July 31, 2021

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New York State Addresses Residential Mortgage Forbearance Procedures – Update | Harris Beach PLLC

To update: As previously mentioned, on June 17, 2020, New York State enacted Section 9-x Banking Act to indulge mortgage lenders who have faced financial difficulties as a result of the COVID-19 pandemic. Recently, the Supreme Court for Dutchess County made some clarifications regarding the scope of Banking Act 9-x, stating that the relief provided by law is not available to mortgage lenders who were in foreclosure at the time the law went into effect. Wells Fargo Bank, NA v Kelsey, 2021 NY Other LEXIS 1114, 2120 NY Slip Op 30806 (Sup. Ct. Dutchess Co., March 16, 2021). Indeed, the Court found that the law is designed to regulate mortgages affected by the pandemic and not be available to borrowers who have defaulted before March 7, 2020.

The newly enacted Banking Act 9-x, signed by New York Governor Andrew Cuomo on June 17, 2020, gives certain financial institutions a policy to combat mortgage waivers and repay deferred amounts granted during the global COVID-19 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 services company subject to the department’s supervision [of financial services]” and
  • “Qualified Mortgage Lender”, defined as “an individual with a primary residence in New York who is on a home loan (as defined in RPAPL 1304 (a)); and who is showing financial hardship as a result of COVID-19. “

Under Banking Act 9-X, forbearance for mortgage payments due on a home loan is 180 days (plus an additional 180 days if necessary) to “such a qualified mortgage lender who is in arrears or for a trial period or Who applied for damage mitigation? “In order to receive an extension, the mortgage lender must demonstrate persistent financial hardship.

Forbearance is granted on request for a maximum of 180 days; This grace period can be postponed to March 7, 2020. An additional 180 days may be available if financial difficulties persist due to COVID-19. Forbearance requests should be available from financial institutions.

The law offers three ways to address deferred amounts:

  • The term of the loan can be extended to include the term of forbearance – no additional interest, late fees, or penalties may be charged. or
  • The deferred amount will be paid for the life of the loan with no penalties or late fees [NOTE: interest is not addressed in this subsection];; or
  • The parties enter into a loan modification or other option that the mortgage lender takes into account. or if a change cannot be achieved between the parties, the deferred payment may be accumulated on maturity, refinancing or sale of the property and paid as a balloon payment; The arrears are non-interest bearing or delayed.

Compliance with these legal requirements is required before foreclosure for missed payments is initiated. Failure to comply would be an available defense to the mortgage lender in foreclosure.

The bank must offer these options as long as it has sufficient capital and liquidity to meet its obligations and trade safely and soundly. Any bank that cannot meet this standard must contact the Department of Financial Services (“DFS”).

If a bank cannot offer the relief to a borrower, it must notify DFS within five business days of the discovery.

The notification to DFS must contain the following information:

  • The reason the bank found it couldn’t offer the relief;
  • Information about the financial situation of the bank; and
  • Any other information that DFS may need.

If denied, the bank must provide the borrower with a notice of denial that includes a notice that the borrower can 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 wrongly refused.

The legislation has been putting the provisions of forbearance procedures in certain pandemic-related executive orders of the governor and administrative orders of the chief judge in effect since March.