Bank of America, N.A. v. Andrew Kessler

• Court: New York Court of Appeals
• Decided: February 14, 2023
• Docket: 4
• Status: Published

Opinion

State of New York OPINION Court of Appeals This opinion is uncorrected and subject to revision before publication in the New York Reports.

No. 4 Bank of America, N.A., Appellant, v. Andrew Kessler, Respondent, et al., Defendants.

Suzanne M. Berger, for appellant. Charles Wallshein, for respondent. American Legal and Financial Network et al.; USFN - America's Mortgage Banking Attorneys, amici curiae.

WILSON, J.:

The question presented here is whether the inclusion of concise and relevant

additional information voids an otherwise proper notice to borrowers sent pursuant to Real

Property Actions and Proceedings Law § 1304, thus barring a subsequently filed

foreclosure action. We hold that it does not.

I.

-1- -2- No. 4

As a result of the “Great Recession” of 2007-2009, an estimated 6 million

Americans lost their homes (Tomasz Piskorski & Amit Seru, Debt Relief and Slow

Recovery: A Decade After Lehman, Working Paper 25403, National Bureau of Economic

Research [December 2018], available at https://www.nber.org/papers/w25403 [last

accessed Jan. 17, 2023]). In the midst of that crisis, both chambers of the New York State

Legislature voted unanimously to enact Governor Paterson’s Program Bill (2008 NY

Senate Bill S 8143-A, enacted as L 2008, ch 472), a portion of which is codified in

RPAPL 1304. Section 1304 (1) requires a “lender, assignee, or mortgage loan servicer” to

send a notice 90 days before it may “commence[ ] legal action against [a] borrower.” That

notice “shall include” several pages of specific text set out in that subdivision. The

prescribed template requires the lender to fill in certain information, including:

• How many days the borrower is in default;

• The total amount of the missed payments, penalties, and interest;

• A list of [five] government-approved housing counseling agencies in the borrower’s area that provide free counseling, along with the explanation that the counselors are trained to help homeowners who are having problems making their mortgage payments;

• An encouragement to take immediate steps to try to achieve a resolution, with the disclaimer that the lender cannot assure a mutually agreeable resolution is possible;

• A warning that if the borrower fails to act within 90 days (or sooner if the borrower ceases to live in the home as the borrower’s primary residence), the lender may commence legal action;

-2- -3- No. 4

• A notification that the borrower has the right to remain in the home until the borrower receives a court order requiring the borrower to vacate; and

• A statement that the enclosure is not a notice of eviction (RPAPL 1304 [1]).

Section 1304 (2), added by the legislature in 2009 (see L 2009, ch 507, § 1-a), provides

that ‘the notices required by this section shall be sent . . . in a separate envelope from any

other mailing or notice.”1

Section 1304 was enacted to address the pre-foreclosure “lack of communication”

between borrower and lender, which “often leads to needless foreclosure proceedings in

cases where a foreclosure alternative might otherwise have been possible” (Senate

Introducer’s Mem in Support, Bill Jacket, L 2008, ch 472 at 10). The Senate Sponsor

further explained that the required 90-day notice “urges borrowers to work with their lender

or a housing counseling agency to address their situation,” so as to “provide an opportunity

for borrowers and lenders to try to reach a solution that avoids foreclosure” (Letter from

Senator Hugh T. Farley to Kristin Rosenstein, July 31, 2008, Bill Jacket, L 2008, ch 472 at

6). However, section 1304 was not intended to extinguish a lender’s right to foreclose: “if

the borrower is unable to reach resolution with the lender in the prescribed time, the lender

will have the opportunity to pursue legal action against the borrower” (id.).

1 That language was added by the legislature in 2009 as part of legislation whose principal change was to expand the borrower protections of the 2008 law from only subprime home loans to all home loans. -3- -4- No. 4

In 2009, Mr. Kessler obtained a loan secured by a mortgage on his home. 2 In

September 2013, he defaulted on the loan, and has made no payments on it since.

