New York Enacts Law Affecting Mandatory Foreclosure Settlement Conferences

Practical Law Legal Update w-002-7324 (Approx. 4 pages)

New York Enacts Law Affecting Mandatory Foreclosure Settlement Conferences

by Practical Law Real Estate

Mandatory Settlement Conference in Residential Foreclosure Actions

N.Y. CPLR is amended by adding new Rule 3408 that requires the mortgagee and borrower to participate in a mandatory settlement conference in a foreclosure action of residential real property. If the court determines that the mortgagee failed to negotiate in good faith, the new legislation allows a court to:

Impose a civil penalty on the mortgagee not to exceed $25,000.
Award to the borrower:
- actual damages and fees, including attorneys' fees, as a result of the mortgagee's failure to negotiate in good faith; and
- any other relief the court deems proper.
Vacate the defaults of the borrowers who participate in settlement conferences.

However, neither of the parties' failure to make an offer or to accept the other's offer is sufficient to constitute a failure to negotiate in good faith.

Maintaining Vacant and Abandoned Residential Property

N.Y. RPAPL is amended by adding a new Section 1308 that requires:

A mortgagee or servicer to inspect the vacant and abandoned property within 90 days of the borrower's delinquency.
The servicer to conduct an exterior inspection every 25 to 35 days, at different times of the day, throughout the delinquency of the loan.
Within 7 days of determining the property is vacant or abandoned, the mortgagee or servicer to post a notice on the property stating they are maintaining the property and provide contact information.
If there is no response within 7 days and the mortgagee or servicer has a reasonable basis to believe the property is vacant or abandoned, the mortgagee or servicer must secure and maintain the property, including but not limited to:
- replacing or boarding up broken doors or windows;
- securing any part of the property that may be deemed an attractive nuisance;
- winterize applicable plumbing and heating; and
- removing and remediating any significant health and safety issues.

The mortgagee may not remove any of the borrower's personal property.

If the mortgagee violates Section 1308, the court may administer a civil penalty not to exceed $500 per day per property for each day the violation persists.

State or federally chartered banks or credit unions are exempt from this law if they satisfy both of the following conditions in the calendar year:

Originate, own, service, or maintain their mortgages.
Have less than 3/10 of 1% of the total loans in the state which they either originate, own, service, or maintain for the calendar year ending two years prior to the current calendar year.

Expedited Application for Judgment of Foreclosure and Sale for Vacant and Abandoned Property

N.Y. RPAPL is amended by adding a new Section 1309, that allows a mortgagee to file an application to show cause for a judgment of foreclosure and sale on the grounds the property is vacant and abandoned. Doing so may expedite the foreclosure process, but the mortgagee must provide certain disclosures including a notice to the mortgagor that the mortgagor has the right to stay in the property throughout the foreclosure process until a court order is issued.

The new legislation also requires the New York Department of Financial Services to publish a "Consumer Bill of Rights."

Practical Implications

This legislation is significant for mortgagees of loans secured by one-to-four family residential real property in New York because it requires them to maintain the borrower's property for the entire term of the foreclosure action. This additional responsibility is likely to increase the costs to mortgagees associated with foreclosure actions.

New York Enacts Law Affecting Mandatory Foreclosure Settlement Conferences | Practical Law