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New York Foreclosure Moratorium Upheld, Courts Rule, But Evictions Possible

Court strikes down a challenge to hardship declaration. 

On May 4, 2021, Governor Cuomo extended the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020. This extension acts to prolong the moratorium on foreclosures and evictions until August 31, 2021, for mortgagors who have suffered a COVID-related hardship. 

How does the Act affect residential eviction proceedings?

The Act places a moratorium on residential evictions until August 31, 2021, for tenants who have endured COVID-related hardship. Tenants must submit a hardship declaration to their landlord or the court, or a document explaining the source of the hardship, to prevent evictions. The declaration allows for an eviction to be stayed if the tenant qualifies under one of two different categories: a financial hardship as a result of COVID-19; or if moving would pose a significant health risk to the tenant or someone in the tenant’s household as it would pose a risk for severe illness or death from COVID-19. 

How does the Act affect commercial eviction proceedings?

The Act places a moratorium on evictions until August 31, 2021, for commercial tenants that have endured COVID-related hardship. The legislation applies to small businesses with under 50 employees that demonstrate a financial hardship. Tenants must submit a hardship declaration to their landlord or a document explaining the source of the hardship, to prevent an eviction proceeding.

How does the Act affect residential foreclosure proceedings?

The Act places a moratorium on residential foreclosures until August 31, 2021, for residential mortgagors that have endured COVID-related hardship. Homeowners and small landlords who own 10 or fewer residential dwellings can file hardship declarations with their mortgage lender, other foreclosing party, or a court that would prevent foreclosure.

How does the Act affect commercial foreclosure proceedings?

The Act also allows commercial mortgagors meeting certain conditions to file a hardship declaration with their mortgage lender, other foreclosing party, or the court to prevent the filing of a foreclosure action or stay any foreclosure action in progress until August 31, 2021. To qualify for such relief, a mortgagor seeking such relief must own a property containing ten or fewer commercial units, must be a business that is resident of the state which is independently owned and operated (not dominant in its field), and employ 50 or fewer persons.

Can a hardship declaration be challenged by a Bank in a foreclosure proceeding?

In the recent case of Southern Acquisition Co. LLC v. TNT, LLC, No. EF2014-1033, 2021 WL 1307843 (N.Y. Sup. Ct. Apr. 6, 2021) provided a thorough analysis of the Act and found that the bank does have the ability to challenge a hardship declaration submitted by a commercial mortgagor.  

In this action, the bank filed the motion to invalidate the hardship declaration and to proceed to foreclosure sale that was scheduled and canceled on six previous occasions. In the decision, which was a matter of first impression, the Court stated that the submission of a hardship declaration “shall create a rebuttable presumption that the mortgagor is suffering a financial hardship” during the COVID-19 Pandemic. As such, the Court reasoned that a bank could request that a hardship declaration be invalidated but they must first present evidence that “competently attacks” the claims made in the hardship declaration. Ultimately, the Court denied the bank’s motion as they had not provided any evidence that strikes at the claims raised in the hardship declaration.

How does this decision affect Foreclosure Proceedings?

The decision in Southern Acquisition CO. LLC, lays the groundwork as to how a bank can attack a hardship declaration in a foreclosure action. By first presenting evidence that “competently attacks” the claims made in the declaration, the Courts would entertain whether a hardship declaration should be invalidated thus allowing the foreclosure action to proceed. As to how much evidence would be needed to “competently attack” a hardship affidavit would depend on the discretion of the judge. However, any application filed by the bank that does not include evidence that adequately undermines the claims made by the mortgagor in the hardship declaration will be denied.

Can a hardship declaration be invalidated by a Landlord?

If a hardship declaration is filed in a residential eviction action, landlords can still evict tenants that are creating a nuisance. In the case of Schwesinger v. Perlis, 71 Misc. 3d 576, 586, 143 N.Y.S.3d 830, 838 (N.Y. Civ. Ct. 2021)), the Court held that the landlord must show that the tenant is engaging in unreasonable behavior that substantially infringes on the use and enjoyment of other tenants or occupants or is causing a substantial safety hazard to others to bypass a hardship declaration being filed. Behavior committed by a tenant that is considered a nuisance is determined on a case-by-case basis. 

Can a claim of financial hardship be challenged by a Landlord?

Landlords that also wish to challenge a tenant’s financial hardship have encountered a myriad of different outcomes depending on the Court in which the case is held. Depending on the Court, Landlords have been required to either follow the standard set out in Southern Acquisition Co. LLC and file a motion providing evidence that “competently attacks” the financial hardship claims while other Courts have bypassed that step entirely and scheduled a hearing to determine whether a financial hardship truly exists. 

Can a claim of medical hardship be challenged by a Landlord?

Landlords are specifically barred from challenging a hardship declaration based upon a significant health risk under the Act. In Piscionere v. Gori, No. LT-19-123, 2021 WL 189636, at *2 (N.Y.City Ct. Jan. 14, 2021), the Court held that under the Act the landlord must accept hardship declaration based upon a significant health risk without the opportunity to rebut the tenant’s claims. 

Have questions about the Foreclosure Moratorium in New York?

Clair Gjertsen & Weathers PLLC continues to monitor this ever-changing landscape. For additional questions regarding a hardship declaration that you submitted and other related issues, we invite you to contact Clair Gjertsen & Weathers PLLC by calling 914-472-6202. We look forward to hearing from you.

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