Following his default, Bank of America sent a notice to Mr. Kessler pursuant to RPAPL

1304. It is undisputed that Mr. Kessler received a seven-page notice containing all of the

language required by the statute. However, the last page of the notice included the

following language, not found in section 1304:

“Bank of America, N.A., the servicer of your home loan, is required by law to inform you that this communication is from a debt collector.3

“If you are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, this notice is for information only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. You are not obligated to discuss your home loan with us or enter into a loan modification or other loan-assistance program. You should consult with your bankruptcy attorney or other advisor about your legal rights and options.

“MILITARY PERSONNEL/SERVICEMEMBERS: If you or your spouse is a member of the military, please contact us immediately. The federal Servicemembers Civil Relief Act and comparable state laws afford significant protections and benefits to eligible military service personnel, including protections from foreclosure as well as interest rate relief. For additional information and to determine eligibility please contact our Military Assistance Team toll free at 1-877-430-

2 The mortgage was originally executed in favor of MLD Mortgage, Inc., and was later assigned to Bank of America. 3 Mr. Kessler challenges neither the inclusion of this sentence, although it does not comprise part of the required statutory language, nor the minor variations Bank of America made to the statutory language—an inconsistency his argument for a bright-line rule fails to address and an implicit acknowledgement that some changes will not void the notice. -4- -5- No. 4

5434. If you are calling from outside the U.S., please contact us at 1-817-685-6491.”

In 2017, Bank of America moved for summary judgment against Mr. Kessler. Mr.

Kessler cross-moved to dismiss, arguing that the inclusion of the final two paragraphs in

his notice, addressing bankruptcy status and military membership, violated section 1304’s

“separate envelope” provision. Supreme Court agreed and dismissed the complaint (see

2017 NY Slip Op 33343[U] [Sup Ct. Westchester County 2017]). The Appellate Division

affirmed on the same ground, holding that including in the envelope sent to the borrower

any language not required by the statute violates its separate envelope provision (see 202

AD3d 10 [2d Dept 2021]). The Appellate Division granted leave to appeal and certified

the question of whether its order was properly made (see 2022 NY Slip Op 66274[U] [2d

Dept 2021]).4

II.

On this appeal, Bank of America challenges only the acceptance of the RPAPL 1304

defense by the courts below. In interpreting any statute, “our goal is to give force to the

intent of the legislature and we therefore begin with the plain text—the clearest indicator

of legislative intent. In a manner consistent with the text, we may look to the purpose of

the enactment and the objectives of the legislature. We must also interpret a statute so as

4 Because Supreme Court does not appear to have resolved defendant’s request for attorney’s fees, we treat that order as nonfinal and therefore deem it necessary to answer the Appellate Division’s certified question (see NY Const, art VI, § 3 [b] [4], [5]; CPLR 5602 [b] [1]). -5- -6- No. 4

to avoid an unreasonable or absurd application of the law” (see Lubonty v U.S. Bank N.A.,

34 NY3d 250 [2019] [internal quotation marks and citations omitted]).

The operative statutory language here contains two requirements: (1) the notice

“shall include” the specified language and information; and (2) the notice must be sent “in

a separate envelope from any other mailing or notice” (RPAPL 1304 [1], [2]). As to the

first requirement, subdivision (1) does not say that the notice must state only the cautionary

language set forth in the statute, but rather that the notice “shall include” that language.

Where the “natural signification of the words employed” “ha[s] a definite meaning, which

involves no absurdity or contradiction, there is no room for construction and courts have

no right to add or take away from that meaning” (Tompkins v Hunter, 149 NY 117, 122-

123 [1896]). The word “include” suggests that more can be added to the notice. As we

explained in Red Hook Cold Stor. Co. v. Department of Labor of State of N.Y., “

‘[i]ncluding’ may be used to bring into a definition something that would not be there

unless specified, or it may be used to show the meaning of the defined word by listing some

of the things meant to be referred to, but not by such listing excluding others of the same

kind” (295 N.Y. 1, 8 [1945]). Here, the notice indisputably contains all of the mandatory

language set forth in the version of section 1304 (1) in effect at the time Bank of America

commenced this action. The statute says that the notice “shall include” certain information;

the notice here does so.

