New foreclosure law benefits Long Island homeowners
In May 2010, Hallie Maggi received notice from her mortgage company that it was foreclosing on her family’s home in Hauppauge.
Nearly 13 years later, she is optimistic that she and her husband Steven will soon be able to put the case behind them and will own their home free and clear.
That's because a new law could help the family win a legal fight with their mortgage holder over their house's title as it shifts the balance of power in foreclosure cases toward borrowers and away from banks. While it may benefit the Maggis and others like them, there is debate about whether the law will help resolve foreclosure cases more quickly.
WHAT TO KNOW
- A new foreclosure law has shifted power toward borrowers and away from lenders, according to local attorneys.
- The law addresses the statute of limitations for filing foreclosure cases and strips lenders of flexibility they were granted through a 2021 decision by the state Court of Appeals.
- The law could help Long Island homeowners who have been involved in lengthy foreclosure cases.
On Dec. 30, Gov. Kathy Hochul signed the Foreclosure Abuse Prevention Act, a law designed to limit the ways mortgage lenders can extend the six-year statute of limitations for judicial foreclosure cases. The law is intended to overrule a 2021 decision by the Court of Appeals, Freedom Mortgage Corp. v. Engel, that gave lenders greater flexibility to stop and start foreclosure cases.
Under that decision, it was possible for lenders to voluntarily discontinue a case against a mortgage borrower and then later refile the case, resetting the six-year statute of limitations.
The decision led to a “flurry of motions” from mortgage lenders and servicers seeking to re-open cases, according to a memo written by the bill's lead sponsor in the State Senate, Sen. James Sanders Jr., who represents southeast Queens.
Sanders compared the flexibility the court decision gave to lenders with that of personal-injury plaintiffs. “The same way personal injury plaintiffs cannot unilaterally reset or otherwise extend the applicable statute of limitations to interpose their claim by ‘un-injuring’ and then ‘re-injuring’ themselves,” the law makes clear lenders cannot stop and start cases to extend the time they have to file a claim, according to the memo.
The law means lenders cannot file a new foreclosure case more than six years after they initiated the first one; it doesn't mean cases that remain active in the courts must be decided within six years. It applies retroactively to all pending foreclosure cases filed before Dec. 30.
While the law aims to protect homeowners, an attorney who frequently represents lenders said it could end up hurting them. The law gives lenders less flexibility to take time to work out a deal with borrowers facing foreclosure, said Brian McGrath, a partner at law firm Hinshaw & Culbertson in Manhattan.
“Mortgage lenders will have to be extremely careful in pursuing mortgage foreclosure actions in the quickest possible time frame they can,” he said. “All the time they’re trying to work with the borrower, not pursuing in quick speed the foreclosure action, is going to count against their ability to recover on that lien."
Christopher Gorman, a partner at Abrams Fensterman in Lake Success, said he sees it differently. His hope is that the law will encourage lenders to offer more reasonable settlements as they try to resolve long-stagnant cases, some of which originated from the 2008 housing crisis.
While he doesn't expect the law to have far-reaching effects on Long Island real estate as a whole, it will be important to a subset of borrowers, particularly those involved in older foreclosure cases. That makes it difficult to predict how many cases will be affected, he said.
"We don’t really know if this statute is going to impact 100 cases, 1,000 cases [or] 5,000 cases," Gorman said.
But he believes the consequences of the law will draw resistance from lenders.
"I fully expect it to be challenged if for no other reason than it shifted the paradigm in this area so much from in favor of lenders to in favor of borrowers," Gorman said.
Thousands of cases a year
In the aftermath of the 2008 housing crisis, New York State passed laws increasing protections for homeowners, including the requirement that banks mail notices at least 90 days before filing foreclosure cases and attend mandatory settlement conferences in which borrowers and lenders attempt to reach a deal without going to trial.
Among New York foreclosure cases that were completed in the fourth quarter of 2022, the average duration was just shy of five years. That was the fourth-longest amount of time among U.S. states, according to the property data company ATTOM.
