The appellate court unwound the whole chain - sale order and all
New York's Appellate Division reversed a U.S. Bank foreclosure after finding the lender never proved it followed a key HUD rule before accelerating the debt.
The Second Department's decision, handed down October 7, unwound an entire foreclosure chain in Nassau County - summary judgment, a referee's report, and a sale order - all because U.S. Bank National Association could not show it had complied with, or was exempt from, a federal regulation requiring a meeting with the borrower before acceleration.
The loan dates back to 2009, when the borrower executed a note in favor of Ameritrust Mortgage Bankers, Inc., secured by a mortgage on Nassau County property. The mortgage agreement itself contained a built-in safeguard, stating that it "does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary [of Housing and Urban Development]." U.S. Bank, as Ameritrust's successor in interest, commenced foreclosure in December 2019.
The borrower flagged the issue from the start. In his answer, he argued the lender never conducted the meeting required by 24 CFR 203.604 - a HUD regulation that, in practice, requires a face-to-face interview with the borrower before the lender can accelerate the debt.
The lower court was not persuaded. In May 2023, the Supreme Court, Nassau County, granted U.S. Bank summary judgment - a ruling without a full trial - struck the borrower's answer, and appointed a referee to calculate what was owed on the note. The court then confirmed the referee's report in August 2024, and a judgment of foreclosure and sale was entered the following month, directing the property sold.
The appellate panel saw it differently. All four justices found the borrower's defense was properly pleaded under CPLR 3015(a), New York's rule requiring affirmative defenses to be stated with particularity. The key finding: U.S. Bank "failed to establish that it complied with that regulation or that it was exempt from complying with it."
The reversal sent the case back to the lower court with the borrower's answer reinstated.
For servicers and lenders, the takeaway is documentation. The burden of proving compliance with 24 CFR 203.604 sits on the lender, not the borrower - and a foreclosure built without that proof, even one that has already reached a sale order, will not survive appeal.
