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New York Foreclosure Bill Becomes Law

new york foreclosure protection act

Governor signs legislation that creates hard cap on statute of limitations.

After a seven-month wait, New York Gov. Kathy Hochul has signed a controversial mortgage foreclosure protection act into law — surprisingly to some — without amendments that had been lobbied for by members of the lending industry.

A spokesman for the governor’s office confirmed Tuesday that Hochul had signed the New York foreclosure bill but did not respond to questions about the reason for the delay or her decision not to press for amendments.

The New York Foreclosure Abuse Prevention Act, sponsored by state Sen. James Sanders, whose own home has been in foreclosure for 10 years, will put a hard six-year statute of limitations on foreclosure proceedings.

Lawmakers, who passed the legislation by a large margin in May, said the aim is to eliminate abusive and unlawful litigation tactics in mortgage foreclosure actions that manipulate the law and the courts in favor of mortgage bankers and servicers.

The issue arose out of a 2021 New York appeals court decision in the Freedom Mortgage Corp. vs Engel case, which allowed lenders to voluntarily pause the state’s six-year statute of limitations countdown on foreclosures and reserve the right to restart the action again as long as it was done within six years.

Some legislators said the decision gave mortgage lenders and their servicers the ability to “unilaterally manipulate, arrest, stop, and restart the limitations period at will,” to the detriment of New York homeowners dealing with foreclosure actions.

The court decision, supporters of the new law said, was that courts throughout the state were bombarded with a flurry of motions made by lenders to reopen foreclosure cases that had been dismissed years ago on statute of limitations grounds.

As a result, foreclosure actions were no longer time-barred and countless homeowners were trapped “in a state of judicial purgatory with the fate of their homes suspended in incertitude,” said supporters, who added that the process left some homeowners in foreclosure for more than a decade and that a disproportionate number of them happened in minority communities.

Opponents of the new law contend it will severely limit a lender’s right to reach the merits of a foreclosure claim, encourage borrowers to drag out proceedings and ignore proposed restructuring efforts and, in some cases, result in a defendant receiving a free house because in most cases the law does not grandfather or exclude proceedings that are close to or beyond the six-year statute of limitations.

Sen. Sanders, who did not respond to a request for comment on the law going into effect or on his foreclosure status, could be one of them.

Brian McGrath, a partner at the New York City law firm Hinshaw & Culbertson and an opponent of the bill, estimated that while the law will probably affect only 2% of all mortgage loans in the state, it could amount to $1 billion in losses for lenders.

In some cases, McGrath said, he expects lenders will walk away rather than go through lengthy, uncertain, and expensive court cases they could lose.

But others, he expects, are already preparing to challenge the new law in court, either on Constitutional violation of due process grounds or in active court cases where the argument will be that courts can’t apply law backwards in time.

Those were key elements to changes being sought by the bill’s opponents.

“No one from the lending side expected the governor to sign the bill with no amendments,” McGrath said Tuesday. “Given that she signed the bill as is, the likelihood of court challenges has increased. Stay tuned, this isn’t over.”