Money Source, Inc. v Mevs (2020 NY Slip Op 20181)

It is ordered that this motion (No. 004) by PDQ Equities, LLC, brought by way of order to show cause, dated November 21, 2019 (Whelan, J.), seeking an order granting leave to intervene and, upon intervention, for an order providing for an abatement in the purchase price of [*2]the property is granted in part and denied in part; and it is further ordered that the cross motion (No. 005) by plaintiff, seeking to compel PDQ Equities, LLC to complete the closing of the residential foreclosure sale within seven days of denial of PDQ Equities, LLC's order to{**69 Misc 3d at 240} show cause is denied; and it is further ordered that PDQ Equities, LLC is directed to complete the closing of the residential foreclosure sale within 14 days of filing of the notice of entry of this short form order; and it is further ordered that any and all stays set forth in the order to show cause, dated November 21, 2019, are vacated in their entirety; and it is further ordered that plaintiff is directed to file a notice of entry within five days of receipt of this order pursuant to 22 NYCRR 202.5-b (h) (2).

Familiarity with this court's order confirming the referee report and judgment of foreclosure and sale dated July 11, 2019, is presumed. Thereafter, on October 23, 2019, the property was sold to nonparty movant, PDQ Equities, LLC (PDQ). Pursuant to the terms of sale, the closing was to take place on or before November 22, 2019. On October 26, 2019, however, PDQ's representatives visited the property and observed that two large trees fell into a pool in the backyard. PDQ now seeks permission to intervene pursuant to CPLR 1012 and an abatement of the purchase price due to the damage. The order to show cause stayed the instant action and enjoined any default on behalf of PDQ or forfeiture of its deposit pending determination of the application. The plaintiff opposed same, and has cross-moved to compel PDQ to complete the closing within seven days of the within decision.

[1] That portion of the motion (No. 004) by nonparty winning bidder, PDQ, seeking intervention is granted. PDQ relies on General Obligations Law § 5-1311, which permits a purchaser who experiences damage to purchased property prior to transfer of legal title to seek either rescission of the contract or abatement of the purchase price. However, while plaintiff concedes the remedy, it is plaintiff's position that the initial risk of loss, which is on the seller, here, due to the contract between the parties, has been transferred to PDQ. The court must agree. The critical language in the terms of sale (see ¶ 9) is "[p]urchaser assumes all risk of loss or damage to the premises from the date of sale until the date of closing and thereafter." So, in this case, the controlling date is not the date of sale at the auction but the date of closing. Therefore, General Obligations Law § 5-1311 does not apply to the facts of this case.

[2] While the court agrees that the cross motion is untimely pursuant to CPLR 2215, since PDQ moved by order to show cause, plaintiff is permitted to file its opposition to the order to{**69 Misc 3d at 241} show cause on the return date. The court has considered same as opposition. In any event, the court will not limit the time for the rescheduled closing to just seven days, but rather to extend the time frame to 14 days. The closing is simply ministerial at this point in time.

Suspensions Relating to Foreclosure Actions

In 2015, the New York State Unified Court System case load management project showed that there were 17,674 total pending foreclosure actions in Suffolk County and as of the first term of 2020 there were still pending 6,140. In response to the COVID-19 pandemic, Governor Andrew Cuomo declared a state disaster emergency, the authority for which is set forth below.

Executive Law § 29-a, entitled "Suspension of other laws," expressly permits the Governor to "temporarily suspend any statute, local law, ordinance, or orders, rules or regulations, or parts thereof, of any agency during a state disaster emergency." (§ 29-a [1].) The suspension order is clearly limited in duration as follows: "no suspension or directive shall be made for a period in excess of thirty days, provided, however, that upon reconsideration of all of the relevant facts and circumstances, the governor may extend the suspension for additional periods not to exceed thirty days each." (§ 29-a [2] [a].)

Pursuant to section 29-a (2) (e) the suspension order or directive:^[FN1] "shall provide for the minimum deviation from the requirements of the statute, local law, ordinance, order, rule or regulation suspended consistent with the goals of the disaster action deemed necessary."

Every executive order makes explicit reference to Executive Law § 29-a for its authority.

