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Governor Larry Hogan has issued Executive Order Number 21-06-15-01 (“New Executive Order”) which effective August 15, 2021 will rescind the restrictions imposed under Emergency Order 20-12-17-02 (“Initial Executive Order”). As a reminder, the Initial Executive Order established certain limitations on initiating and proceeding with foreclosure and eviction actions in Maryland.  More specifically, the Initial Executive Order restricted the ability to send a Notice of Intent and required lenders to offer special forbearance programs. The recission of the Initial Executive Order will remove the Notice of Intent restriction and, beginning on August 16, 2021, Notices of Intent may again be set on all loans without requiring the loan holder to offer a special forbearance. A review of the restrictions lifted under the new rule is provided for your review and a copy of the New Executive Order is attached to this correspondence.

Unfortunately this otherwise good news has been complicated by the recent issuance of the “2021 Mortgage Servicing COVID-19 Rule” by the CFPB.  This rule will impose a stay on the commencement of new foreclosures throughout the country beginning August 31, 2021 and expiring at the end of the calendar year.  While the original proposal included a blanket stay on all new foreclosures, the final rule included some important carve-outs.  Specifically, loans which have a delinquency date of November 1, 2019, or earlier are excluded from the stay, as are any loans which may be subject to a statute of limitations defense at any time prior to January 1, 2022.  This eliminates any aged loans which have otherwise been impacted by state or federal COVID stays and permits us to proceed upon them.  Therefore the new executive order means that we will be able to proceed on issuing NOIs and commencing foreclosure activity in Maryland on all loans with a default date of November 1, 2019 or earlier with no additional restrictions at the state level or under the new CFPB rule.

For loans with a more recent delinquency date, new actions may still be commenced if a lender can show that one of three “procedural safeguards” have been met:  1) the borrower, during their delinquency, submitted a complete loan modification application and the servicer made a determination on that modification; 2) the property is “abandoned” as defined under applicable law; OR 3) the borrower is unresponsive and the servicer is able to demonstrate that they made good faith efforts to communicate with the borrower.

On all such “recent delinquencies” in Maryland the CFPB stay will have to be complied with, absent evidence of the existence of one of the above procedural safeguards.  We are advising our clients to retain evidence of complete loan modification packets that resulted in denial as well as any evidence of good faith efforts to establish live contact with borrowers in order to qualify for one of the above “procedural safeguards” and avoid any further delays under the new CFPB rule.  Where one of the above procedural safeguards have been met we will be able to proceed with the issuance of the Notice of Intent upon the expiration of the Emergency Order on August 16, 2021.

Finally, an additional aspect of the CFPB rule is triggered by Maryland’s forbearance requirements.  While servicers will no longer be required to offer forbearance prior to the service of an NOI beginning on August 16, 2021, to the extent any previously issued forbearance is ongoing after 8/31, servicers are required to attempt live contact more than 10 days but less than 45 days prior to the expiration of the forbearance to 1) establish the end date of the forbearance; 2) describe available loss mitigation programs; and 3) provide information on how to obtain homeownership counseling services.  Servicers must retain evidence of this contact for the purposes of future litigation.  For any questions regarding this update, please contact Deborah Gallo, Esq. at dgallo@friedmanvartolo.com.

In Wells Fargo Bank, NA. v. Zolotnitsky, Supreme Court, Appellate Division, Second Department, New York, 6/2/2021, 2021 WL 2214014, 2021 NY Slip Op 03482, a mortgage brought an action seeking foreclosure of a residential mortgage and to reform the mortgage to correct the description.  Mortgagor asserted varied affirmative defenses including lack of standing.  The mortgagee then assigned the mortgage.   The Appellate Division held that the assignee failed to establish ownership of the promissory note and failed to establish that reformation of the mortgage to the correct legal description was warranted based on mutual mistake.

By assignment of mortgage dated October 9, 2015, Wells Fargo assigned the mortgage to Wilmington Savings Fund Society, FSB.  In November 2016, Wilmington, successor in interest to Wells Fargo, moved for summary judgment on the complaint and asserted against defendant, to strike answer, reform mortgage, amend caption and correct legal description.  A lost note affidavit was included alleging that the note had been “inadvertently lost, misplaced, or destroyed.”  Defendant moved to renew her opposition to the summary judgment and plaintiff Wilmington moved to confirm oath and report and judgment.  The Court entered the Judgment of foreclosure and sale and defendant appealed.

