New York Enacts Retroactive Foreclosure Legislation – Financial Services

While many around the world are setting their calendars forward
for the year 2023, residential mortgage loan owners and servicers
may need to also look backward in time now that New York Governor
Kathy Hochul signed the so-called “Foreclosure Abuse
Prevention Act” (S5473) into law on December 30, 2022. The new
law, which takes effect immediately, threatens to significantly
constrain the ability of lenders, servicers and investors to
efficiently prosecute foreclosure actions and potentially
jeopardizes their ability to recover their mortgage debt with
respect to not only foreclosures initiated after the law took
effect but also foreclosure actions which were pending as of
December 30.

We previously addressed the background and events
leading up to the introduction and passage of S5473 by the New York
legislature in detail. Because the legislation remained unchanged
from the time the legislature passed the bill to the time Governor
Hochul signed the measure into law, we do not rehash all of the
law’s provisions in this Legal Update. Key provisions of the
new law that mortgage industry participants should be aware of
are:

• A loan owner’s or servicer’s voluntary discontinuance
  of a foreclosure will no longer re-set the six-year statute of
  limitations to bring an action to foreclose.¹ Under the
  new law, a unilateral action by a loan owner or servicer does not
  extend the statute of limitations for a foreclosure action, and the
  loan owner or servicer is time-barred from foreclosing the mortgage
  after six years from the date the loan owner or servicer first
  accelerated the loan.² This could significantly
  constrain loan owners’ and servicers’ ability to offer loss
  mitigation options to borrowers whose loans are in
  foreclosure.




• The new law amends New York’s “election of
  remedies” law to provide that once a foreclosure action is
  barred by the statute of limitations, a loan owner or servicer is
  prohibited from bringing any other action to recover the same part
  of the mortgage debt, including both another foreclosure action and
  an action to recover a personal judgment against the borrower on
  the promissory note.³




• Loan owners or servicers are now prohibited from asserting, as
  defense in a quiet title action or in response to a borrower’s
  statute of limitations defense in a foreclosure action, that the
  statute of limitations did not expire because the lender did not
  validly accelerate the loan. Under the new law, a loan owner or
  servicer would be permitted to assert that acceleration was invalid
  only if a prior foreclosure action was dismissed based on a court
  ruling that the acceleration was not valid.⁴




• The new law applies retroactively to any pending foreclosure
  action filed before December 30, 2022, for which a final judgment
  and order of sale has not been enforced.⁵

Governor Hochul signed S5473 into law despite advocacy efforts
from industry groups and stakeholders. We expect stakeholders to
continue to engage with New York legislators with the goal of
amending the law during the 2023 legislative session to address
concerns with the new legislation—particularly the
retroactive application of the law to pending foreclosure
actions—although it remains to be seen whether the
legislature will be receptive to industry outreach. We also expect
that the retroactivity provisions contained in the new law will
face legal challenges, including constitutional claims.
Nevertheless, these legal challenges may not be quickly resolved,
so industry participants should move expeditiously to maintain
their ability to enforce New York mortgage loans in light of the
new law.

Footnotes

1. N.Y. Civ. Prac. Law & Rules §
3217(e).

2. Id. § 203(h).

3. N.Y. Real Prop. Acts. Law § 1301(4).

4. N.Y. Civ. Prac. Law & Rules §
213(4)(a)-(b).

5. 2021 New York Senate Bill No. 5473, New York Two
Hundred Forty-Fourth Legislative Session, 2021 New York Senate Bill
No. 5473.

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