Client Advisory: Recent NY Legislation Affecting Mortgage Foreclosure Actions, Chapter 73 of the Laws of 2016
By: Carter Conboy
To our clients, holders and servicers of New York Residential Mortgage Loans: On June 23, 2016, Governor Andrew Cuomo signed into law Chapter 73 of the Laws of New York 2016. This new legislation amends the Real Property Actions and Proceedings Law (RPAPL) and Civil Practice Law and Rules (CPLR) relating to residential mortgage loan servicing and foreclosure. The changes will go into effect on December 20, 2016. The expanded maintenance and loss mitigation obligations imposed by this new legislation is certain to substantially increase the cost to mortgagees and servicers associated with residential mortgage loan servicing and mortgage foreclosure. Following is a summary of the major provisions of the new law.
A. Expanded Duty To Maintain Vacant and Abandoned Residential Property
A new Section 1308 was added to the RPAPL entitled "Inspecting, securing and maintaining vacant and abandoned residential real property." This section applies to first mortgage lienholders. State or federally chartered banks or credit unions that have a small market share (as defined by the statute) are exempted from the law.
Summary of New Law
- Duty To Inspect During Delinquency. The servicer (or mortgagee if the mortgagee services its own loans) must inspect the mortgaged premises within 90 days of a borrower's delinquency to determine whether the property is occupied. So long as the loan remains delinquent, the servicer must repeat the inspection every 25 to 35 days, at different times of the day.
- Duty To Post Notice. Within 7 days of determining the mortgaged premises is vacant or abandoned, the servicer must post a notice on the property providing contact information and stating that it is maintaining the property.
- Duty To Secure and Maintain. If there is no response to notice within 7 days and the servicer has a reasonable basis to believe the mortgaged premises is vacant or abandoned, the servicer must secure and maintain the property pursuant to the guidelines set forth in the statute.
- Protection of Mortgagor's Personal Property. The servicer may not remove personal property unless it poses a significant risk to health and safety, or if a government entity has ordered removal and such order has not been contested.
- Good Faith Immunity. A servicer who peacefully enters a vacant and abandoned property in order to comply with RPAPL 1308 shall be immune from liability when such servicer makes reasonable efforts to comply with RPAPL 1308.
- Enforcement. The superintendent of the Department of Financial Services (DFS) has the right to enforce violations of RPAPL 1308. Municipalities also have the right to enforce violations of RPAPL 1308, on written notice to DFS. If it appears by a preponderance of the evidence that a mortgagee or its agent has violated RPAPL 1308, the hearing officer or court may issue a civil penalty of up to five hundred dollars ($500.00) per day per property for violations.
- Potential Servicer Guideline Preemption. RPAPL 1308(10) provides that "The provisions of this section are subject to federal laws, court orders and investor and insurer guidelines.
B. Changes to Mandatory Foreclosure Settlement Conferences
Section 3408 of the CPLR was extensively amended to provide certain clarifications and to impose certain additional duties on foreclosing plaintiffs.
Summary of Changes
- Scope of Negotiations. Clarifies that the scope of negotiations should include loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option.
- Appearance by Defendant. Clarifies that the defendant must appear at the conference, and if the defendant is represented by counsel, the defendant’s representative must also appear.
- Plaintiff’s Duty to Submit Documents. It is now mandatory that the plaintiff submit: reinstatement and payoff amounts, payment history, copies of the note and mortgage, loss mitigation application forms and any other documents required by the presiding judge.
- Additional Duties When Loss Mitigation Application Pending. If the plaintiff is evaluating the defendant for loss mitigation at the time of the conference, it must submit a summary of status of the evaluation and a list of outstanding items. If the loss mitigation application is denied, the plaintiff must provide a written document providing an explanation for the denial, the values used in NPV evaluations (if applicable), and documentary evidence of any investor restrictions (if applicable).
- Determination of Good Faith. Compliance with the obligation to negotiate in good faith will be measured by a totality of the circumstances, including several enumerated factors, and sets forth a standard procedure by which this issue is to be adjudicated.
- Tough Sanctions for Plaintiffs. If the court finds that the plaintiff failed to negotiate in good faith, the court can: (1) toll accumulation of interests, costs and fees; (2) compel production of documents; (3) award actual damages, including attorneys’ fees and expenses; (4) assess a civil penalty not to exceed twenty-five thousand dollars ($25,000.00); and (5) any other relief the court deems proper.
- Nonexistent Sanctions for Defendants. If the court finds that the defendant failed to negotiate in good faith, the court “shall, at a minimum, remove the case from the conference calendar.”
- Defendant’s Automatic Extension to Answer. A defendant who do not serve an answer, but appears at the conference, has an automatic 30 day extension to file an answer to the complaint.
C. Changes to Pre-Foreclosure Notices
Sections 1303 and 1304 of the RPAPL were amended to add additional disclosures and impose certain additional duties on foreclosing plaintiffs.
