MORTGAGE FORECLOSURE - RPAPL 1304 AND FDCPA?

BANK OF NY MELLON v. Luria, 2022 NY Slip Op 50384 - NY: Supreme Court, Putnam 2022:

"This is a mortgage foreclosure action. The plaintiff Bank has been awarded summary judgment on its foreclosure claim, but a Judgment of Foreclosure and Sale remains to be entered. Defendant borrower Ann Luria now moves for renewal on the basis of the Second Department's recent decision in Bank of America v. Kessler, 202 AD3d 10 (2d Dept. 2021). She contends that Plaintiff's 90-day notice did not comply with the requirements of RPAPL §1304, as interpreted by Kessler, because in addition to the language prescribed in Section 1304(1) it contained the following language:

Nationstar is a debt collector. This is an attempt to collect a debt and any information obtained will be used for that purpose. However, if you are currently in bankruptcy or have received a discharge in bankruptcy, this communication is not an attempt to collect a debt from you personally to the extent that it is included in your bankruptcy or has been discharged, but is provided for informational purposes only.

Relying on Kessler and its progeny, Defendant argues that by including this language in the 90-day notice Plaintiff violated RPAPL §1304(2), which provides that "[t]he notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice."

Bank of America v. Kessler

The Kessler decision is highly curious in at least three respects.

1. The "Plain Meaning" of RPAPL §1304

First, the Kessler majority asserts that the language of the statutory requirement that Section 1304 90-day notices be sent "in a separate envelope from any other mailing or notice" is "clear, precise, and unambiguous," and purports to "give effect to its plain meaning" in holding that:

[I]nclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in these provisions constitutes a violation of the separate envelope requirement of RPAPL 1304(2).

See, id., 202 AD3d at 12-14 (emphasis added). In so holding, however, the Kessler Court nowhere construes the statutory terms "other mailing" or "other notice." By sleight-of-hand, the Court instead speaks in its holding of the inclusion of other "material" — which is by no stretch of the imagination the same thing as an "other" "mailing" or "notice."

As Justice Miller observes in his searing dissent, the majority thereby runs afoul of the plain language of RPAPL §1304(1):

[T]he plain language [of RPAPL 1304(1)] merely provides that a "lender, assignee or mortgage loan servicer shall give notice to the borrower which shall include the following [language]" The statute positively sets forth the language that must be included in a valid RPAPL 1304 notice The plain language does not purport to restrict the content of a valid notice, or prohibit the inclusion of any other language beyond that which is explicitly required

Indeed, this Court has recognized that "the word `includes' is usually a term of enlarge-ment, and not of limitation it therefore conveys the conclusion that there are other items includable, though not specifically enumerated by the statutes" [cit.om.].

If it had been the Legislature's intent to restrict or proscribe additional language in a valid RPAPL 1304 notice, that intent "would have been expressed" [cit.om.]. The statute could have stated that a valid RPAPL 1304(1) notice shall only include certain language, but the Legislature chose not to employ any such words of limitation. In its present form, there is no statutory basis to conclude that any language beyond that which is required by RPAPL 1304(1), however slight or innocuous, constitutes a separate "mailing or notice" within the meaning of RPAPL 1304(2) [cit.om.].

Id., 202 AD3d at 25-26.

