First Department Holds Mortgagor That Sold Property During Foreclosure Has Standing to Raise RPAPL 1304 Defense Because He May Be Liable For Deficiency

By: Jonathan H. Freiberger

On numerous occasions, this Blog has addressed issues related to RPAPL 1304. See, e.g., [here] and [here].

By way of brief background as discussed in prior articles, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”. CIT Bank N.A. v. Schiffman, 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted).

The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint. See, e.g., U.S. Bank N.A. v. Beymer, 161 A.D.3d 543 (1st Dept. 2018). Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.” U.S. Bank N.A. v. Taormina, 187 A.D.3d 1095, 1096 (2nd Dept. 2020) (citations omitted); see also Nationstar Mortgage, LLC v. Owens, 247 A.D.3d 1204, *3 (2nd Dept. 2026). When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case. Bank of America, N.A. v. Wheatly, 158 A.D.3d 736, 737 (2nd Dept. 2018) (citations omitted); see also Wells Fargo Bank, N.A. v. Cascarano, 208 A.D.3d 729, 730 (2^nd Dept. 2022). In Wells Fargo Bank, N.A. v. Davidson, 202 A.D.3d 880 (2^nd Dep’t 2022), in reversing a judgment of foreclosure and sale and granting summary judgment to the borrowers, the Court stated that “[c]ontrary to the [lender’s] contention, the [borrowers] did not waive their contention that the [lender] failed to comply with RPAPL 1304 as a defense based on noncompliance with RPAPL 1304 may be raised at any time prior to the entry of a judgment of foreclosure and sale.” Davidson, 202 A.D.3d at 882 (citations, internal quotation marks and brackets omitted); see also U.S. Bank Nat. Ass’n v. Zakarin, 208 A.D.3d 1275, 1277 (2nd Dept. 2022). 

Standing is also an issue often litigated in foreclosure actions.[1] Generally speaking, “[s]tanding involves a determination of whether the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. Graziano,v. County of Albany, 3 N.Y.3d 475, 479 (2004) (citations, internal quotation marks and brackets omitted). Put another way, “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant's request.” Caprer v. Nussbaum, 36 A.D.3d 176, 182 (2nd Dept. 2006). The issue of standing is frequently litigated in foreclosure actions because of the frequency with which notes and mortgages are sold, assigned or otherwise transferred. As a result of these transfers, the foreclosing plaintiff frequently does not have the necessary documentation to demonstrate that it is the holder of the note. Thus, litigation often relates to the foreclosing mortgagee’s standing to commence a foreclosure action.

Sometimes, however, standing issues relate to the mortgagor’ ability to assert a claim or raise an argument – as is the case in Nationstar Mortgage LLC v. Vassi, the subject of today’s article. As an added bonus, Nationstar also involves RPAPL 1304.

For the most part, the facts in Nationstar are routine. The lender commenced a mortgage foreclosure action in 2012. In July of 2017, the motion court issued an order granting lender’s unopposed motion for summary judgment. In January of 2025, the borrower transferred his interest in the subject property to a distressed property buyer (the “Transferee”). After three prior unsuccessful attempts, the lender filed a fourth motion to confirm the referee’s report and for a judgment of foreclosure and sale. In opposition to the lenders motion, the borrower (who no longer owned the subject property) argued that the Lender failed to comply with RPAPL 1304. The borrower also cross-moved for an order tolling interest.[2] In opposition to the borrower’s arguments related to non-compliance with RPAPL 1304, the lender argued that the borrower lacked standing to raise such issues because he no longer owned the subject property. The motion court agreed, noting that, as a result of the transfer, the borrower’s argument was “‘entirely defective’”.

On appeal, the First Department held that “the [motion] court erroneously held that [the borrower] was divested of standing to challenge [lender]'s fourth motion and raise the defense of [lender]'s noncompliance with RPAPL 1304. Nevertheless, we affirm on the merits.” As to standing, the Court stated that “[n]otwithstanding [borrower]'s transfer of his interest in the mortgaged property to [the Transferee], [borrower] retained his standing to challenge the judgment of foreclosure and sale because he remains a defendant in the foreclosure action and is potentially liable for a deficiency judgment.” (Footnote omitted.) Indeed, the Court in Nationstar was moved by the following facts: the lender did not waive its right to seek a deficiency judgment under RPAPL 1371 against borrower; the lender sought a deficiency judgment against the borrower in its complaint; the judgment of foreclosure and sale provided for a deficiency judgment; and, because the subject property had not yet been sold, “a deficiency judgment remains a possibility given that a plaintiff has 90 days from the sale of the property to make a motion for a deficiency judgment before losing that right (see RPAPL 1371 [2], [3]).”

The Court also noted that it “is well settled that a defendant lacks standing to defend the action where it transfers the mortgaged property to a third party during the foreclosure action and the plaintiff waives its right to a deficiency judgment.” (Citations omitted; emphasis in original.) Further, because the borrower “is subject to a potential deficiency judgment and is a debtor on the underlying mortgage, he has an interest in defending the action notwithstanding that he transferred the mortgaged property to [the Transferee] and as a result, no longer has the right to redeem the property.”[3]

While the Court concluded that the borrower has standing to defend the action, it concluded that the borrower’s RPAPL 1304 arguments failed on the merits because the evidence established compliance with the font size and mailing requirements.

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] This BLOG has written on standing in mortgage foreclosure actions. See, e.g., [here] and [here].

[2] This BLOG has written on the tolling of interest in mortgage foreclosure actions. See, e.g., [here].

[3] This BLOG has previously addressed redemption rights. See, e.g., [here].