Summary of Changes
- Right to Remain in Mortgaged Premises. The disclosures required by 1303 and 1304 were amended to provide language to the effect that the defendant has the right to remain in the mortgaged premises until the property is sold at auction.
- Duty To Mail to All Addresses of Record. It appears that the intention of the amendment to RPAPL 1304 was to require the RPAPL 1304 notice to be sent to the borrowers at any other address on record, in addition to mortgaged premises and last known address. However, it also appears that the applicable language was pasted into the wrong section of the statute.1
- Housing Counseling Agencies. The list of housing counseling agencies to be included with the RPAPL 1304 notice is to be taken from DFS, not from DHCR.
- Effect of Bankruptcy Filing. Clarifies that the 90-day waiting period of RPAPL 1304 shall not apply, or shall cease to apply, if the borrower has “filed for bankruptcy protection under federal law.” Regardless of whether the 90-day waiting period applies, the RPAPL 1304 notice must still be served.
- Cure and Re-Default Within 12 Months. If after an RPAPL 1304 notice is served, the debtor cures the default and re-defaults again, the plaintiff must serve a new RPAPL 1304 notice, even if it is within the same twelve month period.
- Non-English Speakers. For any borrower known to have limited English proficiency, the RPAPL 1304 notice must be in the borrower’s native language (or a language in which the borrower is proficient), provided that the language is one of the six most common non-English languages spoken by individuals with limited English proficiency in the state of New York, based on United States census data. The DFS shall post the notice(s) on its website in the six most common non-English languages spoken by individuals with limited English proficiency in the state of New York, based on the United States census data.
1 RPAPL 1304(1) was amended to provide that “. . . . . .Notwithstanding any other provision of law, with regard to a home loan, at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, or borrowers at the property address and any other address of record, including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower in at least fourteen-point type which shall include the following . . . . . .”
D. Expedited Application for Judgment of Foreclosure of Sale
New RPAPL 1309 allows a mortgagee to move for an immediate judgment of foreclosure and sale on the grounds the property is vacant and abandoned. While the stated intention of the statute is to expedite foreclosures, the costs associated with the additional disclosure, service and evidentiary requirements may limit the efficacy of this statute. Of particular concern is Section 1309(5)(a), which would preclude expedited relief for vacant and abandoned property if any defendant demonstrates “an intention to contest the foreclosure action.”
Summary of Procedural and Evidentiary Requirements
- The motion cannot be made until the defendant’s time to answer the complaint has expired. Also, the motion must be served on the defendant, regardless of whether the defendant has defaulted in appearance and pleading.
- The motion must be supported by an affidavit and other proof, including but not limited to:
- proof of ownership of the mortgage and the note.
- photographs evidencing that the subject property is vacant and abandoned.
- if available, utility company records or other documentation evidencing the vacant and abandoned status of the premises.
- the sums alleged to be due and owing upon the subject mortgage and note, including the current principal balance and a detailed and itemized account of each fee, each cost, and a calculation of interest accrued, supported by documentary evidence.
- The court will send a separate notice to the defendant letting them know that the plaintiff has filed an application to expedite the foreclosure and sale on the ground that the property is vacant and abandoned.
- The court may require the plaintiff to appear in court and provide testimony.
- The court must enter written findings of fact setting forth the following:
- The evidence relied upon by the court in finding that the property is vacant and abandoned.
- The evidence showing that the plaintiff is the owner and holder of the subject mortgage and note, or has been delegated the authority to institute a mortgage foreclosure action by the owner of same.
- The sums due and owing upon the subject mortgage and note after a review of the detailed and itemized account of each fee, each cost, and a calculation of interest accrued.
E. Statewide Vacant and Abandoned Property Electronic Registry
New RPAPL 1310 requires Department of Financial Services (DFS) to maintain a statewide vacant and abandoned property registry. DFS may adopt regulations regarding the manner and frequency of registration, as well as the information to be provided by the servicer or mortgagee. DFS must also establish a toll-free hotline for community residents to report vacant and abandoned properties.
F. Deadline to Conduct Foreclosure Sale Following Judgment
RPAPL 1351 was amended to provide that the foreclosure sale must occur “within ninety days of the date of the judgment.” It does not specify whether this means the date the judgment is executed or the date the judgment is entered. This will inevitably result in additional motion practice due to court delays and late bankruptcy filings.
G. Deadlines for Marketing REO Properties
RPAPL 1353 was amended to provide that if a plaintiff (or its affiliate) is the purchaser at the foreclosure sale, it must place the property back on the market for sale or occupancy within 180 days of the execution of the deed or within 90 days of the reasonable completion date of renovations or repairs. The sanctions for violations are not specified.
This Legislative Alert is provided as a courtesy to the members of the residential mortgage loan servicing industry. It provides general information about the legislation discussed, but is not intended as legal advice and does not create an attorney-client relationship between Carter Conboy and the reader. Should the reader desire additional information about the application of the legislation to a particular factual or legal circumstance, please contact a member of Carter Conboy’s Creditors Rights Department at (518) 465-3484.