UCC 3-804 provides a method of recovery for instruments that are lost, destroyed, or stolen, and plaintiff is required to submit “due proof of ownership, the facts that prevent production of the note, and its terms.  (Deutsche Bank Natl. Trust Co. v. Anderson, 161 A.D.3d 1043, 1044, 79 N.Y.S.3d 42, quoting UCC 3–804).  Based upon same, the Court found that the affidavit “failed to establish when the note was acquired and failed to provide sufficient facts as to when the search for the note occupied, who conducted the search, and how or when it was lost.

Further, the Court the standard to correct the legal description of the premises. A party seeking reformation of a contract by reason of mistake must establish, with clear and convincing evidence, that the contract was executed under mutual mistake or a unilateral mistake induced by the other party’s fraudulent misrepresentation” (Yu Han Young v. Chiu, 49 A.D.3d 535, 536, 853 N.Y.S.2d 575; see Chimart Assoc. v. Paul, 66 N.Y.2d 570, 573, 498 N.Y.S.2d 344, 489 N.E.2d 231; Gunther v. Vilceus, 142 A.D.3d 639, 640, 36 N.Y.S.3d 723.

Based upon the above, the Appellate Division held that the assignee failed to establish ownership of the promissory note and failed to establish that reformation of the mortgage to the correct legal description was warranted based on mutual mistake.  If you have any question, please contact Deborah Gallo, Esq. at dgallo@friedmanvartolo.com.

New Jersey Assembly and Senate passed A5820/S3866, a bill which will sunset more than 140 of Governor Murphy’s pandemic related executive orders within 30 day.  The Governor signed same on 6/4/2021.   As we previously informed you when the Governor Murphy issued Executive Order 240 extending the State of Emergency in New Jersey through June 14, 2021, Murphy indicated that it would be the last such extension if legislation was passed that would ensure his ability to continue to manage the State’s response to the COVID-19.  This is very clearly the legislature’s response.

While this is a positive sign of progress, unfortunately the bill stopped short of ending all executive orders, leaving 14 such orders active.  Over the fierce objection of many Republican Senators, the bill retains the moratorium on evictions enacted under Executive Order 106, and extends that moratorium until January 1, 2022. 

As we previously advised Executive Order 106 included a provision which would automatically terminate the eviction moratorium 60 days after the state of emergency was concluded, or August 14, 2021.  This new legislation would override that provision, extending the termination of the stay four and half months to January 1, 2022.  Additionally, and perhaps most importantly, Sheriffs in New Jersey continue to interpret Executive Order 106 to bar them from proceeding to sale, and we unfortunately see nothing in the new legislation which will alter that interpretation.  Unless Sheriffs change their interpretation, we very likely will not be able to proceed with setting sale on occupied, residential loans in New Jersey until January 1, 2022.  For more information please contact Deborah Gallo, Esq at dgallo@friedmanvartolo.com. 

The Legislature in New York is clearly frustrated with the recent decision of the Court of Appeals in Freedom Mtge. Corp. v Engel, NY3d, 2021 NY Slip Op 01090 (2021).  The Engel decision resolved a split between the First and Second Departments regarding whether a default letter clearly and unequivocally affirmatively accelerates a mortgage debt and provides much needed clarity on what conduct sufficiently accelerates a mortgage debt and revokes acceleration.    Specifically, the Court found:

1. a default letter stating that the lender “will” accelerate the debt referred to a future event and therefore did not accelerate the debt;
2. the voluntary discontinuance of a foreclosure action (whether by motion or stipulation) within six years of acceleration, alone, revokes acceleration as a matter of law, unless the noteholder expressly states otherwise;
3. the reason for a noteholder’s revocation is irrelevant, thereby expressly rejecting the concept that a noteholder’s revocation of acceleration cannot be “pretextual” to merely avoid the expiration of the statute of limitations; and
4. a verified foreclosure complaint that accelerates the mortgage debt must clearly and accurately refer to the loan documents and debt at issue.

As a result of this decision, the Assembly and Senate of New York have both proposed legislation that would clarify and overturn the Engel decision.  Assembly Bill 7737 is pending before the New York State Assembly. The Bill is the latest in a series of proposed legislation designed to limit a mortgagee plaintiff’s ability to foreclose on debt which might otherwise be time barred. 

