‘Foreclosure Abuse Prevention Act’ awaits New York Governor’s signature

Homeowners in New York who are knee-deep in foreclosure litigation may soon get a break as a bill making its way to Governor Kathy Hochul’s desk could acquit a slew of foreclosure cases pending before the courts. state and appellate courts.

If Hochul signs the bill as is, the statute of limitations for a lender to bring a foreclosure action will be reduced to six years, as it was before the 2021 Court of Appeals ruling in Freedom Mortgage Corporation v Engel.

The bill, dubbed the “Foreclosure Abuse Prevention Act,” navigated by the New York Senate in a 52-10 vote last week. In March, the Assembly version of the bill passed 107-40.

But people familiar with the matter say there could be revisions to the bill, in part because mortgage industry stakeholders have stepped up efforts to lobby against the legislation.

The bill is expected to be signed in early June, but the process could drag on until the end of the year.

The Engel case established that a lender operating in New York has six years to file a foreclosure action, but if the action is denied for any reason, a lender can slow down a loan and then reinitiate a foreclosure action. later.

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The law project – sponsored by Senator James Sanders – claims the Engel case gave lenders and servicers the “ability to unilaterally manipulate, stop, halt and restart the statute of limitations at will”. Sanders did not immediately respond to requests for comment.

The bill claims that following the Engel decision, lenders and servicers “bombarded” the courts to reopen foreclosure cases that were previously barred by the statute of limitations.

Jacob Inwald, Director of Foreclosure Prevention at Legal Services NYCsaid that despite only being in effect for about a year, Engel has effectively allowed lenders to bring “old cases back from the dead.”

Examples of such cases, he said, are banks that first started in 2007 and 2008 but ended up quitting “because they couldn’t comply with New York laws governing the portfolio or that they could not prove their foreclosure cases where they had other fatal flaws. “The Engel ruling has allowed the banks to revive these cases.

For borrowers whose foreclosure cases have been reopened, it’s especially “glaring because with each passing month, interest, late fees and attorney fees add to their debt load,” Inwald said.

If Hochul signed the current version of the bill, cases opened as a result of Engel — and for which the statute of limitations has otherwise expired — would be those dismissed under the new law.

Brian McGrath, Partner at Hinshaw and Culbertsona law firm that represents financial institutions, said while some cases have been reopened, it has not seen a large influx.

“There are a number of loans and cases where the Engel decision has brought clarity and allowed the parties to refocus the legal arguments and bring this litigation to a conclusion on the merits,” McGrath said. “I haven’t seen any data to suggest there was any kind of bombardment of the courts with old records raised from the dead.”

McGrath said some lenders, service providers and secondary market investors have threatened to cease operations in New York if the legislation is passed as is.

“Investors buying loan pools – this will be the first domino we see falling in New York,” McGrath said. “The implication of that is that it becomes riskier for lenders to originate loans in New York because that secondary market where they can then offload those loans and offload the risk on those loans will start to shrink.”

The Engel decision didn’t necessarily change the law, it clarified “contractual rights to take out a loan and accelerate it, and then take out an accelerated loan and reinstate it,” according to McGrath.

“The ruling simply clarified how it should be done, fairly and evenly across the state,” McGrath said. “Thus, this law would potentially deprive a borrower and the bank’s ability to collectively agree to terminate a foreclosure and reset the statute of limitations by placing a loan in installments.”

If the governor signs the bill as is, McGrath warned, it could affect underwriting criteria for borrowers, as well as the number of options consumers have for obtaining financing in New York State.

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