Independence Bank v. Valentine, Appellate Division, Second Department 08136/2012

Must a CPLR 3408 settlement conference be conducted in an action to foreclose a mortgage on a primary residence where the mortgage collateralizes a personal guaranty of a commercial loan?  The Second Department has held no.

foreclosure imageIn this action, a corporation formed and owned by the defendant obtained a commercial loan to fund start-up costs of opening a Quizno’s Sub shop.  To obtain the loan, the defendant was required to personally guaranty the loan and collateralize that loan by giving a subordinate mortgage on her personal residence.  The business failed. The lender, attempting to collect on the guaranty, commenced a mortgage foreclosure action. When the lender moved for summary judgment, the defendant contended that summary judgment was premature as she had never received the opportunity to participate in a CPLR 3408 settlement conference.  The motion court granted the lender summary judgment and the defendant appealed.

The case turned on the correct interpretation of the relevant statutes.  CPLR 3408, the settlement conference statute, provides it applies to “any residential foreclosure action involving a home loan as such term is defined in section thirteen hundred four of the real property action and proceedings law, in which the defendant is a resident of the property subject to foreclosure.”  Real Property Actions and Proceedings Law section  1304 defines a “home loan” as one in which the borrower is a natural person who incurs the debt “primarily for personal, family or household purposes.”  The Second Department concluded that the borrower corporation was not a natural person and the loan’s purpose was to fund business start-up costs and was not incurred for “personal, family, or household purposes.”  Accordingly, the Second Department affirmed the motion court’s grant of summary judgment for the lender.

The Second Department wrote that “[w]hile it is unfortunate that here, a primary residence may be lost in foreclosure, not everyone under every circumstance is entitled to reap the protections afforded to victims of the mortgage crises by the New York Legislature pursuant to CPLR 3408.”  The lesson of Independence Bank v. Valentine, then, is that courts will interpret the statutes enacted in the aftermath of the mortgage foreclosure crisis according to their plain meaning.  The scope of relief available under those statutes is, accordingly, limited.