2. Strict Construction of Statutes in Derogation of Common Law or Right

Second, by purporting to declare the "plain meaning" of RPAPL §1304, the Kessler majority avoided having to grapple with Justice Miller's point (id., 202 AD3d at 26-27) that a statute in derogation of the common law, or which infringes upon an existing common right, must be strictly construed. See, Transit Commission v. Long Island R. Co., 253 NY 345, 355 (1930) ("Rules of the common law are to be no further abrogated than the clear import of the language used in the statute absolutely requires"); Hayes v. Davidson, 98 NY 19, 22 (1885); McKinney's Statutes §§301, 311. "It is a well-settled rule in this state that a party has a right to sue on any cause of action which he holds, and any statutory exception to that right must be distinctly expressed." Saxe v. Peck, 139 AD 419 (3d Dept. 1910). The Second Department itself has repeatedly held that "RPAPL 1301 is `strictly construed since it is in derogation of a plaintiff's common-law right to pursue the alternate remedies of foreclosure and recovery of the mortgage debt at the same time'." See, Stone Mountain Holdings, LLC v. Spitzer, 186 AD3d 520, 521 (2d Dept. 2020); VNB New York Corp., 131 AD3d 1235, 1236 (2d Dept. 2015); Hometown Bank of Hudson Valley v. Belardinelli, 127 AD3d 700, 701 (2d Dept. 2015); Dollar Dry Dock Bank v. Piping Rock Builders, Inc., 181 AD2d 709, 710 (2d Dept. 1992); Valley Savings Bank v. Rose, 228 AD2d 666, 667 (2d Dept. 1996).

Inasmuch as RPAPL §1304 establishes a statutory condition precedent to commencement of a mortgage foreclosure action (see, Kessler, supra, 202 AD3d at 14), it is difficult to escape the conclusions that:

(1) The RPAPL §1304 notice requirement is in derogation of a bank's common law right to pursue an action in foreclosure;

(2) Section 1304 must therefore be strictly construed; and

(3) Strictly construed, Section 1304 cannot possibly bear the meaning attributed to it by the Kessler majority.

3. "Bright-Line" Rule

The Kessler majority sought to justify its holding as a "bright-line rule" warranted by the Court of Appeals' reasoning in Freedom Mortgage Corporation v. Engel, 37 NY3d 1 (2021). See, Kessler, supra, 202 AD3d at 14, 18. For two reasons, however, Engel is inapropos.

First, Engel involved no statute, but instead a common law judge-made rule as to what constitutes the valid revocation of a prior acceleration of the mortgage debt. See, id., 37 NY3d at 28-30. In developing the common law, the court acts in a quasi-legislative capacity. In that context, articulating a common law bright-line rule dictated by considerations of policy, practicality and prudence is well within the court's competence. Kessler, in stark contrast, involved the interpretation of a legislative enactment. In that context, the court's role is not to make rules but to discern the intent of the Legislature guided by applicable principles of statutory construction. It is the Legislature's intent as expressed in the language of the statute that must prevail regardless of the court's notions of policy, practicality and prudence.

Second, Engel's bright-line rule that the discontinuance of a foreclosure action automatically revokes a prior acceleration effected by the complaint in foreclosure displaced Second Department holdings that "require[d] courts to scrutinize the course of the parties' post-discontinuance conduct and correspondence to determine whether a noteholder meant to revoke the acceleration when it discontinued the action." Engel, supra, 37 NY3d at 30. Applying RPAPL §1304, in contrast, requires only judicial evaluation of the 90-day notice; no unwieldy inquiry concerning the parties' post-notice conduct and correspondence is needed. In addition, the Court of Appeals found the Second Department's approach in Engel "analytically unsound as a matter of contract law and unworkable from a practical standpoint" because it "render[ed] it impossible for parties to know whether, or when, a valid revocation has occurred," which in turn (1) "leaves the parties without concrete contemporaneous guidance as to their current contractual obligations," and (2) undermines the "consistent, straightforward application of the statute of limitations which serves the objectives of `finality, certainty and predictability,' to the benefit of both borrowers and noteholders" See, id., 37 NY3d at 30-32. In contrast, judicial determination of the validity of RPAPL §1304 notices impacts neither the parties' understanding of their ongoing contractual obligations nor the operation of the statute of limitations. Any uncertainty or unpredictability that may inhere in applying §1304 according to the language of the statute as written is not meaningfully other or different from that generally inherent in judicial application of the law.

Hence, Engel simply does not support the Kessler majority's imposition of a "bright-line" rule at odds with the statutory language of RPAPL §1304.