On March 7, 2020, Governor Cuomo issued Executive Order (A. Cuomo) No. 202 (9 NYCRR 8.202), which declared a state of emergency for the entire State of New York, due to the increasing transmission of COVID-19.{**69 Misc 3d at 242}

Thereafter, on March 20, 2020, the Governor issued Executive Order No. 202.8, entitled "Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency," which temporarily suspended or modified any time limitations set forth in any statute, legislative or administrative act, from March 20, 2020, until April 19, 2020. In particular,

Additionally, with regard to foreclosure actions, the following directive was issued through April 19, 2020: "There shall be no enforcement of . . . a foreclosure of any residential . . . property for a period of ninety days." (Id.)

This provision was in direct conflict with Executive Law § 29-a (2), which limits executive action to only 30 days.

However, prior to the running of 30 days of Executive Order No. 202.8, the Governor issued Executive Order No. 202.14, on April 7, 2020, which continued the suspension and modifications of Executive Order No. 202.8 for 30 days until May 7, 2020. This order contained various specific modifications of laws.

This executive order, issued on May 7, 2020, continued the suspension and [*3]modifications of 202.8 and 202.14 for an additional 30 days until June 6, 2020. This order discontinued various suspensions and modifications and specifically modified other laws, but with regard to foreclosures the order held that through June 6, 2020:

{**69 Misc 3d at 243}This provision, which added a hardship affirmative defense to new foreclosure actions or the enforcement of an action, conflicts with Executive Law § 29-a (2) (a), in that it extends for more than 30 days, beyond May 7, 2020.

But then, on June 6, 2020, within the 30-day time frame, the Governor issued Executive Order No. 202.38, which continued the suspension and modifications of 202.14 and 202.27 and 202.28 until July 6, 2020. The order also added various directives to commercial buildings and retail store owners.

Finally, on July 6, 2020, the Governor issued Executive Order No. 202.48. While continuing the suspension and modifications for another 30 days through August 5, 2020, it discontinued various suspensions and modifications of numerous statutes, including residential foreclosures. As to foreclosures, Executive Order No. 202.48 states:

So, in light of Executive Order No. 202.48, there is no longer any directives from the Governor with regard to residential foreclosure actions, which are now subject to the statutory changes set forth in chapters 112, 126, and 127 of the Laws of 2020. Those laws are discussed below. The prohibition set forth in 202.8, that is, "[t]here shall be no enforcement of . . . a foreclosure of any residential . . . property" (see also 202.14), is no longer in effect. Additionally, Executive Order No. 202.28, which directed that there can be "no initiation of a proceeding or enforcement of . . . a foreclosure of any residential . . . mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic," is no longer in effect and is superceded by the new legislation.{**69 Misc 3d at 244}

The executive orders, as set forth above, demonstrate compliance with the dictates of Executive Law § 29-a (2) (e), in that, as time passes, the orders were modified to "provide for the minimum deviation from the requirements of the statute, . . . suspended consistent with the goals of the disaster action deemed necessary."

On June 17, 2020, Governor Cuomo signed into law a new section of the Banking Law, that is, section 9-x. This section created new procedures with regard to forbearance of residential mortgage payments affected by the COVID-19 pandemic. The "covered period" begins on March 7, 2020, and runs until there are no restrictions on nonessential gatherings of any size for the county of the residence. (Banking Law § 9-x [1] [a].) The new law requires the borrower to be a natural person and the loan be a "home loan," as defined in RPAPL 1304 (6) (a). (Banking Law § 9-x [1] [b].) A "qualified mortgagor" must also "demonstrate[ ] financial hardship as a result of COVID-19 during the covered period." (Id.)

There is little doubt that the new statute is designed to only address mortgages affected by the COVID-19 pandemic and should not apply to borrowers who defaulted before the start date of March 7, 2020. Such is evident from the reading of section 9-x (4), which makes this section "a condition precedent to commencing a foreclosure action stemming from missed payments which would have otherwise been subject to this section." Therefore, this new law does not apply to actions commenced prior to March 7, 2020. Importantly, the new law only applies to New York State regulated mortgage loans and not federal instrumentalities or a corporate government agency of the State constituted as a political subdivision and public benefit corporation.

Mortgage servicing is highly regulated in New York under the State's DFS, which issued emergency regulations and guidance letters in keeping with the Governor's executive orders.

On March 24, 2020, DFS issued emergency regulations (3 NYCRR part 119) requiring New York-regulated banks and mortgage servicers to grant a 90-day forbearance to New York residents with New York State mortgages, who demonstrate{**69 Misc 3d at 245} financial hardship caused by COVID-19. This emergency regulation is not applicable to, and does not affect any mortgage loans made, insured, or securitized by any agency or instrumentality of the United States, any government sponsored enterprise (Freddie Mac and Fannie Mae), or a federal home loan bank. It is estimated that about 70% of mortgage loans are federally insured.

