Newly enacted Banking Law 9-x, signed by New York Gov. Andrew Cuomo on June 17, 2020, provides certain financial institutions with a directive to address mortgage forbearances and repayment of deferred amounts granted during the COVID-19 global pandemic.
The law applies to:
- New York State regulated institutions (“Banks”), which “means any New York regulated banking organization . . . and any New York regulated mortgage servicer entity subject to supervision by the department [of financial services]” and
- “Qualified mortgagors,” defined as “an individual with a primary residence in New York encumbered by a home loan (as defined in RPAPL 1304(a)); and who demonstrates financial hardship as a result of COVID-19.”
Under Banking Law 9-X, a forbearance of mortgage payments due on a home loan shall be granted for 180 days (plus an additional 180 days if needed) to “such qualified mortgagor who is in arrears, or on a trial period plan, or who has applied for loss mitigation.” In order to receive an extension, the mortgagor must demonstrate continued financial hardship.
Upon request, a forbearance shall be granted for a maximum length of 180 days; this forbearance period may be backdated to March 7, 2020. An additional 180 days may be available upon a showing of continued financial hardship as a result of COVID-19. Forbearance applications should be available from financial institutions.
The Law provides three options for addressing deferred amounts:
- The term of the loan may be extended for the term of the forbearance – no additional interest, late fees or penalties may be charged; or
- The deferred amount is paid during the term of the loan without being subject to penalties or late fees [NOTE: interest is not addressed in this subsection]; or
- The parties enter into a loan modification or any other option that will accommodate the mortgagor; or, if a modification cannot be reached among the parties, the deferred payment may be accumulated and paid as a balloon payment at the maturity, refinance or sale of the real property; the arrears will not bear interest or late fees.
Compliance with these statutory provisions is required before commencing a foreclosure for missed payments. Failure to comply with the regulations would be an available defense to the mortgagor in a foreclosure.
The bank must offer these options so long as it has sufficient capital and liquidity to meet its obligations and operate in a safe and sound manner; any bank that is unable to meet this standard must contact the Department of Financial Services (“DFS”).
If a Bank is not able to offer the relief to any borrower it must notify the DFS within five business days of making the determination.
The Notice to the DFS must include the following information:
- The reason the bank determined it was unable to offer the relief;
- Information about the bank’s financial condition; and
- Any other information that may be required by DFS.
If denied, the Bank must provide a notice to the borrower of the denial that includes a notice that the borrower may file a complaint with the New York State Department of Financial Services at 1-800-342-3736 or http://www.dfs.ny.gov if the borrower believes that the application was wrongfully denied.
The Legislation puts into law the terms of forbearance procedures contained in certain of the pandemic-related Executive Orders issued by the Governor and Administrative Orders issued by the Chief Judge since March.
As noted, New York State enacted Banking Law §9-x on June 17, 2020 as a means of providing forbearance relief to mortgagors that were experiencing financial hardship as a result of the COVID-19 pandemic. Recently, the Supreme Court for Dutchess County provided some clarification as to the scope of Banking Law 9-x and concluded that the relief provided by statute is not available to mortgagors that were in foreclosure when the statute was enacted. Wells Fargo Bank, N.A. v. Kelsey, 2021 N.Y. Misc. LEXIS 1114, 2120 NY Slip Op 30806 (Sup. Ct. Dutchess Co. March 16, 2021). Indeed, the Court noted that the statute is intended to address mortgages affected by the pandemic, and is not available to borrowers where the default occurred prior to March 7, 2020.
This alert does not purport to be a substitute for advice of counsel on specific matters.
Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey