This piece originally appeared in the April 2022 edition of DS News magazine, online now.
The hardship stays provided under New York’s COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (EEFPA) officially ended on January 15, 2022. The EEFPA was the legislature's response to protect New Yorkers affected by a financial hardship caused by the COVID-19 pandemic from the threat of immediate foreclosure or eviction. The EEFPA provided a mandatory stay of any foreclosure or eviction proceeding in which a borrower or homeowner filed a hardship declaration with the court. The EEFPA protections initially took effect on December 28, 2020, were extended by Governor Cuomo in May 2021, and were further extended by the legislature in September 2021. Despite calls for an extension of the hardship stays and protests by housing groups in Albany, the last extension expired on January 15, 2022.
In response to the expiration of the hardship stay, New York’s Office of Court Administration (OCA) issued a memorandum to judges and non-judicial staff along with Administrative Order 35/22 on January 17, 2022, permitting—for the first time in the almost 22 months since the pandemic began—residential and commercial mortgage foreclosure proceedings to “resume in the normal course.” On this same date, the court issued a separate memorandum together with Administrative Order 34/22, addressing residential and commercial eviction proceedings and directing that these too “may proceed in the normal course.”
What Does This Mean for Lenders, Mortgage Servicers, and Landlords?
The practical impact of the hardship stay's expiration is that the courts can now begin processing all active foreclosure and eviction matters, including:
- Deciding motions that are fully briefed and were previously submitted to the court for a decision
- Scheduling oral arguments or issuing briefing schedules for motions that have not yet been submitted to the court for a decision
- Scheduling foreclosure settlement conferences pursuant to Civil Practice Law and Rules (CPLR) § 3408
- Scheduling conferences for the issuance of warrants of eviction and scheduling foreclosure sales
- Scheduling execution of warrants of possession/lockouts
With the expiration of the hardship stay, COVID-19 conferences will no longer be held. Instead, these will be replaced by status conferences to determine the procedural status of the action and, where required, CPLR § 3408 conferences.
Post-EEFPA Assistance Available for Borrowers and Tenants
Despite the expiration of the hardship stays under the EEFPA, financial assistance is available for both homeowners and tenants who were financially affected by the COVID-19 pandemic. In December 2021, Governor Hochul announced the creation of a $539 million fund to help assist homeowners facing foreclosure. New York’s Homeowner Assistance Fund (NYHAF) aims to assist homeowners who are behind at least 30 days on their mortgage payments, property taxes, condo fees, or co-op fees. The application process opened on January 3, 2022, and applications were accepted on a first-come, first-served basis for a period of 30 days. The application process for NYHAF is currently closed, but a waiting list has been established for interested applicants.
Under NYHAF, the property that secures the borrower’s delinquent mortgage must be the borrower’s primary residence and the borrower’s income cannot exceed the average household median income for the county in which the property is situated. Qualified borrowers may be eligible for a five-year forgivable grant up to a maximum of $50,000 that can be used for both delinquent and future housing payments.
For tenants, the COVID Emergency Rental Assistance Program (ERAP) started taking applications for rental assistance on June 1, 2021. ERAP was projected to provide up to $2.7 billion in emergency assistance to tenants impacted by the pandemic. As of this writing, funding under ERAP has been exhausted in most of the counties in New York, with the exception of Nassau and Suffolk counties. Tenants approved under ERAP could receive up to 12 months of rental arrears payments, up to three months of additional rental assistance, or up to 12 months of utility arrears payments. Funds for approved applications are paid directly to the landlord or utility company on the tenant’s behalf.
Stays Available During Application Review
As noted by Chief Administrative Judge Lawrence P. Marks in his January 17, 2022, foreclosure and eviction memorandums, homeowners and tenants may still be entitled to a stay of proceedings while applications submitted under NYHAF and ERAP are pending review. In foreclosure proceedings, we expect homeowners with pending NYHAF applications to request continuations of settlement conferences or adjournments of pending motions.
As with foreclosures, there is still protection in place for tenants facing eviction under the Tenant Safe Harbor Act (TSHA) ERAP so long as the tenant meets the requirements thereunder. As described in Administrative Order 34/22, the TSHA extends the moratorium on evictions of residential tenants with a COVID-19-related hardship during the “COVID-19 covered period,” which ran from March 7, 2020, until January 15, 2022. Under the TSHA, “no court shall issue a warrant of eviction or other possessory judgment against a residential tenant that has suffered a financial hardship during the COVID-19 covered period for non-payment of rent.” A tenant may raise financial hardship under the covered period as an affirmative defense in any summary proceeding under Article 7 of the Real Property Actions and Procedures Law (RPAPL) dealing with repossession.
Under the TSHA, a court may further award a money judgment for the rent due and owed to a successful petitioner in a RPAPL Article 7 summary proceeding.
