New York Passes Residential Mortgage Forbearance Law

A new state law enables homeowners with non-government loans who've been affected by the coronavirus to get a yearlong mortgage forbearance.

On June 17, 2020, New York Governor Andrew Cuomo signed Senate Bills 8243C and 8428 into law, which add Section 9-x to the state’s banking statutes. This new section requires lenders and servicers to offer forbearances to residential homeowners in New York affected by the coronavirus (COVID-19) pandemic.

How the New York Forbearance Program Works

Section 9-x creates a new forbearance program for certain borrowers who can demonstrate a financial hardship as a result of COVID-19 during the "covered period" (see below). The law requires lenders and servicers to grant eligible borrowers a forbearance of all monthly payments for up to 180 days. Borrowers also get the option to extend their forbearance for up to another 180 days. Forbearances can be backdated to March 7, 2020.

Eligibility for the New York Forbearance Program

The new law requires New York banking organizations and servicers to proactively make applications for forbearance widely available to any "qualified mortgagor" (borrower) who, during the covered period, is in arrears or on a trial period plan, or who applies for loss mitigation. The term "qualified mortgagor" is defined broadly as almost any borrower whose primary residence is a house, condo, or co-op interest in New York.

Both an initial 180-day forbearance and 180-day extension require the borrower to show a financial hardship resulting from COVID-19.

What Is the Covered Period?

The "covered period" is defined as starting March 7, 2020, and lasting until no restrictions applicable to non-essential gatherings of any size for the county of the borrower’s residence are in place. Because New York has 62 counties, which are divided among ten regions, and restrictions are being lifted on a regional basis, the end date for the covered period will vary across the state.

Lump-Sum Payment Not Required At the End of a Forbearance

Forbearance isn't the same as loan forgiveness; you'll still owe the amounts you skipped paying after the forbearance period ends. Under the new law, the borrower gets three options for repaying the amounts skipped during the forbearance:

  • by extending the term of the loan for the length of the forbearance period, without additional interest, late fees, or penalties
  • by repaying the amounts skipped during forbearance (without late fees or penalties) in monthly payments for the remaining loan term, or
  • by completing a loan modification or another option for repayment.

If the lender and the borrower can’t reasonably agree on a loan modification—or, in theory, any of the other options described above—then the lender has to offer to defer the accumulated arrearage as a non-interest-bearing balloon obligation. The balloon payment becomes due at loan maturity or when the borrower refinances or sells the property.

The new law prohibits negative credit reporting if the borrower exercises any of the options described above.

Exclusions

Mortgage loans made, insured, purchased, or securitized by any U.S. government agency or instrumentality, or any government-sponsored enterprise or federal home loan bank, aren’t covered by the new forbearance law. (Borrowers with federally backed mortgage loans can get a forbearance under the federal Coronavirus Aid, Relief, and Economic Security or "CARES" Act, though.)

Raising Noncompliance as a Defense to Foreclosure

If a banking organization or servicer fails to comply with this new forbearance law, the borrower may raise the noncompliance as a defense to a foreclosure.

How to Get a Forbearance

To get a forbearance under this new law, contact your loan servicer. If your servicer isn’t helpful or you need assistance enforcing your rights, consider talking to a foreclosure attorney.

Effective date: June 17, 2020