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A decision has been rendered by the Court of Appeals in the matter of Freedom Mortgage Corporation v Engel.  This decision has implications for high risk statute of limitation assets. Its impact will be far-reaching, and an unequivocal win for the foreclosure plaintiff’s bar and servicers and lenders who regularly deal in New York defaults.  The decision can essentially be summarized into three distinct holdings: (1) A voluntary discontinuance, in and of itself, acts as a de-acceleration of the debt absent an affirmative statement by the lender to the contrary, (2) The failure to reference the correct loan documents in a summons and complaint will result in an invalid acceleration, which is incapable of beginning the statute of limitations clock, (3) The use of the language “will accelerate” in a default notice does not itself accelerate the debt as advocated and previously found by the first department in Deutsche Bank Natl. Trust Co. v Royal Blue Holdings, 148 AD3d 529(1st Dept 2017).

We can anticipate both plaintiff’s bar and defendant’s bar carefully reviewing this 33-page decision to support and distinguish their respective cases.  For any questions regarding this case, or its impact, please contact Richard O’Brien, Esq. (robrien@friedmanvartolo.com) or Deborah Gallo, Director of Operations (dgallo@friedmanvartolo.com).

The Appellate Division Second Department has issued a recent decision in Bank of N.Y. v Hutchinson 2021 NY Slip Op 00284 Decided on January 20, 2021, further clarified the application of the statute of limitations and whether plaintiff must attest to payments under a prior action modification.

In this case, the plaintiff filed foreclosure for failure to make monthly payments due August 1, 2008 and all payments thereafter.  The defendant moved for summary judgment alleging that the action was barred by the six year statute of limitations and alleged that the mortgage debt was accelerated by virtue of the commencement of an action on February 15, 2006.  The 2006 action was voluntarily discontinued on April 2, 2007, and the instant action was commenced February 2, 2016.   The plaintiff submitted a loan modification from November 2006 and consent to cancel lis pendens.  

The court determined that, to the extent the plaintiff sought to collect unpaid principal and interest payments due before February 2, 2010, it was barred by the six-year limitations period. The court also denied those branches of the defendant’s motion which were for summary judgment on her first, second, and third counterclaims, for abuse of process, malicious prosecution, and attorney’s fees, respectively, and pursuant to 22 NYCRR 130.1-1 for sanctions. The defendant appealed.

Here, the Court found that the defendant met their initial burden and that the burden the shifted to the plaintiff.  Supreme Court’s determination that the plaintiff’s submission of the loan modification agreement, which “clearly and unambiguously demanded a resumption of monthly installment payments on the note”, and the consent to cancel lis pendens, was sufficient to raise a triable issue of fact as to whether the plaintiff had revoked its election to accelerate the full balance of the mortgage debt within six years from February 15, thereby warranting denial of summary judgment to the defendant. Plaintiff was not required to submit proof of installment payments made under the loan modification agreement. The defendant’s unsubstantiated and conclusory claim that she was prejudiced because she relied on the voluntary discontinuance of the 2006 action to enter into a contract to sell the property to a third party, was deemed insufficient to invalidate the revocation.  Therefore, the Supreme Court’s order was affirmed.

If you have any questions regarding this case, please contact Deborah Gallo, Director of Operations, at dgallo@friedmanvartolo.com.

On December 28, 2020, Governor Cuomo signed into law the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (L. 2020, c. 381; “Act”).  The Act provides immediate relief to respondents and defendants in residential eviction proceedings and foreclosure actions in New York State, including, among other things:

1. Staying pending residential eviction proceedings (“Proceedings”) and residential real property mortgage foreclosure actions (“Actions”) for sixty days.
2. Staying Proceedings and Actions filed within thirty days of December 28, 2020 for sixty days.
3. Publishing form “Hardship Declarations” to be used by tenant-respondents in eviction matters and defendant-mortgagors in residential foreclosure actions in reporting financial hardship during or due to the COVID-19 pandemic.
4. Staying Proceedings and Actions until at least May 1, 2021 in Proceedings and Actions where a tenant-respondent or defendant-mortgagor submits a completed Hardship Declaration.

Several elements of the enacted legislation left many questions unanswered and/or unclear.  Therefore, administrative orders were issued in line with the legislation and to provide the Courts’ expectations. Administrative order AO 340/2020 addresses eviction proceedings and Administrative order AO 341/20 addresses foreclosure actions.  Additionally, forms of Hardship Declarations for both have been created.

As to AO/340 -Residential eviction proceeding pending on December 28, 2020, including eviction proceedings filed on or before March 7, 2020, and any residential eviction proceeding commenced on or before January 27, 2021, are stayed for 60 days.  However, the Court may hear cases where other tenants’ rights are being infringed or creating safety issues.  There is a bar on the issues of default judgments. Where a warrant of eviction has been issued, but, not executed upon, there is a stay pending a status conference. Where there was a prior judgment for objectionable or nuisance behavior, the Court will be required to hold a hearing. Finally, the Petitioner must serve the hardship declaration in English or the tenant’s primary language.

