Inside the fight over New York’s foreclosure laws

Alfred and Olivia Del Rio, 69 and 76, respectively, have owned a modest two-story home in North Riverdale, a leafy Bronx neighborhood, since 1997.

Of the 24 years they’ve lived there, nine have been spent trying to stave off a foreclosure by their mortgage lender, BNY Mellon. Though the statute of limitations on foreclosure actions is six years, a nine-year foreclosure proceeding isn’t unheard of.

That’s thanks to a technicality in New York’s foreclosure law that allows lenders to pause, or even reset, the statute of limitations — a practice known as de-acceleration.

But what, exactly, constitutes de-acceleration has long been a point of legal debate — at least until this past winter, when the state’s highest court issued a landmark decision that has homeowner advocates warning of an approaching disaster.

On Jan. 5, as most eyes were fixed on Washington, D.C., and the looming vote count to confirm the election of President Joe Biden, the New York Court of Appeals was considering how to interpret what triggers — or halts — the statute of limitations on foreclosure actions.

In the balance was the fate of not only thousands of homes owned by New Yorkers who suffered during the Great Recession and have spent years embroiled in foreclosure actions, but also the more than 1.5 million homeowners in the state who are behind on their mortgages and could face foreclosure when the state moratorium expires at the end of August.

In February, the court issued a decision that gives lenders the ability to pause the statute of limitations countdown and reserve the right to restart a case at any time, so long as the lender voluntarily withdraws a foreclosure action within six years of demanding repayment.

Advocates and lawyers defending homeowners say the effect is that foreclosure actions in New York are no longer time-barred.

“There’s no other word than depressing,” said Mark Anderson, who defends homeowners and is a partner at Queens-based law firm Shiryak, Bowman, Anderson, Gill & Kadochnikov. “Apparently you’re just allowed to collect on debt forever.”

Advocates appealed to lawmakers to overturn the decision, and legislators sprang into action. State Sen. James Sanders and Assembly member Helene Weinstein both introduced legislation last session that would undo the court’s decision. (Assembly member Latrice Walker also introduced a version of Sanders’ bill.)

Weinstein’s bill was supported by at least 10 housing advocacy and legal nonprofits, which penned memos of support that said overturning the decision was a matter of “crucial importance” given the number of New York homeowners in distress and an “anticipated onslaught” of new foreclosure cases.

Sanders’ bill, dubbed the Foreclosure Process Abuse Prevention Act, is the more expansive of the two proposals and would abolish lenders’ ability to de-accelerate a loan. Since the state Legislature is out of session, the passage of Sanders’ bill, or any other proposal, is not imminent, but that isn’t giving lenders much comfort.

Representatives for mortgage lenders are calling the effort to overturn the court’s decision an “overreach” on the part of lawmakers that they claim will drive lenders out of New York. At nearly three years, they note, the state’s average foreclosure proceeding is already among the longest in the country.

Clare Cusack, president and CEO of the New York Bankers Association, said Sanders’ bill will generate even more foreclosure litigation and hurt the wider housing market.

“[It] will force banks and other lenders to exit the mortgage market in New York, leaving borrowers with fewer lending options that are far riskier, more expensive and less regulated,” she said in a statement.

Home sweet home

The Del Rios are among the homeowners feeling immediate consequences of the February court decision. The couple twice paid off mortgages on their home before taking out a larger subprime loan of $536,000 in 2007. They fell behind on their mortgage payments the following year, and BNY Mellon moved to foreclose on the property.

When the bank voluntarily dismissed the case in 2015, the Del Rios believed that was the end of it. But four years later, the bank restarted the foreclosure action.

The couple hired Anderson, who took the position that the six-year period for BNY Mellon to foreclose had ended in 2015. It was far from the first case he had seen in which the statute of limitations was a central issue. At the time, he said his firm had about 500 cases dating back to the subprime mortgage crisis that have been revived, despite the statute of limitations apparently expiring.

Early last year, Anderson filed a class-action lawsuit accusing BNY Mellon of systematically trying to foreclose on mortgages after the statute of limitations expired, with the Del Rios as the class representative.

But after February’s court decision, the timing of BNY Mellon’s foreclosure actions is no longer problematic. For example, in the Del Rios’ case, since the bank voluntarily withdrew its case, it is now fully within its rights to restart its 2008 foreclosure action more than a decade later.

“This certainly helped the bank in their fight,” said Anderson. “We still have a lot of other arguments to make, but my clients, like a lot of other consumers, were negatively affected.”

Thirteen nonprofit organizations that offer free legal services to distressed homeowners in New York filed an amicus brief arguing that the court’s decision will “unfairly prejudice” homeowners.

Because there is no requirement for lenders to stipulate in writing that they have revoked the acceleration of the loan, borrowers, many of whom do not have legal representation in foreclosure cases, will likely not realize they can recommence monthly payments or “reap any supposed benefits,” and will experience “unfair surprise” when the action is restarted at some point in the future, the brief argued.

“That’s a big problem,” said state Sen. Brian Kavanagh, who leads the chamber’s housing committee and has signed onto Sanders’ bill alongside 17 other senators.

“Lots of homeowners are just not going to realize that their circumstance has changed,” he continued. Kavanagh said he has heard from at least 10 homeowner organizations encouraging the legislature to take action on the court’s decision.

Unintended consequences

On the other side, lenders’ attorneys have applauded the ruling.

