It is no surprise. The onslaught of legislation designed to protect borrowers continues. Most recent is a bill proposed by the Office of Court Administration to add a new CPLR rule 3012-b entitled “Certificate of Merit in Certain Residential Foreclosure Actions.”
The memorandum in support presupposes that borrowers are being foreclosed upon by lenders who do not actually hold the mortgages at issue, thereby presumably requiring remedial action to involve attorneys at the outset to confirm the plaintiff’s standing to bring the action—and to so certify—in a certificate executed by the attorney. This certificate is then to be filed with the complaint in the action.
While this may be viewed as just another step imposed upon the foreclosure process that attorneys must take, it is somewhat more insidious than that. For one thing, the statute is ambiguous in certain respects (discussed below) which may make it difficult for counsel to certify and may therefore add yet further delay, confusion and peril to the process.
The certificate mandate applies solely to a home loan1 (as defined in RPAPL §1304) so at least this point is clear.
Another prerequisite, though, and an appropriate one we might add, is that the defendant (presumably they mean the mortgagor) must be a resident of the property.2 A problem with that, however, is that it is often not at all certain whether the borrower lives at the property. The drafters’ assumption is that borrowers are always forthright with lenders advising when they may live elsewhere. Lenders and servicers know that too often this is not true and so determining with precision whether the situation meets the mandate to file the certificate will sometimes, perhaps frequently, be unknown.
The attorney is then to prepare a certificate to accompany the complaint, executed by the attorney—which means signed and notarized—certifying counsel’s review of the facts of the case. This certification is to be based upon consultation with authorized representatives, suggesting it has to be more than one person (although who precisely is authorized may be elusive). The certification is to declare that there is (a) a reasonable basis for commencement of the action and (b) that the plaintiff is currently the creditor entitled to enforce the rights under the documents.
In addition to the consultation, the attorney is required to have reviewed “pertinent documents.” This is then augmented by citing that these include the mortgage, security agreement and note or bond underlying the mortgage executed by the residential defendant, as well as all instruments of assignment, if any, and any other instrument of indebtedness. This listing, however, creates immediate issues for counsel.3
First, the review has to be of “pertinent documents.” While the statute delineates what must be deemed included, it is not at all clear that “pertinent documents” is limited to the items recited. Can an attorney review exclusively the noted documents and be safe in opining as to the legitimacy of the action? What might defaulting borrowers, others or courts deem to be pertinent besides the cited papers? It is hard to tell and this places counsel in a more than awkward—and perhaps dangerous—position. It can be suggested that the statute should articulate with exactitude what counsel is to review.
Turning now to the recited documents that are clearly included, after the mortgage is a mention of “security agreement.” What that is supposed to be is likewise imprecise. A mortgage is often thought of, and indeed is sometimes also denominated, as a “security agreement.” But the suggestion of the statute is that there is some separate document so named, although what it may be is pointedly imponderable. This is surely a problem.
Examination of the note or bond is required, understandably. But there are two concerns here. The statute denotes the various documents as “executed by the residential defendant.”4 While typically a borrower signs both the note and the mortgage, on some occasions the note may be signed by another with the owner signing the mortgage. This is a possible disconnect to be addressed.
Next, not infrequently a note can be lost. What is an attorney to affirm in this situation? Traditionally, a lost note affidavit has been acceptable in a mortgage foreclosure action. But the statute does not deal with substitution of a lost note affidavit for the required review of the “note.” Moreover, it is possible, albeit not so common, that a mortgage obligation can be fully binding in the absence of a note.5 The mortgage contains a promise to pay and it would be possible to structure the transaction with a mortgage, but without a note. The statute doesn’t take this into consideration either.
Still further is the obligation for counsel to review “any other instrument of indebtedness.” That too is unclear. Does the statute mean other notes? It is reasonable to assume that if there are a series of notes or restated notes those would be examined, but whether they are categorized as “other instruments of indebtedness” is uncertain. Mindful that counsel is required to attach all the documents to the certificate, any uncertainty as to what they are only exacerbates the problem.
Attorneys should be well aware of an administrative order, circa 2010,6 requiring an attorney’s affirmation of the merit of a case, to be interposed at a certain stage of an action depending upon its relationship to the date of promulgation of that order. If this new statute is intended to replace the attorney affirmation, which would certainly be appropriate, it is helpful. But it is unstated that the statute in any way harmonizes its requirement with that of the administrative order. This too is well worthy of attention.
Perhaps as an aside, although it is meaningful, existing CPLR R 3015(d) provides that unless it is specifically denied in the pleadings, the signature upon a negotiable instrument is admitted. A further protective aspect of the proposed statute7 is the direction that CPLR R 3015(d) shall not apply to a defendant-resident of the property in foreclosure not represented by counsel. This then has the potential to impose some hitherto non-existing burden of proof as to the legitimacy of a mortgage note.
What follows is the remedy aspect, subdivision (d), providing that should a plaintiff willfully fail to provide copies of the papers and documents required, and if a court finds—upon motion or upon its own—that those papers and documents (again what precisely are they?) ought to have been provided, then the court is empowered to dismiss the complaint. That dismissal, however, is not deemed to be on the merits. Alternatively, the court can issue a conditional—or final—order as to that failure including, but not limited to, denial of accrual of interest, costs, attorney fees and other fees (undefined) relating to the mortgage debt.
It is the very uncertainty of some of the proposed language which gives pause when the rather harsh remedy is examined. Will a careless or untutored attorney subject his client to such penalties? Even a diligent attorney could run afoul of the definitions. Then it is to be hoped that any perceived failure would not be categorized as willful.
Predicting political outcomes is never an easy task, but there is a reason why one might predict that it has a chance. The prevailing wisdom is as stated in the memo in support of the bill. There is a widespread belief that lenders are foreclosing mortgages they don’t own. (Lenders and their counsel would condemn such a notion as false.) Because this statute supposedly will help provide a remedy to that perceived problem, it may be viewed with favor by the legislature. Moreover, it may be difficult to argue against a requirement which seems—on its face—to be reasonable. It depends upon how deeply the Legislature may wish to delve into the less than stimulating recondite realm of foreclosure litigation.
Of course, if the statute is laden with ambiguities and dangers, then it can be readdressed to banish ambiguity so that the result—if it is to exist at all—will be wiser and more appropriate. The Assembly passed the bill just before the summer recess. It died in Senate Committee thereafter. A push to reintroduce it in the fall can be expected.
Bruce J. Bergman, a partner with Berkman, Henoch, Peterson, Peddy & Fenchel of Garden City, is the author of “Bergman on New York Mortgage Foreclosures” (three vols., LexisNexis Matthew Bender, rev. 2011).
1. Proposed CPLR §3012-b (a).
3. Proposed CPLR §3012-b (a).
5. See, inter alia, Goldman v. Rhoads, 122 Misc. 567, 203 N.Y.S. 548 (1923), and further discussion at 1 Bergman on New York Mortgage Foreclosures §1.04, LexisNexis Matthew Bender (rev. 2012).
6. Administrative Order 548/10 as amended by AO 431/11.
7. Proposed CPLR §3012-b (c).