Berkman, Henoch, Peterson, Peddy & Fenchel, P.C.

Lender and Servicer Alert

By Bruce J. Bergman
June 1st, 2012

ALERT
MORE NEW FORECLOSURE LAWS: ATTORNEY
CERTIFICATE OF MERIT
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 section (3012-b) to New Yorks practice statute (the
CPLR) 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 plaintiffs standing to bring the action and to so certify in a
certificate executed by the attorney, 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 and confusion to the process.

UNCERTAIN REQUIREMENTS
The certificate mandate applies solely to a home loan (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) is a resident of the
property.

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 this is not true and so determining with
precision whether the situation meets the mandate to file the certificate will
sometimes, perhaps often, 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 review of the facts of the case and that based upon consultation with
authorized representatives (suggesting it has to be more than one person,

although who precisely is authorized may be uncertain) 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 characterized 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.

First, the review has to be of pertinent documents. While we then know

what it is defined as being included, it is not at all clear that pertinent
documents is limited to the items delineated. Can an attorney review 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 recitation of security agreement. What that is supposed to be is
likewise uncertain. A mortgage is often thought of and indeed denominated also
as a security agreement. But the suggestion of the statute is that there is some

separate document so denominated and what it may be is pointedly elusive. This

is certainly a problem.

Examination of the note or bond is required, understandably.

But not

infrequently a note can be lost. What is an attorney to say 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. The
mortgage contains a promise to pay and it would be possible to structure the
transaction with a mortgage, but without a note. So the statute doesnt 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 are well aware of an administrative order, circa 2010, requiring

an attorneys 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 the passage 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 not at all clear that the
statute in any way harmonizes its requirement with that of the administrative
order. This too is well worthy of attention.

Next, is a subdivision (d) providing that should a plaintiff willfully fail to

provide copies of the papers and documents required, and if a court finds that
those papers and documents (again what precisely are they?) ought to have been
provided, the court is empowered to deem the complaint an unverified pleading,
then subject to remedies of another rule (CPLR Rule 3022). But that other rule
provides that where a pleading is defectively verified, the court can treat it as a
nullity. However, as a matter of law, a foreclosure complaint need not be verified
so it is a non sequitur to declare that the court can treat the complaint as
unverified. Again, this is an area worthy of re-examination by the drafters.

WILL IT PASS?
Predicting political outcomes is never an easy task, but there are two
reasons why opining that this is likely to become law is not so trying. In no
particular order, the prevailing view is as stated in the memo in support of the bill.
There is a widespread belief that lenders are foreclosing mortgages they dont
own. Because this will help provide a remedy to that perceived problem, it is
likely to be viewed with favor by the legislature. Moreover, it is very difficult to

argue against a requirement which seems to be reasonable and fair. How could
one readily oppose care in examining documentation so that an action is properly
brought?

Of course, if the statute is laden with ambiguities and dangers, then it can
be readdressed to clear those up so that the resultant statute will be wiser and
more appropriate. Such changes may indeed be in order so that the statute to be
passed might be somewhat different from this current version. We will see what
the future holds.

Mr. Bergman, author of the three-volume treatise,

Bergman on New York Mortgage Foreclosures, LexisNexis
Matthew Bender (rev. 2012), is a partner with Berkman,
Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City,
New York. He is also a member of the USFN, The
American College of Real Estate Lawyers, The American
College of Mortgage Attorneys, an adviser to the New
York Times on foreclosure issues and writes a regular
servicing column for the MBAs Mortgage Banking
Magazine. He is AV rated by Martindale-Hubbell, his
biography appears in Whos Who In American Law and he
is listed in Best Lawyers In America and New York Super
Lawyers.

For further information on this subject, or to add a colleague to the alert list, contact
Bruce Bergman at the main phone number listed, directly at (516) 780-0324 or by e-mail
at b.bergman@bhpp.com.

Berkman, Henoch, Peterson, Peddy & Fenchel,

P.C.
100 Garden City Plaza
Garden City, NY 11530
Phone: (516) 222-6200
Fax: (516) 222-6209

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