‘Foreclosure Abuse Prevention Act’ awaits New York governor’s signature

New York homeowners on their knees in foreclosure lawsuits may soon dismiss a string of foreclosure cases pending in state and appellate courts, as part of legislation heading to Gov. Kathy Hochol’s desk. You may take a break.

If Hochul signs the bill in its entirety, the statute of limitations for lenders to initiate foreclosure proceedings would be set back to six years, as was the case prior to the 2021 Court of Appeals ruling. Freedom Mortgage Corporation v. Engel.

The bill, called the Anti-Foreclosure Abuse Act, passed the New York Senate last week by a 52-10 vote. In March, a parliamentary version of the bill passed 107-40.

But people familiar with the matter say the bill could be amended as mortgage industry stakeholders step up lobbying against the law.

The bill is expected to be signed by early June, but the process could continue until the end of the year.

The Engel case established that a lender operating in New York had six years to initiate a foreclosure action, but if the action was dismissed for any reason, the lender would postpone the loan and pay for it later. Foreclosure proceedings can be reopened at

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The bill, sponsored by Senator James Sanders, alleges that the Engel case gave lenders and servicers “the ability to unilaterally manipulate, arrest, suspend, and resume restricted periods at will.” Sanders did not immediately respond to a request for comment.

The bill alleges that as a result of Engel’s ruling, lenders and servicers “bombed” courts to reopen foreclosure cases previously barred by the statute of limitations.

Jacob Inwald, Director of Foreclosure Prevention Legal Services NYCwhich has only been in force for about a year, Engel said it effectively allowed lenders to “bring back ancient cases from the dead.”

As an example of such a case, first established in 2007 and 2008, but “finally failed to comply with New York law on foreclosure or prove other fatally flawed foreclosure cases. abandoned,” he said. ’ The decision in the Engel case allowed Banks to revive those cases.

For borrowers whose foreclosure cases have been reopened, it’s especially terrible because “interest, late fees and attorney fees are added to the debt each month,” Inwald said.

If Hochul signs the current iteration of the bill, any lawsuits initiated as a result of Engel, and those otherwise statute-barred, would be dismissed under the new law.

Brian McGrath, Partner Hinshaw & Culbertsona law firm representing financial institutions, said some cases had been reopened but he had not seen a large influx.

“There are several loans and files where Engel’s decision brought clarity and allowed the parties to refocus their legal arguments and move the case to conclusions on its merits,” McGrath said. “I haven’t seen any data to suggest that they attacked courts with old files raised from the dead.”

McGrath said some lenders, servicers and investors in the secondary market have threatened to cease operations in New York if the bill is passed in its entirety.

“An investor buying a pool of loans would be the first domino bankruptcy in New York,” McGrath said. “The implication is that it will be riskier for lenders to originate loans in New York because the secondary market where they can offload loans and offload risk on those loans will start to shrink. It’s from.”

Engel’s ruling didn’t necessarily change the law, McGrath said, but clarified “a contractual right to take a loan, accelerate it, then take the accelerated loan and reverse it.”

“This decision just clarified how to do that fairly and uniformly across the state,” McGrath said. “Thus, the law could take away the ability of borrowers and banks to collectively agree to provide for the suspension of foreclosures and the resetting of statutes of limitations by placing loans on installments.”

McGrath warned that if the governor signs the bill as-is, it could affect underwriting standards for borrowers and the number of options consumers have for obtaining loans in New York state.

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