As waves of borrowers move forward with post-abstention loss mitigation in 2022, Empire State agents will have to navigate a particularly complicated set of state policies in a politically charged and uncertain environment.
A crackdown recently announced by New York Attorney General Letitia James is likely to lead to strict enforcement of idiosyncratic loss mitigation rules; and foreclosure activities that were banned until mid-January could see noticeable growth. Further complicating matters is Omicron’s recent spike in the state’s largest metropolitan area, as it could push the state legislature to extend the lockdown ban.
âGiven that much of the state’s foreclosure activity comes from the New York metro area, how quickly [it] the increases will largely depend on the city’s economic recovery, ânoted Rick Sharga, executive vice president of RealtyTrac, a subsidiary of Attom Data Solutions, in an email.
While relatively strong home equity levels and the moratoriums have made the net number of zombie properties in the state’s unusual foreclosure pipeline more manageable than before the pandemicgoing from 2,226 properties to nearly 2,000, this backlog could increase in particular next year the long-term forbearance which was authorized for the purposes of hardship.
âSome people will be in negative equity after factoring in missed payments,â Frank Nothaft, chief economist at CoreLogic, said in an interview. âUnfortunately, many lost businesses, jobs or family members and some households will be forced to sell.â
While the number of non-performing loans has declined from their pandemic peaks, those in New York are still higher than those in other states, according to CoreLogic’s latest monthly report. New York’s over 90-day delinquency rate of 4.2% in September was down from 6.6% a year earlier, but it was one of the two highest in the country, matched only by that of Louisiana.
Eventually, a silver lining to that cloud could emerge if foreclosures or other alternatives free up home inventory for other buyers, but since the state’s court process typically takes a few years, those are the mitigation rules. of the most immediate losses that will take priority for New York repairers come into the next year.
These are delicate not only because they are state-specific, but because they are subject to interpretation, and are one of the many sets of guidelines that officers may have.
While New York is not trying to replace things like guidelines for government-tied loans, it does establish policies for private mortgages that are somewhat similar to the former, but don’t necessarily conform to investor rules or regulations. federal banks in terms of service.
“There’s a big problem there, it’s who is subject to these laws? Larry Platt, a mortgage lawyer at Mayer Brown, said in an interview. âThe law itself suggests that it is any entity that holds a residential mortgage where the borrower‘s primary residence is in New York City, butâ¦ New York cannot legislate on things like how a bank in federal charter decides to accept repayment of a loan. “
The Empire State’s loss mitigation rules serve a similar purpose to those put in place by other entities linked to the federal government: to avoid forcing borrowers facing pandemic-related hardship to repay everything in one. times in order to reinstate the mortgage after forbearance.
However, New York does not provide the kind of detailed decision-making cascade for private mortgages that federal agencies do. Instead, it forces agents to choose certain options such as extending the term of the mortgage or making an interest-free lump sum payment until the end based on criteria that may be subject to interpretation.
New York requires a service provider to make a “reasonable and good faith effort” to provide an appropriate loss mitigation option, and states that this should be in accordance with guidelines such as the service agreement, Platt said. It also states that mortgage companies have a duty to structure a modification “reasonably affordable and sustainable” for borrowers and to consider alternatives if the risk of default is imminent.
In other words, New York’s service rules are somewhat parallel to those of federal agencies, “but they’re much more aggressive in this duty or obligation to come up with an option,” Platt said.
“There are a lot of interesting legal questions about this, for example whether you can force the owner of a loan to change their terms to avoid foreclosure,” he added. “And are they going to come in and guess that the loss mitigation options available to private investors aren’t good enough?” “
It is possible that other states will set similar rules as they often end up turning to self-acting jurisdictions, such as New York and California, for advice, Platt said.
The most universal problem that New York and other states must grapple with is the distribution of Money from the Homeowners Assistance Fund. Interpreting how Empire State rules affect this could be one of the biggest questions in New York City.
James recently instructed duty officers to apply the HAF money after other types of loss mitigation have been exhausted, but there can be many interpretations of how this money should be used in accordance with to the states. rules, Platt said. This question, like the question of how the foreclosures that will actually unfold, are one that will become increasingly urgent.
When pandemic-era loans finally go into foreclosure, agents will also face new legal precedents that have emerged in New York’s Byzantine legal process over the past year. Due to the inactivity of the market, service providers and lenders may not have a wide knowledge of it.
Among these is a July 28 ruling in VFS Lending JV II LLC against Krasinski, which could be used to delay or block foreclosures on non-traditional loans that lenders have set above standard rates to offset their risk, according to Christopher Gorman, partner at Abrams Fenstermann.
In that case, the New York Supreme Court’s appeal division quashed claims filed by a lender in foreclosure proceedings based on the borrower’s allegations that the implicated mortgagee intentionally violated certain provisions. banking law relating to high cost real estate loans.
“It is indeed rare for a court to say to a lender, directly or indirectly, that it is totally forbidden to enforce its loan documents and to collect the sums it claims owe a borrower”, a writes Gorman in a report on the implications of the decision in the case.
The ruling is expected to have broader ramifications for foreclosures on other high-cost home loans, as foreclosures over those loan periods resume in New York City.
“Lenders in foreclosure cases involving loans covered by certain provisions of state banking law should expect Krasinski to be cited as the basis for seeking discovery of the lenders, and in opposition to summary judgment motions. filed by lenders, for years to come, âGorman said in the report.
It may ultimately be rare for the courts to cancel a loan on the basis of this case. However, if a consumer disputes a foreclosure on this basis, there is still a risk that the lender will experience delays in the foreclosure process as the case requires the lender or administrator to prove compliance with banking law, Gorman said. in a press release. interview.
âThere has been such an appreciation in house prices that foreclosure will be less likely,â Platt said. “However, there will be a lot of what I call tributaries in New York City around foreclosure when the loans get there.”