NY's New Foreclosure Standing Law

Perhaps the hottest contested issue in New York mortgage foreclosure litigation following the financial crisis of 2008 is the assertion of the defense of “standing to foreclose.” Did the bank/servicer/assignee have an actionable interest that would allow it to foreclose on the mortgage? Put differently, did the holder or assignee of the Promissory Note and Mortgage possess it at the time the foreclosure action was filed?

Long overdue and after much lobbying, the New York legislature has reversed a long time rule against consumers in foreclosure. On December 23, 2019, New York Governor Cuomo signed 2019 NY SB 5160 into law, instituting Real Property Actions and Proceedings Law (RPAPL) §1302-a stating:

“Notwithstanding the provisions of CPLR 3211(e), any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in RPAPL 1304(6)(a), shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon the defendant’s default. “

This new law creates an exception to CPLR §3211(e) giving consumers a defense based on a bank, servicer or other financial institution’s lack of standing which now cannot be waived in foreclosure actions involving “home loans” as defined in RPAPL §1304(6)(a).

Traditionally, homeowners in foreclosure waived the defense of lack of standing if they did not timely assert it in the Answer or by motion to dismiss within the tight time frame. CPLR §3211(e); Fossella v. Dinkins, 66 N.Y.2d 162 (1985). The New York Appellate courts have held that if a defendant fails to raise the defense in his/her initial Answer or motion, the defense is waived and the bank/servicer is relieved of its burden to prove standing. Wells Fargo Bank Minnesota, N.A. v. Mastropaolo, 42 A.D.3d 239, 837 N.Y.S.2d 247 (2d Dep’t. 2007); also CPLR 3211(e).

RPAPL 1302-a now requires foreclosure plaintiffs to prove standing, even after auction sale if on default. The law is limited only to “home loans,” which are loans with a natural person and property that “is or will be occupied by the borrower as the borrower’s principal dwelling.” RPAPL §1304(6)(a)(1). So defendants that do not live in the property as their primary residence, and who are for example, renting it out, cannot avail themselves of the new law.

A foreclosure defendant can now assert lack of standing even after sale at auction where the judgment of foreclosure and sale was entered after a defendant’s default. Default is a failure to answer or otherwise respond to a pleading. A precursor to a Judgment of Foreclosure and Sale is a granted motion for summary judgment under CPLR §3212. Default probably also means the homeowner’s failure to oppose summary judgment.

The new standing law will have a profound effect on successful purchasers and title companies at auction sales. If a foreclosure can be reversed at such a late stage, there is now new meaning to those entities’ “due diligence.” Foreclosure plaintiffs and their counsel must now be ready to prove standing in every case at the outset.

Title companies and auction bidders at foreclosure sales must now carefully scrutinize whether the standing defense was asserted in the action and whether it was ruled upon by the Court. If that procedural history is missed, both of these entities can themselves be subject to litigation.

For title insurance, the cost of title insurance may increase, and the insurability of title transfers following foreclosure sales can be called into serious question. It is quite possible that the specter of post-sale litigation due to the new standing law will drive down competition amongst prospective purchasers at foreclosure auctions and reduce bid prices. A true nightmare for foreclosure plaintiffs may arise in their ability to produce records retained and executed so many years prior. They may be called upon to produce records even long after the property was sold at auction.

Our firm has already prepared motions to challenge standing under this new and wide-ranging law. We stand ready to defend foreclosures in a number of contexts, and at various points in time in the litigation.

If you are interested in challenging standing under this new RPAPL section, please call or email Kupillas, Unger & Benjamin at (212) 835-1532. We file these motions primarily in the five boroughs of New York City, Long Island’s Nassau and Suffolk Counties, Westchester, Rockland and certain counties in upstate New York.