Many of our clients have asked whether they can commence a commercial foreclosure in New York State at this time.
On March 7, 2020, Governor Cuomo issued Executive Order (“EO”) Number 202, declaring a State disaster emergency for the State of New York. On or about May 7, 2020, Governor Cuomo issued EO Number 202.28, which, among other things, decreed as follows:
There shall be no initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state of federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020.
There is no definition of what constitutes a “residential” or “commercial” mortgage. (It should be noted that legislation in New York enacted on June 17, 2020 specified that it applied only to individual owner occupied 1-4 family dwellings) To further complicate matters, EO Number 202.28 mixes both evictions and foreclosures, and uses the word “owned” with respect to the mortgage which is being foreclosed. It would appear that despite this usage, EO Number 202.28 is not referring to the borrower/mortgagor, but rather, the current owner of the property being foreclosed, although this is not explicit. It is also not clear whether the term “owner” includes a legal entity, such as a corporation or limited liability company, and whether the restriction applies if the legal entity is not facing financial hardship, but the owner(s) of the entity are facing such hardships.
On or about June 23, 2020, the Chief Administrative Judge of the State of New York issued Administrative Order (“AO”) AO/131/20, which, among other things, decreed as follows:
[E]ffective June 24, 2020, commencement papers in foreclosure proceedings involving residential or commercial property shall require the inclusion of (1) an attorney affirmation in the form attached as Exh. 1 and (2) a Notice to Respondent, in English and Spanish, in the form attached as Exhs. 2 and 3.
Again, there is no definition of what constitutes a “residential” or “commercial” property. AO/131/20 also decreed that, with limited exceptions:
[F]oreclosure matters commenced on or before March 16, 2020 shall continue to be suspended until further order; foreclosure proceedings filed after March 16, 2020 shall, upon the filing of a complaint (if no answer is filed thereafter) or the filing of an answer, be suspended until further order . . .
On or about July 7, 2020, the Chief Administrative Judge of the State of New York issued AO/143/20, which modified AO/131/20 as follows:
[F]oreclosure proceedings shall no longer require an accompanying attorney affirmation . . . as previously required pursuant to . . . AO/131/20 . . . and AO/131/20 [is] modified to this extent only, and shall otherwise continue in full force and effect . . .
Moreover, the prohibition contained in EO Number 202.28, discussed above, on initiating a proceeding or enforcing a foreclosure, under the specified circumstances, remains in place for a period of sixty (60) days from June 20, 2020. As of now, that prohibition has not been further extended pursuant to Executive Order.
Due to the use of words and phrases which are not defined in EO Number 202.28, it is not entirely clear how to comply with the order when commencing a foreclosure, so as to avoid any potential sanction by the court. While we cannot predict how a court will rule, we believe that a commercial foreclosure action may be commenced when the mortgaged property is owned by a legal entity, and the lender has not been informed that the owner of the mortgaged property, or a guarantor which owns such entity, is suffering financial hardship due to the pandemic. Where the lender has been informed of a financial hardship (even if it is not substantiated) or where the owner is an individual, the safest course of action is to wait until after August 20, 2020 to file the foreclosure action (if the forgoing orders are not further extended).
It should be noted that there are different rules for residential mortgages for New York regulated banks, and for federally backed mortgage loans, including loans owned or insured by Fannie Mae, Freddie Mac, or guaranteed by FHA, Va, or USDA.