U.S. Supreme Court Blocks Enforcement of a Limited Part of New York’s COVID-19 Emergency Eviction and Foreclosure Prevention Act

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Financial institutions, lenders, and servicers should take note that the United States Supreme Court (“SCOTUS”) granted an injunction filed by plaintiffs-landlords seeking to prevent the enforcement of New York’s COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (“CEEFPA”) because it violates their due process rights. However, SCOTUS limited its ruling to enjoin the enforcement of only Part A of the CEEFPA, which provides that if a tenant self-certifies financial hardship, a landlord generally cannot contest the certification and denies the landlord a hearing. Thus, financial institutions, lenders, and servicers should continue to abide by other prohibitions regarding foreclosures, evictions, and credit reporting in the CEEFPA.  

On August 12, 2021, in Chrysafis v. Marks, No. 21A8, -- S. Ct. --, 2021 WL 3560766 (Aug. 12, 2021), the United States Supreme Court granted an injunction blocking the enforcement of New York’s COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020—an anti-eviction law originally passed on December 28, 2020, and subsequently extended. SCOTUS found that the provision allowing tenants to submit an affidavit self-certifying their pandemic-related hardship to prevent eviction violated the plaintiffs-landlords’ due process rights (“Hardship Declaration”).

Background

When enacted on December 28, 2020, the CEEFPA stayed all pending residential eviction proceedings and foreclosure actions for 60 days and provided a further stay through May 1, 2021, to those defendants who provided their landlord or lender/servicer, as applicable, with a Hardship Declaration certifying that they have been negatively impacted as a result of the COVID-19 pandemic. On May 4, 2021, the CEEFPA was extended to, among other things, protect tenants who submitted a Hardship Declaration from eviction until August 31, 2021.

On May 6, 2021, a small group of landlords and the Rent Stabilization Association (“Landlords”) filed a lawsuit in the Eastern District of New York challenging the constitutionality of the CEEFPA. The district court dismissed the Landlords’ complaint and the United States Court of Appeals for the Second Circuit denied the Landlords’ request for an injunction pending their appeal. The Landlords then filed for a petition for a writ of certiorari to the Supreme Court and, on July 26, 2021, filed an application for emergency injunctive relief, which was presented to Justice Sotomayor and referred to SCOTUS.

SCOTUS’ Decision

In granting the injunction,[1] SCOTUS, over the dissents of Justices Breyer, Kagan, and Sotomayor, held that the Hardship Declaration portion of Part A of the CEEFPA was unconstitutional[2] because “[i]f a tenant self-certifies financial hardship, Part A of the CEEFPA generally precludes a landlord from contesting that certification and denies the landlord a hearing. This scheme violates the Court’s longstanding teaching that ordinarily ‘no man can be a judge in his own case’ consistent with the Due Process Clause.” SCOTUS, however, did not explain whether its decision allows landlords to challenge Hardship Declarations in pending eviction proceedings and did not reach the constitutionality of any other provisions of the CEEFPA.

The dissenting justices, in a multi-page opinion by Justice Breyer, noted that the extraordinary injunctive relief should not have been granted because: (1) the legal rights at issue are not “indisputably clear;” (2) the Landlords did not show that critical or exigent circumstances justified SCOTUS’ intervention, as the CEEFPA was set to expire in less than three weeks on August 31, 2021;[3] and (3) the public interest weighs in favor of giving deference to the New York legislature given the exigent circumstances surrounding the COVID-19 pandemic.

Conclusion

Although SCOTUS did not specify that landlords can challenge Hardship Declarations in pending evictions, this decision indicates that courts are balancing the hardships suffered by individuals due to the COVID-19 pandemic with business needs. Importantly, SCOTUS held that only Part A of the CEEFPA, which denies landlords the right to a hearing to challenge a tenant’s Hardship Declaration, is unconstitutional. As such, the remainder of the CEEFPA remains enforceable at this time, and financial institutions, lenders, and servicers are still prohibited from engaging in certain foreclosure, eviction, and credit reporting activities under the statute. Businesses, however, may be emboldened to challenge other pandemic-related legal protections through the court system. For instance, Part B of the CEEFPA and Part A of New York’s COVID-19 Emergency Protect Our Small Businesses Act of 2021 (“COVID SBA”) contain substantively similar self-certifications by mortgagors and commercial tenants, respectively, but also provide no mechanism to dispute the Hardship Declaration. Thus, these provisions should be susceptible to the same constitutional challenge. Prior to SCOTUS’ decision, the New York legislature proposed a bill to further extend the CEEFPA and the COVID SBA to October 31, 2021, but, as of the date of this publication, the legislature had not amended the bill to address Chrysafis’ challenge.[4]    

Mr. Streibich would like to thank Diana M. Eng and Chenxi (CC) Jiao for their assistance with developing this alert.


[1] The injunction will automatically dissolve if certiorari is not granted. However, given that the CEEFPA protections are set to expire on August 31, 2021, the injunction will be in place for the remaining lifetime of the eviction stay.

[2]  SCOTUS, however, did not enjoin the enforcement of the Tenant Safe Harbor Act (“TSHA”), which the Landlords did not challenge.

[3] The dissenting opinion indicated that this alleviated the hardship to landlords and that the CEEFPA also provided relief from foreclosure for property owners who own 10 or fewer dwelling units. Further, the dissenting opinion noted that any hardship is alleviated because the CEEFPA does not preclude the Landlords from seeking unpaid rent and other damages in a lawsuit.

[4] As of the date of this publication, the proposed bill was in committee. See nysenate.gov/legislation/bills/2021/s7315 for the current status of the proposed bill.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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