The question then is the constraint imposed by the requirement that the envelope

not contain “any other mailing or notice.” The bright line rule adopted by the lower courts

effectively defines “any other mailing or notice” as “any additional material or information

-6- -7- No. 4

whatsoever.” Although it might be possible to read “other notice” as the lower courts did—

such that any deviation from the statutory language, however minor, would void the

notice—that interpretation would stand in great tension with “shall include,” a phrase that

contemplates the addition of something else. The statute must be given “a sensible and

practical over-all construction, which . . . harmonizes all its interlocking provisions”

(Matter of Long v Adirondack Park Agency, 76 NY2d 416, 420 [1990]). Application of a

bright line rule here would require the use of a highly constrained definition of “other,”

where it is more appropriately read to mean mailings or notices “of a different kind.” Here,

“other mailing or notice” more aptly refers other kinds of notices, such as pre-acceleration

default notices, notices disclosing interest rate changes to borrowers with adjustable-rate

mortgages (12 CFR 1026.20 [c]), monthly mortgage statements (12 CFR 1026.41), or

notices disclosing to the borrower a transfer of the loan servicer (12 CFR 1024.33 [b]) (cf.

People v First Meridian Planning Corp., 86 NY2d 608, 619 [1995] [rejecting a narrow

interpretation of “other securities” when such a reading “would conflict with the general

remedial purposes of the securities laws”]).

A bright-line rule would also lead to nonsensical results. For example, had Bank of

America sent the required statutory language verbatim, but added, “THIS IS

EXTREMELY IMPORTANT, PLEASE PAY ATTENTION!”, a bright-line rule would

require that the notice be deemed void and the foreclosure action dismissed. Indeed, Mr.

Kessler’s failure to challenge either the inclusion of the Fair Debt Collection Practices Act

(FDCPA) disclaimer or the minor variations in the statutory language (discussed supra n

-7- -8- No. 4

3) stands as a tacit recognition that the notice need not consist exclusively of the statutory

text.

More importantly, to the extent there is any ambiguity about how to interpret the

statute, application of a bright-line rule would contravene the legislative purpose. RPAPL

1304 is a remedial statute that should be read broadly to help borrowers avoid foreclosure.

In expanding the protections of RPAPL 1304 to all home loans, the legislature sought to

reduce the number of foreclosures by allowing the parties to “attempt to work out the

default ‘without imminent threat of a foreclosure action’ ” (CIT Bank N.A. v Schiffman, 36

NY3d 550, 555 [2021], quoting Governor’s Program Bill Mem No. 46R, Bill Jacket, L

2009, ch 507 at 10; see also Letter from Mayor of City of NY, Nov. 20, 2009, Bill Jacket,

L 2009, ch 507 at 13 [noting that the bill was a “significant reform in ensuring that

homeowners and tenants are aware of their rights upon being faced with the threat of

foreclosure”]). Prohibiting lenders from concisely informing borrowers of additional

rights they may have to avoid foreclosure is manifestly at odds with that purpose.

Thus, we hold that accurate statements that further the underlying statutory purpose

of providing information to borrowers that is or may become relevant to avoiding

foreclosure do not constitute an “other notice.” The statutorily required language informs

borrowers that they are at risk of losing their homes because they are in default. It warns

them that the lender may commence foreclosure proceedings if they fail to take any action

to resolve the default within ninety days. It assures them that they have the right to remain

in their home until they receive a court order telling them to leave the property. It provides

them with the contact information for housing counseling agencies. The subject matter of

-8- -9- No. 4

the mandated language is thus a disclosure to the borrower of 1) the possibility of

foreclosure, 2) the borrower’s rights, and 3) the options available to the borrower to attempt

to remedy the situation. That language serves the express statutory purpose of providing

borrowers with information that may help them avoid foreclosure during a 90-day window

established by that statute.

Here, the additional two paragraphs are directly related to the notice’s subject matter

and further the statutory purpose by informing certain borrowers of additional protections

they may have beyond those identified in the statutory notice language. The paragraphs

relate to and supplement the statutory language as applied to two distinct groups of

borrowers, and thus make most sense and are most helpful when read together with the

notice. In addition, the paragraph relating to bankruptcy proceedings may be particularly

useful to avoid confusing borrowers who are subject to the automatic stay in bankruptcy

court and to avoid potential violation of such stays by the lender (see In re Ho, 624 B.R.