Previously, by guidance letter dated March 19, 2020, to all New York State regulated and exempt mortgage servicers, DFS directed support for borrowers impacted by COVID-19, with the following:

So, with regard to New York State regulated mortgage servicers, they were directed by DFS to postpone foreclosure for 90 days from March 19, 2020, until June 17, 2020. With the [*4]passage of Banking Law § 9-x, DFS has not issued any new guidance letters.{**69 Misc 3d at 246}

There have been numerous administrative orders issued by the Chief Administrative Judge of the Courts (CAJ) and the local District Administrative Judge for Suffolk County (DAJ). On March 16, 2020, Administrative Order No. 68/20 was issued by the CAJ, seeking to "mitigate the effects of the COVID-19 outbreak upon the users, visitors, staff, and judicial officers of the Unified Court System." (Admin Order of Chief Admin Judge of Cts AO/68/20 at 1.) Under the category of Supreme Court, only "[e]ssential applications as the court may allow" were permitted. (Id.) Under the category of "Housing matters," one finds the following: "All residential foreclosure proceedings shall be suspended statewide until further notice." (Id. at 2.)

The DAJ issued Order No. 45-20, on May 28, 2020, which reopened the courthouses on May 29, 2020, except as follows: "ORDERED that all foreclosure proceedings are suspended and no foreclosure auction shall be scheduled or held. Reference is made to Administrative Order 68/20 and Executive Orders 202.8, 202.14 and 202.28." (Admin Order of Dist Admin Judge of Suffolk County Order No. 45-20 at 2.)

A memorandum from the DAJ, dated June 5, 2020, discussed the Phase II Plan to resume in-person court operations, but noted the following: "All foreclosure proceedings are suspended (Chief Administrative Judge Lawrence Marks' AO/87/20, 10th Judicial District, Suffolk County's AO 45-20)."

A further memorandum from the DAJ, dated June 18, 2020, discussed the Phase III Plan to resume in-person court operations, but noted the following: "All foreclosure proceedings are suspended (Chief Administrative Judge Lawrence Marks' AO/87/20, 10th Judicial District, Suffolk County's AO 45-20)."

On June 23, 2020, the CAJ issued AO/131/20, which requires all commencement papers for residential foreclosures to include two additional documents. (Admin Order of Chief Admin Judge of Cts AO/131/20.) The documents include a good faith affirmation that the new action is consistent with all state and federal restrictions on foreclosure proceedings, including those set forth in Executive Order No. 202.28. As noted above, 202.28 has been superceded by statute, as per Executive Order No. 202.48. The second document adds an additional notice to tenants as to the possible filing of a late answer.

This June 23, 2020 administrative order contains the additional directive:{**69 Misc 3d at 247}

On the same day, June 23, 2020, the CAJ issued a memorandum, entitled "Procedure for Addressing Residential and Commercial Foreclosure Proceedings." It discussed temporary protocols for handling foreclosures and states: "[n]o motions other than motions to discontinue a pending case shall be entertained or decided. . . . At or before the expiration of the Governor's Executive Order suspending statutory timetables, we will issue further directives on the processing of these cases." (Mem of Chief Admin Judge of Cts at 2 [June 23, 2020].)

The June 23, 2020 AO/131/20, while making mention of the Governor's previous executive orders, [*5]expands "suspension" to all aspects of pre-COVID-19 foreclosure actions, and not just enforcement of same. (Admin Order of Chief Admin Judge of Cts AO/131/20.) Importantly, however, the duration of same runs only until "state and federal emergency measures addressing the COVID-19 pandemic amend or suspend statutory provisions governing foreclosure proceedings, or until further order." (Id.)