The Present Case

The additional "material" included in the November 29, 2016 90-day notice was a brief advisory dictated by the Federal Debt Collection Practices Act ("FDCPA"), 15 USC §1692 et seq. There were two components. First:

Nationstar is a debt collector. This is an attempt to collect a debt and any information obtained will be used for that purpose.

The "debt collector" advisory is what is colloquially known as the "mini-Miranda" warning required in certain communications with a debtor by the FDCPA. See, 15 USC §1692e(11). Second:

However, if you are currently in bankruptcy or have received a discharge in bankruptcy, this communication is not an attempt to collect a debt from you personally to the extent that it is included in your bankruptcy or has been discharged, but is provided for informational purposes only.

The "bankruptcy" advisory was patently designed to avoid any imputation that the §1304 notice implicitly conveyed a "false representation of the character, amount, or legal status of any debt; or [t]he threat to take any action that cannot legally be taken or that is not intended to be taken" in violation of the FDCPA. See, 15 USC §1692e, subd. (2)(A), (5).

The RPAPL §1304 notice at issue here was sent by Nationstar Mortgage on or about November 29, 2016. At that time, there was case authority to the effect that noteholders or mortgage servicers whose interests were acquired after the mortgage was in default may be considered "debt collectors" subject to the strictures of the FDCPA. See, e.g., JPMorgan Chase Bank, N.A. v. Mantle, 134 AD3d 903 (2d Dept. 2015); Roth v. Citimortgage Inc., 756 F.3d 178, 183 (2d Cir. 2014). It appears from the record here that the Defendant borrower defaulted on her mortgage obligations as of January 1, 2012; that post-default Nationstar acquired an interest in the mortgage by an assignment executed on October 8, 2012 and recorded December 3, 2012; and, again post-default, that plaintiff Bank of New York Mellon acquired an interest in the mortgage by an assignment executed on December 5, 2016 and recorded January 10, 2017. In November 2016, then, Nationstar had good reason to believe that the language it appended to the RPAPL §1304 notice was required to assure its compliance with the FDCPA. If it was so required, then there arises a serious question whether Kessler's "bright-line" rule is preempted by the FDCPA. See, 15 USC §1692n.

Thereafter, in 2017, the United States Supreme Court altered the legal landscape of the FDCPA, holding that a creditor seeking to collect a debt on its own account is not a "debt collector" even though it had acquired ownership of the debt after it was already in default. See, Henson v. Santander Consumer USA Inc., 137 S.Ct. 1718 (2017). So far as appears from the record, Nationstar Mortgage owned the Defendant borrower's debt in November 2016, and hence the FDCPA would not, per Henson, have mandated the advisory which Nationstar included in the RPAPL §1304 notice at issue here. Nevertheless, the fact that this language was rooted in the FDCPA would, pace Kessler, seem to be highly relevant to the question whether Nationstar's 90-day notice complied with the requirements of RPAPL §1304 as written.

Applying §1304 as written, the question posed would be whether the FDCPA advisory constituted an "other mailing" or "other notice" within the meaning of the statute. To this Court the answer is quite evidently "No": by its very nature an FDCPA advisory is not an "other notice"; it is, rather, wholly ancillary to the notice to which it is appended, functioning as a qualifier or disclaimer, which would never be independently given or "mail[ed]" in a "separate envelope."

Retroactivity

Should Kessler survive review in the Court of Appeals, the question remains whether the "bright-line" rule it applies to RPAPL §1304 notices should be retroactively or only prospectively applied.

The Court of Appeals' most comprehensive discussion of New York law on retroactive application of judicial decisions is contained in People v. Favor, 82 NY2d 254 (1993). The Court therein wrote:

Traditional common-law methodology contemplates that cases on direct appeal will generally be decided in accordance with the law as it exists at the time the appellate decision is made [cit.om.]. This principle follows quite naturally from the bedrock assumptions that "our government is one of laws, and not of men" and that, conse-quently, judicial decisions reveal or elucidate, rather than create, the law [cit.om.]. Taken to their logical conclusion, these assumptions lead to the tenet that recently announced rules of law, including those that overrule prior decisions, are "not `new law but an application of what is, and theretofore had been, the true law'" [cit.om.]"

