New York bill would change statute of limitations on foreclosures
A rule making its way through the New York Senate could dramatically shorten the time for a lender to file foreclosure action. This may have ramifications on all lenders operating in New York State.
A bill, dubbed the Foreclosure Abuse Prevention Act, sponsored by James Sanders Jr. (D) of the 10th Senate District, states that once a lender initiates foreclosure action and expedites the loan, it does not only six years to complete a foreclosure.
Currently, a lender operating in New York has six years to file a foreclosure action, but if the action is denied for any reason, a lender can slow down a loan and then reinitiate a foreclosure action. This may no longer be an option.
A vote on the legislation is expected next week and could result in a pool of properties that cannot be seized because the statute of limitations has expired, said law firm partner Brian McGrath. Hinshaw and Culbertson.
McGrath noted that it’s likely to be pushed by the Senate and once it is, it will apply equally to all lenders and mortgage officers trying to foreclose on property in New York.
“It’s rare to find a lender or mortgage agent with a national portfolio that doesn’t touch New York State,” he said. “New York has traditionally been one of the most frequent places lenders and managers hang out based on portfolio distribution, population, etc.”
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The legislation states that it is intended to “thwart and eliminate abusive and unlawful litigation tactics employed by foreclosure plaintiffs to the detriment of homeowners throughout New York.”
Specifically, the bill will overturn the recent decision of the Court of Appeal in Freedom Mortgage Corporation v Engelwhere “the ability to unilaterally manipulate, stop, stop and restart the statute of limitations at will, [was put] directly into the hands of mortgage foreclosure applicants and their managers,” the outstanding rule argues.
“No other civil plaintiff in this state is granted such unilateral and absolute powers,” the bill says. “As a direct result of Engel, trial and appellate courts across the state have been bombarded with a flurry of motions filed by mortgage lenders and services to reopen cases.”
Another important feature of this legislation, McGrath notes, is that it will be applied retroactively to all mortgage foreclosures in which a final judgment of foreclosure and sale has not been enforced.
“If a court has already ruled on a matter where a lender unduly slowed down the loan before initiating its new action, a borrower could file a motion to reconsider that,” McGrath said. “When this bill comes around, lenders are suddenly going to have a portion of their portfolios where the risk of lien loss exists where there was none before this legislation.”
McGrath noted there could also be unintended consequences for borrowers if this rule goes into effect.
If the bill passes, some institutions could decide it’s too risky to lend in New York, limiting consumer choice. “The higher the risk you put into the collectability of a mortgage, in the event of default, the harder it is to lend in that state,” McGrath said.
Another consequence, McGrath said, is that lenders will tighten their underwriting requirements. “The more you move the needle on underwriting to rule out any risk of default, the more people you shut out of the lending market.”