Understanding Foreclosure Proceedings and Hardship Declarations During COVID-19

New York State recently adopted  the Covid-19 Emergency Eviction and Foreclosure Procedure Act of 2020, which, along with a number of other protections for residential property owners relating to eviction proceedings, clarified the status of both tax and residential mortgage foreclosure proceedings during the current pandemic and limited the lienholder’s ability to conduct a sale or foreclosure action.

This Act applies to any action to foreclose on delinquent taxes or to sell a tax lien relating to residential real property and any action to foreclose upon a residential mortgage, provided that the owner is a natural person, regardless of how title is held, and owns ten or fewer dwelling units.  This also includes shares in a residential cooperative apartment.

While the language of the Act which states that it applies to residential real property, “provided that the owner is a natural person, regardless of how title is held” is ambiguous, an additional requirement is that at least one of the ten or fewer dwelling units must be the owner’s primary residence.  What is clear is that this Act does not apply to property that is vacant or abandoned and which was listed on the statewide vacant and abandoned property electronic registry prior to March 7, 2020, and any property which currently remains on the registry.

The Act provides for an additional notice requirement in that, at least thirty (30) days prior to the date on which a tax lien sale or a mortgage foreclosure sale is scheduled to occur, or before the filing of an action to foreclose of a tax lien, the person or entity conducting the sale or foreclosure must notify the property owner of their right to submit a “Hardship Declaration” under this Act.  Any such notice must notify the owner that a copy of the Hardship Declaration can be accessed on the New York State Department of Tax and Finance’s website and provide a link to such declaration form, Form RP-1102-DS, which can be found here.

The effect of the Hardship Declaration, unless withdrawn by the owner, is that it acts as a temporary stay applicable to all entities and persons of all such tax lien sales and foreclosure actions that have been or could have been commenced before May 1, 2021.  While the stay is in effect, no other action or proceeding can be commenced to recover any part of the delinquent taxes.

Any applicable statute of limitations related to the commencement of an action or proceeding to foreclose a tax lien or mortgage lien, is tolled until the stay has expired.  The obligation of the owner to pay the amount due is not extinguished by the stay.  The Hardship Declaration also creates a rebuttable presumption that the owner is experiencing a financial hardship in any such proceedings that may be brought, but the mere absence of a Hardship Declaration will not create an assumption that there was no hardship.

The foreclosing party of a residential mortgage has an additional notice requirement, in that a notice, in the specific form directed by the Act, must be provided to the mortgagor, which is published by the office of court administration, prior to commencement of an action, a copy of which can be found here.

The foreclosing party must also file an affidavit of service for the notice, which also affirms that no such Hardship Declaration has been received from the mortgagor, before the court will accept any new mortgage foreclosure action for filing.

With respect to ongoing mortgage foreclosure actions, the court will also determine if, in any pending action, notice of the mortgagor’s right to file a Hardship Declaration has been provided, and if not will stay any ongoing action for no less than ten business days to ensure that the mortgagor has ample opportunity to consider filing a Hardship Declaration.

If the mortgagor provides a signed Hardship Declaration, then no action to foreclose on the residential mortgage can be commenced until May 1, 2021, and any pending action in which a judgment has not already been issued is similarly stayed until that date.  If a judgment has been issued, but not executed, then the Court shall hold a status conference to determine if the mortgagor wishes to submit a Hardship Declaration, even if the action was filed on or before March 7, 2020.

The property owner may submit the Hardship Declaration to any municipality in which the property is located, to any person or entity which has been empowered to conduct tax foreclosures or tax lien sales within New York State with respect to the subject property, or to their mortgagee.  While the foreclosing party must provide this notice, the owner/mortgagor has the right to file the Hardship Declaration at any time.

This Act will expire on May 1, 2021.

Making sure that you comply with this Act or determining if you qualify can be a difficult undertaking.  Jacobowitz & Gubits, LLP is a full-service law firm that can help navigate you through the process.