During the COVID-19 pandemic, the state had issued a moratorium on new residential foreclosure cases that ended Jan. 15, 2022. But recent data show new foreclosures haven't returned to pre-pandemic levels.
Long Island had the fewest loans in foreclosure, 6,034, at the end of December than at any time since at least 2017, according to Black Knight, a mortgage technology and data company, which provided local statistics to Newsday. That's down about 30% compared with December 2021.
"The surge that many predicted has not materialized and hopefully never will," the state court system wrote in an annual report on foreclosures. It credited a strong housing market, federal policies encouraging loan modifications, lenders' willingness to discuss settlements and nonprofits' housing counseling services with helping to stave off a deluge.
Among all residential mortgages, 0.75% are in foreclosure in Nassau and 1% are in foreclosure in Suffolk, according to Black Knight. The Island still outpaces the United States as a whole, in which 0.4% of mortgages were in foreclosure.
One Long Islander’s fight
In 2009, Hallie Maggi was working in a commission-based job in equipment finance — lenders helping businesses buy equipment — and her husband Steven was working as a truck driver when their income dropped significantly.
After buying their three-bedroom home in Hauppauge from Steven’s parents in 1999, the couple had refinanced their mortgage in 2005. The fixed-rate loan had a balance of $342,000, according to court documents.
They first missed a payment in early 2009 and in March, their mortgage holder and servicer Everhome Mortgage sent the couple a 30-day notice that they had defaulted.
More than a year later, in May 2010, Everhome filed a foreclosure lawsuit against the Maggis. The attorney representing Everhome worked for Steven J. Baum P.C., a law firm that later reached a settlement with the state attorney general over abusive practices in its foreclosure-related legal work. The Amherst, N.Y.-based firm, which shut down in 2011, filed more than 100,000 foreclosure cases from 2007 to 2010.
In August 2010, that law firm filed a second lawsuit on behalf of Everhome to recover the same debt.
“We didn’t understand, ‘We were like, why are you doing this again?” Maggi said.
In 2010, Everhome discontinued the first foreclosure case and a judge dismissed the second in 2013 for failure to make certain court filings as directed or provide a reason for its non-compliance. The only problem was Maggi, who had been handling the foreclosure cases without an attorney, had no idea what had happened. .
During that time, Maggi was receiving calls from different companies, with dubious offers to help save her house or to buy it at a steep discount.
“It feels abusive,” she said.
By 2018, with the cases seemingly unresolved, Maggi started working with the Young Law Group in Bohemia to represent her in what she thought was a foreclosure case. During this time, the Maggis and their two sons continued living in their home with the specter of foreclosure looming.
Attorney Justin Pane, who took over the practice from its founder Ivan Young, said the law firm found at the time that the cases against her were no longer active.
“She meets us in 2018 and goes, ‘Help me save my house.’ We’re like, ‘What do you mean? You’re not in foreclosure,’” Pane recalled. “This whole time, her credit shows she’s in active foreclosure, but there’s technically no foreclosure action against her after 2013.”
The timeline for the statute of limitations starts when a bank "accelerates" a loan, often by filing a foreclosure case, and demands payment in full. At that point, a borrower's only recourse to get their typical monthly payments reinstated may be to pay all they owe, plus any additional fees, or pay the loan in full, depending on the individual's mortgage agreement. A bank can "deaccelerate" a case, voluntarily discontinuing the foreclosure to work out a deal with a borrower, but Pane noted Maggi's case was dismissed, not discontinued. It's unclear why Maggi's mortgage holder didn't seek to refile the case.
The couple filed a lawsuit in 2019 against Ditech Financial, which had become their mortgage holder in the intervening years, to start what’s known as a quiet title action. The purpose is to remove the company's lien from the property, so that the Maggis would be able to sell it or borrow against it in the future.
Ditech's defense, according to court records, was that when its predecessor discontinued the first foreclosure case, they were deaccelerating the loan, which would have allowed the Maggis to resume making monthly payments. But Pane said that defense doesn’t add up because while the first case was discontinued, Everhome had filed a second foreclosure case, which required the couple to pay their mortgage in full.
