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