Assembly Bill 7737 amends RPAPL 1301 to now state “If an action to collect any part of the mortgage  debt  is  adjudicated  to  be barred by the applicable statute of limitations, any other action seeking to recover any part of the same mortgage debt shall  also be barred by the statute of limitations.”  If passed, the Bill would prevent suits to recover on the note if the statute of limitations had expired on a mortgage foreclosure action and vice versa.

A7737 would also create an amended savings statute, which applies only to mortgage foreclosure matters, the new “CPLR 205-a.”  Under the new statute, foreclosure plaintiffs will only get the benefit of the savings statute once and dismissals for failure to enter default within a year under CPLR 3215(c), for failure to appear, for failure to submit an order, and for failure to comply with an order of the court are now added to the list of dismissals explicitly exempt from protection under CPLR 205-a.  Most recently another Assembly Bill 7922 has been proposed and mirrors the proposed Senate bill.

While some of these restrictions are certainly unwelcome, this Bill is preferable to its Senate counterpart, S5473B.  While both bills include the above referenced changes,  under the Assembly proposal, voluntary discontinuances can serve as a de-acceleration of the debt provided that the discontinuance is made within six years of the acceleration and provided that the discontinuance includes text which advises of the de-acceleration and explicitly notes that the defendant may resume making installment payments.  By contrast, S5473B if enacted would limit the ability of a voluntary discontinuance to extend the statute of limitations to circumstances where the defendant explicitly consents to such extension. 

While these bills have not exited committee or been approved by the legislature, we are highlighting them, even at this early stage, as their passage would fundamentally change foreclosure practice in New York. While it appears that some form of legislation will eventually pass that addresses and clarifies how the statute of limitations will be applied going forward, in its present form, A7737, while certainly not ideal, represents a preferable solution to its Senate counterpart.  We will continue to monitor and advise on the status of this legislation.  For any questions regarding these Bills please contact Richard O’Brien, Esq.  (robrien@friedmanvartolo.com) or Deborah Gallo, Esq. (dgallo@friedmanvartolo.com).

In a recent case, Southern Acquisition Company LLC v. TNT, LLC, Supreme Court, New York, Ulster County, 2021 WL 1307854, 2021 NY Slip Op. 21084  (4/6/2021),  the mortgagee filed a motion to invalidate and find the small business’ filing of a COVID 19 pandemic related hardship declaration lacking in merit and to allow proceeding to foreclosure sale.  The Court found that the mortgage enjoyed a rebuttable presumption of financial hardship due to the COVID 19 pandemic, even though the matter entered foreclosure and judgment was granted prior to the pandemic. 

In this commercial foreclosure action, the plaintiff filed the motion to invalidate the hardship declaration and to proceed to foreclosure sale.  Defendants did not submit opposition by the return date and thus plaintiff filed a proposed order granting the motion to the Court.   The Court first indicated that not all unopposed motions or granted and further that COVID 19 impacted the global economy in many ways, particularly in New York, which took the brunt of same in the first wave hitting the United States.  Thus, the Court and Legislators quickly implemented legislation to avoid evictions and foreclosures for small businesses and residential foreclosures.

In any action to foreclosure a mortgage in which a judgment of sale has been issued prior to the effective date of the Act, like in this case, “the court shall stay the execution of the judgment at least until the court has held a status conference with the parties” (Act, Part B, Subpart A, § 8). However, where “the mortgagor provides a hardship declaration … prior to the execution of the judgment, the execution shall be stayed until at least May 1, 2021” (id.)  “A hardship declaration shall create a rebuttable presumption that the mortgagor is suffering financial hardship, in any judicial or administrative proceeding that may be brought, for the purposes of establishing a defense under an executive order of the governor or any other local or state law, order, or regulation restricting actions to foreclose a mortgage against a mortgagor suffering from a financial hardship during … the COVID-19 pandemic” (Act, Part B, Subpart A, § 10 [emphasis added]).

The Court went on to outline the long history of the action which was initially commence in April 2014.  Had the Judgment of foreclosure and sale signed August 19, 2015, followed by six cancelled foreclosure sales.   Given the timing, it was clear that the matter entered and proceeded to Judgment well prior to the COVID pandemic.   The Court found that the plaintiff had not provided evidence to rebut the presumption, but merely stated their position in a self- serving and conclusory manner. Thus, Plaintiff’s motion was denied, and the hardship declaration stay continued. 

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