The memorandum of the same date limits motion practice to only motions to discontinue and links the duration of same to the directives of the Governor's executive orders as to the continued suspension of the statute of limitations and not to the emergency measures on residential foreclosures. Moreover, Banking Law § 9-x only relates to New York State regulated mortgage servicers. Therefore, it becomes necessary to examine federal emergency measures.^[FN2]

In recognition of Executive Order No. 202.48, the CAJ issued a new memorandum, dated July 7, 2020, and a new administrative{**69 Misc 3d at 248} order, AO/143/20, of the same date, which revoked the service of an attorney's affirmation with the complaint in a foreclosure action, thereby amending AO/127/20 and AO/131/20. (Admin Order of Chief Admin Judge of Cts AO/143/20.) Therefore, with the Governor's recent issuance of Executive Order No. 202.48, there is no longer a state emergency measure addressing the COVID-19 pandemic as for residential foreclosures. Servicers and plaintiffs, initiating new actions, have to comply with the newly enacted Banking Law § 9-x and upon federal emergency measures, discussed below.

On March 13, 2020, President Donald Trump declared a national emergency concerning the novel coronavirus disease outbreak, under the National Emergencies Act (50 USC § 1601 et seq.).

Federally insured mortgage loan agencies, such as Freddie Mac, also issued various guidance bulletins to mortgage servicers. Bulletin 2020-4, issued on March 18, 2020, clarified that a COVID-19 related hardship is eligible for forbearance plans and various loan modification plans, if the borrower was current or less than 31 days delinquent. (Freddie Mac Single-Family, Bulletin 2020-4 [Mar. 18, 2020].) Importantly, this bulletin issued the following foreclosure sale moratorium: "Servicers must suspend all foreclosure sales for the next 60 days. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned." (Id. at 3.)

Therefore, only foreclosure sales were forbidden until May 17, 2020, by Bulletin 2020-4.

With the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by the President on March 27, 2020, borrowers who were facing hardship in the repayment of federally backed mortgage loans were provided a right to request mortgage payment forbearance, upon the submission of a request to the servicer and an affirmation of a financial hardship caused by the emergency, "regardless of delinquency status" (15 USC § 9056 [b]). The CARES Act also imposed the following 60-day foreclosure moratorium until May 15, 2020, except where the property is vacant or abandoned:

So, with relation to foreclosure actions, the CARES Act created a 60-day moratorium on (1) initiation of a foreclosure action, (2) motions for a judgment of foreclosure and sale, and (3) the execution of an actual foreclosure sale. The moratorium of the CARES Act has not been amended or extended by Congress beyond May 15, 2020.

However, various federal agencies began issuing temporary letters, guidelines or orders to servicers of federally backed loans.

Freddie Mac issued Guidance Bulletin 2020-10, on April 8, 2020, which stated under the heading "Foreclosure moratorium":

As noted above, the language of the CARES Act set forth a moratorium for three events: commencement of an action, motions for a judgment and the actual foreclosure sale. It appears that the bulletin can be read more expansively than the wording of the CARES Act itself.

One day prior to the termination date of the CARES Act moratorium, Freddie Mac issued Guidance Bulletin 2020-16, on May 14, 2020, which, in part, stated:

As noted above, the CARES Act only provided for a limited moratorium until May 15, 2020. Bulletin 2020-16 does not express the legal authority for any extension of the COVID-19 foreclosure moratorium beyond the three items listed above. Again, the bulletin appears to be broader in scope and wording.

Then, Freddie Mac issued Guidance Bulletin 2020-25, on June 24, 2020, which contained the following:

Once again, this bulletin fails to set forth the legal authority for this extension of the CARES Act moratorium, which was limited in scope and duration. While the guidance bulletins set forth above related to Freddie Mac, under the controlling authority of the Federal Housing Finance Agency (FHFA), the moratorium also applies to Fannie Mae backed [*7]mortgages.^[FN3]

Similarly, the Veterans Benefits Administration issued circulars announcing a moratorium on foreclosures, with the most recent being Circular 26-20-22, issued on June 17, 2020. (US Veterans Benefits Admin Circular 26-20-22, Extended Foreclosure Moratorium for Borrowers Affected by COVID-19 [June 17, 2020].) That circular extended the moratorium to August 31, 2020. The moratorium "applies to the initiation of foreclosures, and to the completion of foreclosures in process." (Id.) So, there cannot be the filing of new foreclosure actions, or the completion, which this court believes to be a motion for a judgment of foreclosure and sale or an order of eviction.{**69 Misc 3d at 251}

The United States Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2020-04, on March 18, 2020, which noted that "the Secretary of HUD is authorizing a [60-day] moratorium on foreclosures" on FHA-insured single family mortgages. (US Dept of Hous & Urban Dev Mortgagee Letter 2020-04, Subject: Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency at 2 [Mar. 18, 2020].) In particular, "[t]he moratorium applies to the initiation of foreclosures and to the completion of foreclosures in process." (Id.) No authority is offered for the moratorium powers of the Secretary of HUD.

