New York Passes Foreclosure Protection Law

New York recently passed a law that allows people facing a foreclosure lawsuit to raise a defense called “standing” at any time during the suit.

By , Attorney

New York has one of the highest mortgage delinquency and foreclosure rates, as well as one of the most protracted foreclosure timelines (an average of 1,103 days), in the country. To help homeowners facing foreclosure, Governor Andrew Cuomo signed Senate Bill S5160 into law on December 23, 2019. This law gives New York homeowners more leeway to bring up the defense of "standing" in a foreclosure lawsuit.

What Is "Standing" in a Foreclosure Case?

Mortgage loans are often bought, sold, and, in some cases, securitized. As a result, confusion sometimes arises over who owns the note and mortgage. Because only the loan holder (the loan owner) or someone acting on the holder's behalf may foreclose, if the party filing the lawsuit can't prove it owns the loan, then it doesn't have the legal right to foreclose. A homeowner can present this issue as a defense to the foreclosure. The legal principle behind this defense is called "standing."

New Law Gives Homeowners More Power to Fight Foreclosures Based on Standing

Previously, a homeowner facing a foreclosure in New York had to raise the defense of standing in a responsive pleading, like in an answer or in a pre-answer motion to dismiss, often within 30 days. If homeowners didn't introduce the issue of standing within the allotted time frame, they waived their right to bring it up later on in the court process. But many homeowners didn't understand the foreclosure paperwork served on them or didn't hire a lawyer until it was too late to argue a lack of standing as a defense. So, in many instances, homeowners lost their property in a foreclosure—even though the bank wasn't permitted to start the suit in the first place.

Senate Bill S5160 amended New York's Real Property Actions and Proceedings Law by adding a new section 1302-a, which permits a homeowner defendant in a foreclosure suit to raise a defense of standing at any time in the litigation. But the defendant may not put forward an objection or defense of lack of standing following a foreclosure sale, unless the judgment of foreclosure and sale was issued upon the defendant's default. So, a foreclosed borrower can assert a lack of standing even after a foreclosure sale if the judgment of foreclosure was a default judgment.

Applicability of the Law

The law is limited only "home loans," which are loans with a natural person and property that "is or will be occupied by the borrower as the borrower's principal dwelling." (N.Y. Real Prop. Acts. Law §1304(6)(a)). So, if you don't live in the property as your primary residence, and are, for example, renting it out, you can't use this new law to your advantage.

Effective date: December 23, 2019