On May 3, the New York State Senate passed S5473D (Bill), which will apply immediately to all actions “in which a final judgment of foreclosure and sale has not been satisfied”. (To see S5473D at s. 10.) This means that the new law applies retroactively, affecting future foreclosure actions and existing foreclosures, including those in which a foreclosure and sale judgment has been entered, but sale to auction has not yet taken place.
Essentially, the bill seeks to overturn the well-reasoned decision of the New York Court of Appeals in Freedom Mtge. against Engel, 37 NY3d 1 (2021), and retroactively revoke lenders’ longstanding right to revoke their option to accelerate post-default mortgages. the Engel The decision brought uniform clarity to the right of mortgagees to exercise their contractual rights and unilaterally suspend a mortgage by dropping a foreclosure action and thus reinstated the six-year statute of limitations. The bill seeks to accomplish this by amending several statutes that govern foreclosures under New York law.
The next step is to submit the bill to Governor Hochul for his signature. Governor Hochul may veto the bill and seek further changes, but that seems unlikely. Governor Hochul took office in August 2021 and her first actions in office were aimed at preventing a flood of foreclosures. She signed a moratorium (which expired in January) and established state participation in the Landlord Assistance Fund.
The bill may cause many existing foreclosure cases to be dismissed with prejudice, including cases reinstated based on the Engel decision. For example, under the bill, the voluntary abandonment of a pending foreclosure action will no longer constitute an act of revocation and will not stop the course of the statute of limitations. Lenders who have previously restored foreclosures that were rejected beforeEngel as failure to properly revoke the acceleration will likely immediately be subject to motions to dismiss.
We anticipate substantial litigation if the bill passes as is, and suspect that lenders facing layoffs after its enactment will argue that the bill is unconstitutional given its retroactive effect, particularly for lenders already involved in foreclosure actions.