A bittersweet victory
On Feb. 17, 2021, Suffolk Supreme Court Justice Kathy G. Bergmann ruled in the Maggis' favor and directed the Suffolk County clerk to cancel the mortgage, which would have given the family their home free and clear.
The very next day the state Court of Appeals, New York’s highest court, decided a separate case that would throw the couple’s legal victory into jeopardy. In Freedom Mortgage Corporation v. Engel, the court ruled that when a lender voluntarily discontinues a foreclosure case, the six-year statute of limitations is reset.
“It was very bittersweet because things were working in our direction,” Maggi said.
In its decision, the court said that because stopping the case removes a homeowner’s obligation to pay their entire outstanding balance, it gives them a chance to reach a deal to make installment payments and stay in their homes.
“The Court of Appeals recognized that you need to allow mortgage lenders and mortgage servicers the flexibility and opportunity to work with defaulted borrowers … so they can stay in their home,” said McGrath, the attorney who often represents lenders in foreclosures.
The ruling led the Maggis' mortgage holder, which at this point was U.S. Bank, to request the court halt the judgment canceling their mortgage, and Bergmann granted that stay. A few months later, the loan's servicer filed an appeal on behalf of U.S. Bank, which is still pending.
At that point, Maggi needed to decide whether to keep battling the bank in court or to work out a deal.
“I said to Justin, ‘Let’s keep fighting them. I’m in this far. We’re going all the way,'” Maggi said.
Maggi, who now works in IT support, turned her attention to writing to about 50 state senators who had voted for an earlier version of the foreclosure protection bill in 2021 that had failed. She told them it was unacceptable that banks should be able to drag out foreclosure litigation.
“That’s why I fought so hard for this law, because I work so hard,” Maggi said. “Nobody wants to be in foreclosure. Nobody sees themselves ending up in foreclosure, and it’s no one’s plan to lose their home.”
In late December, when the bill was waiting on Hochul’s signature, Maggi said she was checking the State Senate’s website daily for information, and on Dec. 30 she finally heard from Pane that Hochul signed the bill into law.
“Happy freakin’ new year, right?” Maggi said. “I’m all excited. So my house is mine, right? And then, I’m like, ‘You’ve got to be kidding.’”
Pane, the Maggis' lawyer, said U.S. Bank has not withdrawn its appeal before the state Supreme Court's Appellate Division, Second Department, in Brooklyn and expects the case to be heard this year. A spokesman for U.S. Bank said that, while the company might appear on foreclosure documents — in its role as trustee of a mortgage-backed securitized trust — it does not have authority to review or approve actions taken by the loan servicer. That servicer is now Tampa-based Fay Servicing, according to Pane. Fay could not be reached for comment.
The constant changes in mortgage servicers make it difficult to know who to contact, Maggi said.
"You're just some ping pong ball and you don't know who to talk to," she said.
While the law could still be challenged in court, Maggi said she is "extremely optimistic" about potentially owning her home free and clear.
"I just want it over with already."
Resources for homeowners
- Request free help from a federally certified housing counselor or attorney through the state-funded Homeowner Protection Program: 855-HOME-456 or homeownerhelpny.com.
- Find a federally approved housing counselor: bit.ly/3ROeaE6.
- Learn more about federal mortgage relief options, and find out who owns your loan: bit.ly/3FsTPMt.
- Open all mail from lenders, courts and attorneys.
- Keep all documents proving financial hardship, and make detailed notes about phone conversations, including dates, names and extension numbers.
- Contact your lender to discuss your hardship and learn more about your options.
- Beware of different types of real estate scams. Scammers may promise to secure a loan modification from a lender but they can't guarantee results. Avoid paying upfront fees to third parties who make promises, which are often illegal.
For legal services:
- The Nassau County Bar Association answers legal questions at monthly mortgage foreclosure clinics in Mineola (516-666-4853, nassaubar.org).
- Nassau Suffolk Law Services provides free legal services, depending on eligibility and availability. (Nassau: 516-292-8100, Suffolk: 631-232-2400, nslawservices.org).
- Touro Law Center provides free foreclosure assistance to Suffolk residents. (631-761-7080).