On June 5, 2020, New York Senate Bill S8243C was delivered to Governor Andrew Cuomo and, if signed, will be effective immediately. The bill provides for expanded COVID-19 forbearance relief options dating back to March 7, 2020, and until “the date on which none of the provisions that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals of any size for any reason” by Executive order as may be extended in the future, “in response to the COVID-19 pandemic continue to apply in the county of the mortgagor’s residence” (“the “covered period”).

The forbearance relief is available to borrowers who reside in New York and whose primary residence, including shares of a cooperative unit, are encumbered by a home loan, as defined by New York law, originated or serviced by a New York regulated institution (qualified mortgagor). These relief options will not apply to mortgages made, insured, or securitized by any federal agency, the GSEs, or a federal home loan bank, or to “the rights and obligations of any lender, issuer, servicer or trustee of such obligations,” including servicers for GNMA. This carve out from coverage appears to be designed to exclude CARES Act covered loans from coverage by the New York legislation.

During the covered period, New York regulated institutions must make applications for forbearance “widely available” to any qualified mortgagor who “is in arrears or on a trial period plan, or who has applied for loss mitigation and demonstrates financial hardship.” The forbearance can be backdated to March 7, 2020, and shall be granted for a period of 180 days, with an option to extend for an additional 180 days.
The bill provides for three options to be made available with regard to any mortgage forbearance granted by a regulated institution to a qualified mortgagor pursuant to the bill, Executive Order 202.9, “or any other law, rule or regulation” as a result of financial hardship. Those options are:

1. To extend the term of the loan for the length of the forbearance period, waiving interest on the principal for the term of the forbearance and waiving any late fees accumulated as a result of the forbearance.

2. To have the arrears accumulated during the forbearance period payable on a monthly basis for the remaining term of the loan without being subject to penalties or late fees incurred as a result of the forbearance.

3. If the mortgagor is unable to make mortgage payments as a result of a demonstrated hardship, and a mutually acceptable loan modification cannot be reached, to defer the arrears accumulated during forbearance as a non-interest bearing balloon payment due and payable upon maturity of the mortgage, refinance of the mortgage, or upon sale of the property. Again, late fees accumulated as a result of the forbearance would be waived.

Regulated institutions are prohibited from negative reporting to any credit bureau resulting from a qualified mortgagor exercising any of the options outlined in the bill. Additionally, compliance with the provisions of the new bill are conditions “precedent to commencing a foreclosure action stemming from missed payments which would have otherwise been” subject to the legislation and violations may be used as a defense to foreclosure.

Compliance by servicers will be essential in both the short and long term. Failure to comply, in the short term could subject New York regulated institutions to regulatory and exam scrutiny, and in the long term, risk efficient and successfully foreclosure actions.