In New York,
blight fright is turning lenders into landlords with unintended consequences
1307, Duty to maintain foreclosed property, effective April 14, 2010, changes
fundamental property rights as we know them in New York.
When, on December 15, 2009, New York's Governor Patterson
signed into law new legislation aimed at strengthening the foreclosure laws
enacted in September of 2009, most of
the provisions of the new law dealt with notifications for mortgagors and
tenants alike. But not all. RPAPL 1307
provides that, effective April 14, 2010, "a
plaintiff in a mortgage foreclosure action who obtains a judgment of
foreclosure...shall maintain such property until such time as ownership has been
transferred through the closing of title in foreclosure, or other disposition,
and the deed for such property has been recorded."
RPAPL 1307 applies to residential real property that is vacant,
or becomes vacant after the judgment, or is abandoned by the mortgagor but
still occupied by a tenant and the plaintiff's maintenance obligation is
suspended during bankruptcy or receivership.
RPAPL 1307 also creates a new cause of action to be maintained
by the municipality, any tenant lawfully in possession, or any board of
managers of a condominium association or a homeowners association if the
property is subject to either, to recover the cost of maintenance.
RPAPL 1307 is a big deal.
It's a big deal that mortgagors can leave their properties without
responsibility (after judgment, of course).
It's a big deal that plaintiffs (effectively lenders) are now landlords
It is my understanding that the intent behind RPAPL 1307 was
to help municipalities where foreclosures are high and blight is rampant, and
to protect tenants who have been left high and dry by their landlords. Both noble causes, for sure, but at what
cost? Up until this moment, the person
in title on a deed had all the rights and obligations associated with property
ownership and no one else could enter without permission or had the obligation
to do so. Now, a plaintiff is strapped
with responsibility and liability that are potentially limitless. Remember, a mortgagee in New York merely has
a lien on real property, not an ownership interest.
As with a lot of legislation, this one is severely lacking
in clarity. First, when exactly is a
judgment "obtained"? Just for fun, I
asked around. I got a variety of answers
but most commonly was "I don't know." Is
it when the judge signs the judgment? Is
it when the plaintiff receives a copy of the signed judgment? Is it when the judgment is filed? Any lawyer in New York knows that these are three very
different dates, the first of which is not known to the plaintiff until well
after it has already occurred.
Presuming we can determine when the obligation begins, when
will it end? The time period is lot
longer than what I suspect people believe it to be. One would guess that the time between
judgment of foreclosure and sale and recording of the deed would not be an
extremely long period of time; however, it is in this period of time that the
majority of the delays occur. In my experience,
this is the time when the mortgagor in denial finally takes his or her head out
of the sand and tries to do something to save their home. It is this period when motions are brought to
stay the foreclosure sale or last-ditch efforts to sell the property or work something
out with the lender are made. With this
obligation looming, I can tell you that lenders will be much less likely to
voluntarily delay the foreclosure sale in anticipation of a settlement. As if this undetermined period of time isn't
burdensome enough, this legislation goes so far as to alter the ownership
responsibility that is otherwise shifted to the buyer at foreclosure auction
once the property is struck down. It is
at that point that the mortgage is extinguished and the mortgagee no longer has
an interest in the property. Since this
responsibility lasts until "recording of the deed," the plaintiff remains on
the hook while waiting for the third party buyer to complete the transaction
and record the deed.
Next, how does one know precisely when a property has been
abandoned, or if it has been abandoned at all?
I don't see a notification provision requiring the mortgagor to alert
the plaintiff to this abandonment and the statute provides no definition of the
Thankfully, "maintain" is defined in the statute as "keeping
the subject property in a manner that is consistent with the standards set
forth in the New York Property Maintenance Code, Chapter 3, Sections 301, 302
(excluding 302.2, 302.6 and 302.8), 304.1, 304.3, 304.7, 304.10, 304.12,
304.15, 304.16, 307.1, and 308.1; provided, however, that if the property is
occupied by a tenant, then such property must also be maintained in a safe and
habitable condition," which includes the cost of heat. Chapter three provides for maintenance in the
following categories: sanitation,
sidewalks and driveways, weeds and lawn care, rodents, accessory structures,
premises identification, roofs and drainage, stairways, decks, porches and
balconies, handrails and guards, windows, skylights and door frames, doors,
basement hatchways, free of rubbish and garbage, and exterminate when
necessary. So, basically, it is all the
expense of home ownership with none of the rights. Can the cost of the maintenance be charged
back to the mortgagor? The statute does
not address this issue but it would most likely be governed by the mortgage
When the property is occupied by a tenant, maintenance takes
on an entirely new meaning. Plaintiffs
will have all of the obligation of a landlord but none of the rights of
eviction or otherwise. Tenants can run
rampant and the plaintiff can do nothing.
When the toilet backs up, is the tenant to call the plaintiff to fix
it? What plaintiff/lender has the
capacity to handle these situations? If
someone gets hurt at the property, who will be responsible?
So why should we care, anyway? Let the big bad lenders pay for all of this,
they have the deep(er) pockets, right?
We should all know by now that costs like these are eventually passed on
to consumers in more ways than one. Mortgagors
in default will lose the benefit of settlement talks after judgment. New borrowers will face stricter lending
standards, if they can find a loan at all in New York.
Lenders will face costs and tort liability in uncertain amount and
duration wholly unanticipated when these loans were made. While I understand the need to fight blight
and protect tenants, the consequence of this statute will go something like
this: Plaintiffs will evaluate the
property before taking judgment, and if it is too risky, too full of tenants,
and/or too dilapidated, they will abandon the foreclosure then. No judgment, no obligation to maintain. The result?
Blight and abandoned tenants.
For additional analysis of this far-reaching change to
foreclosure law in New York, see emerging issues analysis New Foreclosure Statute in New York -- Lawmakers Hammer
Mortgage Lenders by Bruce J. Bergman available on Lexis.com as well as additional
extensive coverage in Mr. Bergman's treatise entitled Bergman on New York Mortgage Foreclosures published by
LexisNexis Matthew Bender, available in print and on Lexis.com.