Mortgagee Letter 2020-06 of April 1, 2020, offers a special loss mitigation option to mortgagees who are current as of March 1, 2020. (US Dept of Hous & Urban Dev Mortgagee Letter 2020-06, Subject: FHA's Loss Mitigation Options for Single Family Borrowers Affected by the Presidentially-Declared COVID-19 National Emergency in Accordance with the CARES Act [Apr. 1, 2020].)

Mortgagee Letter 2020-13 of May 14, 2020, extends the moratorium set forth in Mortgagee Letter 2020-04 until June 30, 2020. (US Dept of Hous & Urban Dev Mortgagee Letter 2020-13, Subject: Extension of Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency and New Reporting Requirements Related to FHA Single Family's CARES Act Loss Mitigation Options [May 14, 2020].) However, the letter appears to now contain a broader reach than either the CARES Act or Letter 2020-04, stating: "The moratorium applies to the initiation of foreclosures and to foreclosures in process." (Mortgagee Letter 2020-13 at 2.)

Then, on June 17, 2020, by Mortgagee Letter 2020-19, the moratorium on FHA-insured loans is extended to August 31, 2020. (US Dept of Hous & Urban Dev Mortgagee Letter 2020-19, Subject: Extension of Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency [June 17, 2020].)

Housing assistance agencies that have examined the various federal agency programs, such as the National Housing Law Project, have issued advisories that conclude the following as to foreclosure protections: "What it does: Prevents mortgage {**69 Misc 3d at 252}servicers from initiating a judicial or non-judicial foreclosure, seeking a court order for a foreclosure judgment or order of sale, holding a foreclosure sale or executing a foreclosure-related eviction." (National Housing Law Project, Foreclosure Protection and Mortgage Payment Relief for Homeowners at 2 [updated June 18, 2020].)

While acknowledging the expiration of the CARES Act moratorium, the update also noted that "all covered federal agencies have announced extensions through June 30 [now Aug. 30]." (Id.)

In an effort to ascertain what, if anything, can be addressed in its existing inventory, this court meticulously examined the above laws, executive orders, administrative orders, memoranda, guidelines, bulletins and temporary letters.

There are important points to remember, including that (1) the moratorium of the CARES Act has expired; (2) the Governor's most current executive order, that is, No. 202.48, only precludes enforcement of commercial foreclosure proceedings; and (3) the most recent and controlling administrative order from the CAJ, that is, AO/131/20 (as amended), only remains in effect for such time "as state and federal [*8]emergency measures addressing the COVID-19 pandemic amend or suspend statutory provisions governing foreclosure proceedings." There is no longer any state prohibition on pre-COVID-19 residential foreclosure proceedings and the new state legislation, detailed above, is addressed to initiation of new proceedings.

The federal temporary guidelines for Freddie Mac, Fannie Mae, and VBA preclude servicers and plaintiffs from the initiation of any judicial or non-judicial foreclosures, motions for foreclosure judgment or order of sale and actual foreclosure sales until August 31, 2020. Only actions involving FHA-insured mortgages are apparently under a broader prohibition, applying to "foreclosures in process." (Admin Circular 26-20-22; Mortgagee Letters 2020-04, 2020-13.)

As noted above, there were 6,140 pending foreclosure actions in Suffolk County in the first term of 2020. This Part's inventory consists of nearly 725 pending foreclosure actions as of the 5th Term of 2020, which are all pre-March 7, 2020 actions. Therefore, with regard to these pending actions and submitted motions, this court will not address any new cases initialized{**69 Misc 3d at 253} after March 7, 2020. New cases will only be addressed to see if they involve vacant or abandoned properties. Additionally, this court will not address actions concerning FHA-insured mortgages or pending motions for a judgment of foreclosure and sale, or eviction. All other motions emanating from the pre-COVID-19 filed cases will be addressed by the court.^[FN4]

Therefore, enforcement proceedings, including the entering of a judgment of foreclosure and sale, the scheduling of a foreclosure sale and/or the issuance of an eviction order, are, and will be, stayed and adjourned, pending further order of the court.

In the instant case, the court, therefore, grants in part and denies in part PDQ's motion (No. 004), and denies plaintiff's cross motion (No. 005) in its entirety, as indicated above.