8)

Similarly, a father who professed his long-distance love for his child but had no more than sporadic, infrequent visits did not reach the threshold of demonstrating his "natural and legal obligations of training, care and guidance owed by a parent to a child."(9) A claim the child's custodial parent 'poisoned' the child against the non-custodial parent will not be sufficient to overcome the burden of proof.(10)

A court's order limiting a parent's involvement is also not a valid excuse to avoid a determination of abandonment. Courts have clearly held, "while a court order restricting a parent to visitation may lessen the measure of such parent's obligation, it does not eliminate it. Rather the inquiry then becomes whether or not the parent has fulfilled this responsibility…"(11)

However, a father who was absent for nearly half a child's life due only to the fact that he did not know of the child's existence, and subsequently financially supported and attempted to participate was found to have not abandoned the child.(12)

A parent who has failed to fulfill his parental duties due to incompetency will not be held as abandoning his child so long as there is no history of non-support.(13)

A parent cannot prove his involvement in his child's life merely by asserting his love for the child or by stating his intent to have a relationship with the child. Actions speak louder than words. It is the actions of the parent accused of abandoning his child that will determine whether or not his parental duties were fulfilled, not his plan or intent or wish to spend time with the child during their life. A parent's absence in the child's life, as evidenced by a lack of knowledge regarding the child's health, education and well-being are strong indicators of abandonment and will support a court's denial of any distributive share of the child decedent's estate.

— by Elisa S. Rosenthal, Esq.,

Associate

Law Office of Richard A. Klass

Copyright 2013 Richard A. Klass, Esq.

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(1) NY EPTL §3-1.1; N.Y. Prac., Trusts and Estates Practice in New York §7:61 (A person must be 18 in order to execute a will).

(2) In the matter of Wright, 20 Misc.3d 648 (2008); In the matter of Pessoni, 11 Misc.3d 245 (2005).

(3) Matter of Pridell, 206 Misc. 316 (1954) (Where the father paid child support to decedent's mother, he admits to having no relationship with the decedent, and was denied participation in decedent's estate); Matter of Musczak, 196 Misc. 364 (1949).

(4) Matter of the Estate of Clark, 119 A.D.2d 947 (1986).

(5) Matter of Gonzalez, 196 Misc.2d 984 (2003).

(6) Id at 988.

(7) Wright at 867; Pessoni at 247; Pridell at 318; N.Y. Prac., Trusts and Estates Practice in New York §7:63

(8) Pridell at 318.

(9) Gonzalez at 987.

(10) Pessoni at 549.

(11) Pridell at 318.

(12) The matter of the Estate of Ball, 24 A.D.3d 1062 (2005).

(13) Musczak at 367.

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.