In contrast to this view, some courts and scholars have recognized that "judges do in fact do something more than discover law" [cit.om.], and that unwavering insistence on retroactivity is "out of tune with actuality largely because judicial repeal ofttimes does `work hardship to those who [had] trusted to its existence'" [cit.om.]. Recognizing the pragmatic wisdom of these observations, the courts have been willing to temper what their new rules of law to prospective application [cit.om.].

People v. Favor, supra, 82 NY2d at 260-261.

Retroactivity analysis is required only where the court has enunciated a "new rule of law." The Favor Court outlined three situations wherein this may occur:

Of course, a judicial holding overruling established precedent should, in most instances, be considered a "new" rule requiring [retroactivity analysis] [cit.om.]. Similarly, a "new" rule may be created when "there has been such a sharp break in the continuity of law that its impact will `wreak more havoc in society than society's interest in stability will tolerate'" [cit.om.]. Finally, a departure from the general rule of retroactive application may be warranted where a court's recent holding "represented a dramatic shift away from customary and established procedure" [cit.om.].

Id., 82 NY2d at 263. Conversely, "retroactivity should not be in question when a court's ruling merely applies previously established principles in a new factual setting or settles a question in a manner that was clearly foreshadowed." See, id. Applying those criteria, it would appear to be indisputable that Kessler enunciated a new rule of law. The Kessler majority acknowledged that it was overruling an array of lower court decisions that had interpreted RPAPL §1304 in a manner wholly at odds with Kessler's "bright-line" rule. See, Kessler, supra, 202 AD3d at 16-17. Kessler's shocking repercussions in the foreclosure arena — the potential dismissal of thousands of foreclosure actions on account of 90-day notices which included language, any language at all, above and beyond that specified in RPAPL §1304 — evidences the fact that Kessler represents a dramatic shift away from customary practice that was not foreshadowed by prior caselaw or by the language of the statute.

Whether a new rule of New York state law is to be given retroactive effect requires an evaluation of three factors:

1. the purpose to be served by the new rule,

2. the extent of reliance on the old rule, and

3. the effect on the administration of justice of retroactive application.

See, People v. Favor, supra, 82 NY2d at 262; People v. Martello, 93 NY2d 645, 651 (1999); People v. Mitchell, 80 NY2d 519, 528 (1992); People v. Pepper, 53 NY2d 213, 220 (1981).

If Kessler's "bright-line" rule were integral to carrying out the Legislature's intent in enacting §1304's "separate envelope" requirement, then a strong case could be made for retroactivity. However, the Kessler majority was unable to discern the Legislature's intent: the purpose of the "separate envelope" is nowhere stated in its decision, and the majority is forced at one point to guess that it may have been "to obviate a borrower becoming confused or distracted by extraneous information." See, Kessler, supra, 202 AD3d at 18. Hence, it appears that the primary purpose of Kessler's "bright-line" rule, like that of all "bright-line" rules (as the Kessler majority is at pains to point out), is to impose a standard that is — prospectively applied — easy to follow in practice and easy to adjudicate in court. See, Kessler, supra, 202 AD3d at 15-19. Retroactively applied, however, the Kessler "bright-line" rule gravely prejudices parties who reasonably relied on prior §1304 jurisprudence (Factor No. 2), and creates chaos in the administration of justice by unsettling numerous settled cases (Factor No. 3) without demonstrably advancing the Legislature's purpose in enacting the "separate envelope" requirement in the first place (Factor No. 1).

Conclusion

The Court acknowledges that the matters discussed above go well beyond those specifically addressed in the parties' motion papers, particularly as concerns (1) the relevance vel non of the Federal Debt Collection Practices Act, and (2) the retrospective or prospective application of Kessler. Accordingly, the motion is hereby adjourned to June 10, 2022, on or before which date the parties may file supplemental papers bearing upon the issues discussed hereinabove.

The foregoing constitutes the interim order of the Court."