Key Changes Made to New York Foreclosures, SBA Loans

Yours truly is discharging his duty to faithfully provide you with the most pertinent information to start your credit union day this morning by giving you a heads up on two recent developments that may impact your operations. First, I want to provide a snapshot of a vitally important recent decision by New York’s court of appeals clarifying how to calculate the statute of limitations for residential foreclosures in New York State. Spoiler alert: this is actually good news for New York lenders. Secondly, I have a few thoughts on the Biden Administration’s announcement yesterday of sudden and dramatic changes to the Paycheck Protection Program, with the aim of increasing the number of small businesses gaining access to these loans. 

Anyone who provides mortgage loans in New York State should make sure that they receive a summary of the decision issued late last week by New York’s court of appeals in Freedom Mortgage Corp. v. Engel. New York already has one of the longest, most complicated foreclosure processes in the country. This case resolved a series of issues which had threatened to make the foreclosure process even more difficult to execute for lenders. For example, there are two basic ways for commencing a mortgage foreclosure action in New York State and triggering the six year statute of limitations. One way is to actually go to court and file a foreclosure action. A second way is to send a delinquent borrower a notice of default. One of the questions addressed by the court of appeals was how to distinguish between putting a borrower on notice that they may be subject to a foreclosure action if they don’t make payments, and a notice that actually commences a foreclosure action. This distinction is crucial because an increasingly large number of defaults in New York take more than six years to resolve, and delinquent borrowers are claiming that the lender can no longer foreclose on their property. Fortunately, the court of appeals ruled that “even in the event of a continuing default, default notices provide an opportunity for pre-acceleration negotiation—giving both parties the breathing room to discuss loan modification or otherwise devise a plan to help the borrower achieve payment currency, without diminishing the noteholder’s time to commence an action to foreclose on the real property, which should be a last resort.” 

A second issue that has been hotly debated in New York courts is what actions stop a foreclosure action. For example, can a lender who is afraid that the statute of limitations is going to run out withdraw a foreclosure action and commence a new action in the future if they are unable to come to an agreement with the delinquent homeowner? Using wonderfully unequivocal language designed to provide lenders and borrowers in New York State a bright line rule that is easily understood, a voluntary discontinuation of a foreclosure action by withdrawal of the foreclosure complaint constitutes a revocation of the foreclosure. A lender can subsequently bring a new action with an entirely new six-year statute of limitations, even if the lender withdrew the previous action specifically to avoid having the statute of limitations run out. 

Shifting Gears to the Biden Administration and PPP

The Biden Administration announced that, starting tomorrow, SBA would be imposing a two-week window during which the agency will only accept PPP applications with 20 or fewer employees. The exclusive window will also be coupled with changes expanding who is eligible to receive PPP loans by stipulating that student loan debt and certain prior criminal convictions should not be part of the underlying criteria that constitute an effective strike against an applicant’s eligibility. I will have more to say on this as the process gets underway. While I understand what the Biden Administration is trying to accomplish, I’m more concerned with the speed with which they expect these changes to take effect. At the risk of sounding like an aging elementary school teacher in a 1950s sitcom, haste makes waste. 

On that note, peace out people. Enjoy your day.