748, 752-753 [Bankr ED NY 2021] [holding bankruptcy disclosure a relevant factor in

determining 90-day notice did not violate an injunction against proceeding against

discharged debt]). The added language is specifically directed at that concern: it states that

if the borrower is in bankruptcy, the section 1304 notice “is for information only and is not

an attempt to collect the debt, a demand for payment, or an attempt to impose personal

liability for that debt.” It thus functions as both a protection for lenders and an explanation

to borrowers of additional rights they may have. Moreover, a bright-line rule against any

additional language in the same envelope could conflict with certain disclosure

requirements under federal law (see e.g. CIT Bank, N.A. v Neris, 2022 WL 1799479, 2022

-9- - 10 - No. 4

US Dist LEXIS 99040 [SD NY, June 2, 2022, 18 Civ. 1551 (VM)]; see also supra n 3,

discussing the inclusion of an FDCPA warning in the notice at issue here).

III.

The Appellate Division’s concern that a case-by-case analysis of section 1304

notices would involve “exactly the type of judicial scrutiny” of mortgage foreclosure

correspondence that we rejected in Freedom Mtge. Corp. v Engel (202 AD3d at 17, citing

37 NY3d 1 [2021]) is misplaced.5 In Engel, we held that acceleration of the mortgage debt

is revoked by a voluntary discontinuance of a foreclosure action; we adopted that bright-

line rule to avoid “an exploration into the bank’s intent, accomplished through an

exhaustive examination of post-discontinuance acts” (id. at 30). Determining whether

additional language in a section 1304 notice is permissible requires no examination of

intent or extrinsic evidence, but rather an objective facial determination of the language’s

relevance, truth, falsity, or potential to mislead or confuse.

By contrast, in CIT Bank N.A. v Schiffman, we held that lenders could prove mailing

of a section 1304 notice by submitting either evidence of actual mailing or “proof of a

sender’s routine business practice with respect to the creation, addressing, and mailing of

documents of that nature” (36 NY3d at 556). Instead of a bright-line rule, we adopted “a

workable rule that balances the practical considerations underpinning the presumption

[established by proof of a sender’s routine business practice] against the need to ensure the

5 For reasons unrelated to those before us now, Engel was recently legislatively overruled (see L 2022 ch 821 § 8-e). - 10 - - 11 - No. 4

reliability of [that practice] . . . in the context of notices mailed pursuant to section 1304”

(id. at 558).

Consistent with our approach in Schiffman, we hold that section 1304 does not

prohibit the inclusion of additional information that may help borrowers avoid foreclosure

and is not false or misleading. This is a workable rule that balances the practical

considerations of the lender and borrower in a way that best advances the clear statutory

purpose. Where a lender includes false, misleading, obfuscatory, or unrelated information

in the envelope together with the 1304 notice, courts may void such notices. But where,

as here, the additional information was not false, misleading, obfuscatory, or unrelated, it

should not render the notice void. A bright-line rule would be both unfair and contrary to

the statutory purpose, as it would deprive borrowers of information that could help them

avoid foreclosure and penalize lenders who attempt to ensure their customers are better

informed. It could also result in windfalls to borrowers resulting from clerical errors and

bona fide attempts by lenders to assist borrowers in avoiding foreclosure.

Accordingly, the order of the Appellate Division insofar as appealed from should

be reversed, with costs, defendant Andrew Kessler’s motion for summary judgment

dismissing the complaint as against him denied, plaintiff’s motion for summary judgment

granted in accordance with this opinion, case remitted to Supreme Court for further

proceedings, and certified question answered in the negative.

Order insofar as appealed from reversed, with costs, defendant Andrew Kessler's motion for summary judgment dismissing the complaint as against him denied, plaintiff's motion for summary judgment granted in accordance with the opinion herein, case remitted to

- 11 - - 12 - No. 4

Supreme Court, Westchester County, for further proceedings, and certified question answered in the negative. Opinion by Judge Wilson. Acting Chief Judge Cannataro and Judges Rivera, Garcia, Singas and Troutman concur.

Decided February 14, 2023

- 12 -