As to AO 341- Act immediately stays pending residential foreclosure actions for sixty days, and provides that, where a mortgagor/owner submits to the foreclosing party or the court a declaration attesting to hardship arising from or during the COVID-19 pandemic, proceedings will be further stayed (or commencement tolled) until May 1, 2021.

-The Act does not cover vacant and abandoned property that was first listed on the statewide vacant and abandoned property electronic registry before March 7, 2020.  A hardship declaration, in blank format, must be provided to the defendant (6 most common languages).   The Courts are still working how to achieve the goal economically.  Where no hardship declaration is returned, the matter may proceed after 60 days (or proceed with status conference). If the Hardship declaration is returned to the plaintiff the matter is stayed to at least May 1, 2021.

In pending actions, where a judgment was issued before December 28, 2020, the matter is stayed until the Court holds a status conference with the parties.  If the Defendant submits a Hardship Declaration to the plaintiff, the Court, etc, the action will be stayed until at least May 1, 2021.  A prior COVID 19 Assessment Conference does NOT satisfy the new conference requirement.

The Court cannot accept a new residential foreclosure proceeding filing unless it is accompanied by both an affidavit of service of the Hardship Declaration and an Affidavit from the foreclosing party that no Hardship Declaration has been received from the owner/mortgagor.  At the earliest opportunity following a new file, the Court must seek confirmation, on the record, or in writing, that the owner/mortgagor receive the blank Declaration and has not submitted a completed Declaration to plaintiff (or agent).  Where procedures were followed, the matter may proceed.  If not followed, then the Court must stay proceedings for no less than 10 business days to give the owner/mortgagor an opportunity to submit the declaration.

As New York continues to work through the challenges of the pandemic, the Legislators and Court officials work toward extending protections to homeowners, borrowers, and tenants which have had a significant loss of income.  However, many others view the extension with a Hardship Declaration, without proof of economic hardship, as likely to result in further economic decline for the state and those doing business in New York.

For any questions regarding these changes, please contact Deborah Gallo, Director of Operations, at dgallo@friedmanvartolo.com.

RPAPL 1302-a was enacted on December 23, 2019 and became effective on that date.  It provides as follows:  “Notwithstanding the provisions of[CPLR3211(e)], any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in [RPAPL 1304(6)(a)], shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default” (RPAPL 1302-a).”

This provision applies only to residential mortgage foreclosures and provides that failure to raise standing a defense in a pleading does not constitute waiver pursuant to CPLR 3211(e).   The law was implemented to have cases regarding standing be resolved on the merits and not a technicality.

A recent decision GMAC Mortgage, LLC v. Coombs, AD 2^nd, 2017-08030 issued November 25, 2020, sheds light on the Court’s interpretation of the law.  The Court found that the statute does not impact CPLR 3018 (b), “where, as here, standing is not an essential element of the cause of action, under CPLR 3018(b) a defendant must affirmatively plead lack of standing as an affirmative defense in the answer in order to properly raise the issue in its responsive pleading”. 

– The defense of standing is exempt from waiver provisions of CPLR 3211 (e), but, it does not excuse defendant from raising the issue before it may be considered by the Court.  

– The Court was not vested with the authority to raise standing on its own initiative, as the legislature did not go that far in its change to the law.

As applied to the case,  the Court found that defendant’s answer be deemed amended to include lack of standing in the opposition to plaintiff’s motion for summary judgment, as plaintiff had the duty of establishing standing in order to be entitled to summary judgment.  Here, this was brought up in the opposition, therefore, plaintiff in the reply provided that they had physical possession of the note and mortgage prior to commencement.  While the defendant did make allegations regarding the validity of the assignment, the Court found that it was of no relevance as standing based on the note. 

Therefore, the Court agreed with the Supreme Court’s determination to grant leave to reargue, and upon re-argument grant plaintiff’s motion for summary judgment. 

If you have any questions regarding this case, please contact Deborah Gallo, Esq., Director of Operations at dgallo@friedmanvartolo.com.

NY Bill S4190 requires including name and telephone number of the mortgage servicer on residential foreclosure documents. The Bill has been delivered to the Governor after having passed the Senate and Assembly.  The goal is to make it access to the information more available to the parties and to be at their fingertips.  Additionally, making the servicer information available to municipalities to enforce maintenance of the property and reduce zombie properties. 

The first section amends Real Property Actions and Proceedings Law 1321 to require the name and telephone number of the servicer to the Order of reference for 1-4 family residential properties. The second section amends Real Property Actions and Proceedings Law 1351 to require the name and telephone number for the servicer to the Judgment of Foreclosure and sale for 1-4 family residential properties.  The final section requires that the Civil Practice Law 6511 be amended to require the name and telephone number for the service to the Lis Pendens for 1-4 family residential properties.  If the bill becomes law, it will be effective immediately.

The Governor has 10 days (not including Sundays) to approve/sign or reject/veto bills passed by both houses.  Signed bills become law, vetoed bills do not.  If the Governor fails to take action within 10 days, the bill automatically becomes law.  We continue to monitor NY Bill S4190 to determine the outcome and will keep you advised.  If you have any questions please contact Deborah M. Gallo, Esq., Director of Operations at dgallo@friedmanvartolo.com.