“It brought certainty,” said Christina Livorsi, a partner at Day Pitney who represented a lender as part of the four cases the Court of Appeals considered before issuing its decision.

The court’s ruling establishes a precedent that lower courts must follow and brings finality, certainty and predictability to the parties as opposed to requiring a case-by-case analysis, Cusack added.

Bruce Bergman, a partner at Berkman Henoch who specializes in representing lenders and servicers in mortgage foreclosures, also welcomed the decision for granting lenders and their counsel some leeway in a rigorous process. He’s previously called the statute-of-limitations defense “deadly to lenders.”

“Sometimes [banks] make mistakes,” he said in an interview. “But they should not suffer the loss of all the money because they stumble in that fashion.”

That position is fiercely opposed by lawmakers, attorneys and organizations that work with homeowners in foreclosure.

Holly Meyer, a foreclosure defense attorney who also represented a homeowner in the case before the Court of Appeals, argued that if a bank can’t prove its case, that doesn’t mean the law should change to make it easier.

“If the homeowner is successful in the litigation, it’s because the bank didn’t do something,” she said.

Bergman, the author of the tome “Bergman on New York Mortgage Foreclosures,” for which he reviews all new foreclosure cases to make updates, said that overturning the Court of Appeals ruling would be “devastating” to the industry.

“If the ability to be repaid is greatly reduced, what does that do to the lending business and the availability of funds for people who need it?” he asked.

When asked whether they had considered Cusack’s argument that banks would be forced to exit the market, the senators rejected the idea.

“Lenders seemed to be pretty well under the law before that [February] date,” said Kavanagh. Sanders said he didn’t see a correlation between the market and foreclosure laws but that he’s ready to talk with the industry and hear concerns with his bill.

“I encourage them to get to us now,” he said, adding that he and other lawmakers were going to be working on a “reconciliation” to get the best legislation ready for next session.

A wrinkle

There is another pair of twists that has insiders on both sides of the notoriously complex world of foreclosure law crying foul.

One is a relationship between Court of Appeals Chief Judge Janet DiFiore and prominent law firm Greenberg Traurig, which argued before her on behalf of two banks in the February case. DiFiore was Greenberg Traurig’s client weeks before in a suit over judiciary cuts, raising concerns of a conflict, as reported by the Albany Times Union in April.

The other is the case of Ivan Young, a foreclosure defense attorney who had represented one of the four homeowners in the landmark case until he retired from his practice in early 2020 and went to work as Sen. Sanders’ counsel. Besides Young’s new job in Albany, another point raising eyebrows is that both the lawyer and Sanders have personal homes in foreclosure, and according to court documents, Young is acting as the senator’s lawyer.

Most experts in state government ethics say Sanders’ personal foreclosure doesn’t represent a conflict, and that his experience is an asset.

“Not only are they not supposed to recuse themselves or abstain on matters that affect their personal interests,” said Daniel Feldman, a former state assembly member who is now an ethics professor at John Jay College of Criminal Justice, “you’re expected to bring your experience and interest … into the mix.”

Sanders said his community has been “ravaged by predatory lending.” His home loan in foreclosure is a subprime loan.

“I find it quite ethical to move in the spirit of what the needs of my community are,” he continued, though he declined to comment on his own foreclosure, citing the ongoing court case.

Young’s role as Sanders’ employee and personal lawyer is more complicated. Ronald Minkoff, chair of the disciplinary committee at the New York County Lawyers’ Association, said the dual role “raises questions.”

Minkoff’s organization prohibits its members from moving into the public sector while maintaining a private practice. But it’s unclear whether Young, who now resides in Albany, is a member of any professional associations that would subject him to such policies.

“There are also the political aspects of it where people turn it into a press story and make the person look bad,” said Minkoff. Young declined to comment.

The situation merits closer review, said Rachael Fauss of Reinvent Albany, a nonprofit that advocates for transparency and accountability in state government. But Fauss said the close relationship between legislators and oversight agencies renders further examination unlikely.

“If we had a more independent ethics body, this is exactly the type of issue that would be looked at,” she said.

The two agencies tasked with fielding complaints, investigating potential conflicts and meting out consequences are the Legislative Ethics Commission and Joint Commission on Public Ethics. Young self-reported no financial interests, relationships or external business on JCOPE’s financial disclosure forms in 2020 and was not required to report any in 2021, according to the documents.

Lisa Reid, the Legislative Ethics Commission’s executive director, said that the specific facts of Young’s work as an attorney for Sanders outside his legislative duties would determine whether the arrangement was problematic. She declined to comment further. 

For some of Young’s contemporaries, it’s a routine matter to see lawyers jump into politics.

“We see how the law really affects people,” said foreclosure defense attorney Meyer. “Somebody’s got to step up.”

Though lawmakers have set their sights on overturning the February court decision, the status quo will reign for the rest of 2021, if not longer. As neither Sanders nor Weinstein’s bill was passed before the legislative session ended in June, further action is unlikely until next year.

That’s bad news for homeowners like the Del Rios, who are fighting foreclosure actions, or others who thought they were safe because of the statute of limitations.

Anderson said the status quo means that his clients’ case, and the cases of many other homeowners, are just going to drag on as a result.

“The Del Rios have been fighting this bank for many, many years,” the lawyer said. “It would have been nice for them to have some finality. But there will be no finality anytime soon.”