ERAP also remains in effect despite expiration of the EEFPA, and eviction matters with pending ERAP applications continue to be stayed until a final determination of eligibility for rental assistance is issued by the Office of Temporary and Disability Assistance (OTDA), including exhaustion of the appeals process. ERAP requires landlords to submit notice of a known ERAP application to the court where the eviction proceeding is pending in accordance with prior Administrative Order 244/21.
Lenders and landlords can challenge individual requests for stays under NYHAF and ERAP, as not all cases will be entitled to a stay. Whether an individual is entitled to a stay under NYHAF or ERAP is highly fact specific. For example, a stay under ERAP should not apply to holdover (non-payment) proceedings, such as post-foreclosure eviction proceedings, where no landlord-tenant relationship exists.
Similarly, ERAP does not apply if a tenant intentionally causes damage to the property or persistently and unreasonably engages in objectionable or nuisance behavior.
While both foreclosure and eviction proceedings are now allowed to proceed, continuing delays are expected based upon the sheer volume of active cases pending before the courts. At a brown bag conference held earlier this month, some state court judges reported more than 2,600 active matters pending before their part. Because many foreclosure and eviction matters have been stayed or stagnant since the beginning of the COVID-19 pandemic, foreclosure counsel should be proactive and diligent in getting matters back on the courts’ active calendars, requesting that aged motions be decided, and getting conferences scheduled so that foreclosure and eviction actions can proceed.
In moving these matters forward, mortgage servicers should be aware of recent significant changes in the applicable case law while the pandemic hardship stays were in effect, specifically those affecting the statute of limitations and the Second Department’s recent interpretation of the RPAPL § 1304.
Key considerations for triaging a loan should include:
- The current stage of the proceedings
- Whether the matter is contested or uncontested
- The date of default
- A review of any claims raised in the action
- Whether statute of limitations issues exist
Where Does the Case Law Lead?
Many loans are affected by the decisions rendered by the New York Appellate Division for the Second Department in Bank of America v. Kessler, 2021 N.Y. Slip Op. 06979 and Citimortgage v. Dente, 2021 N.Y. Slip. Op. 07538. In Kessler, the Second Department examined the statutory intent and language of RPAPL § 1304(2), which requires that the statutorily mandated 90-day notice be sent in a “separate envelope from any other mailing or notice.” In affirming the trial court’s dismissal of the foreclosure action where the 90-day notices included an additional “disclosure” sheet notifying the borrower of additional rights under the Servicemembers Civil Relief Act (SCRA) and Fair Debt Collection Practices Act (FDCPA), the Appellate Division created a “bright-line rule” that the inclusion of any additional material with the 90-day notice violates the “separate envelope” requirement of RPAPL § 1304. The Second Department subsequently expanded its decision in Dente when it reversed a foreclosure judgment finding that the inclusion of a FDCPA disclosure at the top of the 90-day notice constituted a violation of RPAPL § 1304.
It’s important to note that non-compliance with RPAPL § 1304 is a defense which may be raised by a borrower in foreclosure proceedings at any time prior to the entry of a final judgment of foreclosure and sale.
Because a proper 90-day notice is a condition precedent for foreclosure, where it is found that the 90-day notice is defective that case is subject to dismissal.
For loans that are not time-barred, mortgage servicers can take advantage of the landmark decision rendered by the New York Court of Appeals last year in Freedom Mortgage Corporation v. Engel, 37 N.Y.3d 1 (2021). In Engel, the Court of Appeals determined that a voluntary discontinuance, occurring within the six-year statute of limitations, constitutes an affirmative act of revocation. The decision in Engel was a win for the servicing industry in that the Court of Appeals rejected the line of Appellate case law that held that a voluntary discontinuance was insufficient to establish a revocation of a prior acceleration where the discontinuance did not indicate that the lender would accept installment payments from the borrower.
The Court of Appeals has now adopted a “clear rule” that where an acceleration of the loan occurred by virtue of the filing of a complaint in a foreclosure action, the noteholder’s voluntary discontinuance of that action within the six-year statute of limitations alone is sufficient to de-accelerate a loan.
In response to Engel, two anti-Engel bills were introduced into New York’s Legislature [NYS Senate bill (S. 5473) and NYS Assembly bill (A. 7737)]. These bills seek to overturn the effect of Engel by limiting lenders’ ability to recommence a foreclosure action if a prior action is determined to be defective or subject to dismissal by altering lenders’ rights afforded under the CPLR and RPAPL. Such amendments, if passed, would leave lenders little protection in the collection of defaulted mortgage debt or recovery of mortgaged property. Mortgage servicers should track the progress of these bills and the interplay with Engel in assessing whether a foreclosure action may be time-barred and when developing strategies for affected loans.
While there have been many changes since the enactment and expiration of the EEFPA, and while borrowers and tenants are still afforded some protection under NYHAF, TSHA, and ERAP, one thing is certain: foreclosure and eviction proceedings are finally allowed to proceed in New York.