This story was published in partnership with New York Focus, an independent news and investigative site covering New York City and State politics. Subscribe to their newsletter here.
Christine Fife was “speechless with joy” when she won her foreclosure lawsuit in January 2020, she recalls, believing her decade under threat of foreclosure at her Upper West Side apartment was finally over.
Now, however, Fife is once again facing foreclosure on the apartment she has owned since 1990.
In February 2021, New York’s highest court issued a decision which eliminated a path that New York homeowners had taken for years to fight foreclosure.
The decision in Freedom Mortgage Corporation v. Engel allowed Fife’s lender to renew its foreclosure lawsuit against her.
âThey said it was OK. How can they change their mind? Fife asked during an interview with New York Focus and THE CITY.
Across New York state, homeowners who thought their case had been settled in their favor are once again facing foreclosure due to the Engel ruling. Many are at risk of losing their homes, even as two bills to protect homeowners make their way through the state legislature.
In New York, if a borrower misses a mortgage payment, the lender is authorized to demand the entire remaining balance immediately, then proceed with the seizure after 120 days, if the money owed remains unpaid.
But a lender must initiate legal proceedings within six years of first requesting full payment, otherwise the lawsuit becomes invalid.
His attorneys, representing Fife pro bono, successfully argued that the bank’s second foreclosure action was time-barred by the six-year limit and dismissed it.
But the Engel decision changed the rules. The Court of Appeal found that voluntarily ending a foreclosure action stops the clock on the six-year time frame – even if the homeowner is never notified. The court’s decision applies retroactively to all cases of foreclosure in progress or still subject to appeal at the time the decision was rendered.
As a result of the ruling, many foreclosures that expired below the six-year limit have been reopened or appealed to higher courts. Holly Meyer, a Suffolk County attorney who represented one of the defendants in the Engel case, estimated the number of homeowners affected could number in the tens of thousands.
Fife was one of them. In April 2021, the bank decided to renew its foreclosure lawsuit against it – and the trial judge used the Engel decision as grounds for rehearing the case.
âI was shocked by this decision, because I had put all my faith in [the foreclosure courtâs] initial decision, which was in my favor, âsaid Fife.
With the disappearance of Fife’s best defense, his hopes of avoiding the lockdown now appear slim, his legal adviser admitted.
Loans managed in an “incompetent” manner
It’s not uncommon for lenders to allow their foreclosure right to expire, according to real estate attorneys.
âThere are millions of residential loans that are somewhat incompetent in service, so these things sometimes slip through the cracks,â said Joshua Stein, a commercial real estate lawyer.
Real estate industry supporters of the Court of Appeals ruling say it made little sense for a foreclosure case to fail because of what they see as a clerical error – an error that essentially allows borrowers to get out of their debts.
âThe idea that you should always be at risk because you haven’t paid back the money you borrowed doesn’t strike me as blatant,â said Stein.
Lawyers for homeowners say cases get dropped in the legal system all the time due to technical violations of procedural requirements, and foreclosure cases shouldn’t be any different.
âIf someone is tried for murder, but you find that their constitutional rights have been violated, they are released. It’s the same here, âMeyer said.
Chief Justice in conflict?
In the aftermath of the judgment of the Court of Appeal in the Engel case, the law firm Greenberg Traurig, which had represented two of the plaintiffs, applauded what he called a âland changeâ victory for lenders.
âStatewide enforcement will likely protect billions of assets for mortgage holders,â its press release said.
Chief Justice Janet DiFiore, who wrote the majority opinion in Engel, was a client of Greenberg Traurig when she ruled in favor of their bank clients in this and other cases, The New York Law Journal reported in April. The company defended it in a lawsuit brought by judges forced to retire as a cost-cutting measure.
Defense attorneys noted they had not been informed of the potential conflict for the judge who ruled against their clients.
“The law is no longer on our side, and that means there are a number of people who will face foreclosure when they would not have done so a few years ago,” Julie Howe, lawyer senior at New York Legal Assistance Group, which represents Fife pro bono, told New York Focus.
Jacob Inwald, director of foreclosure prevention at Legal Services NYC, said many of the foreclosure cases affected by the Engel ruling originally stemmed from the 2008 real estate crash and the free-wheeling loans that preceded it.
Fife, for example, had borrowed $ 731,000 against his apartment in April 2007 to pay for living expenses after a crippling injury and divorce. Monthly payments were nearly $ 5,000, with a variable rate mortgage that started at an annual interest rate of 8%, going up to 15%.
âI didn’t know anything about mortgages,â Fife said. âI was so happy that I was able to live another day. I was probably the easier version of the block.
In less than a year, the bank alleged it had fallen behind on its mortgage payments – initiating foreclosure proceedings that its loan holder, the Wilmington Trust Association, resurrected more than a decade later.
“It’s really scary”
Rockland County resident Susan Azcuy finds herself in a situation similar to Fife, believing she survived the lockdown to find the cloud hanging over her again.
For 23 years, Azcuy and her husband made the mortgage payments on their home in Pomona, including a 2005 refinance, for which she incurred $ 210,000 in debt at 5.75% interest. But in 2012, after Azcuy’s husband was fired from his job, they missed a payment and their lender quickly decided to foreclose.
The bank voluntarily withdrew the action in March 2016 for technical reasons but did not notify Azcuy, reclassifying the case the following month. He went to trial in 2019 and Azcuy won, after a key prosecution witness failed to show up.
Before Engel, that would have been the end of the case, as more than six years had passed since the 2012 foreclosure lawsuit.
But thanks to Engel, the six-year clock restarted in 2016, giving Azcuy’s lender another chance to continue.
Due to penalties and foreclosure fees, Azcuy now owes nearly $ 400,000, just under double the amount of the 2005 refinance. Efforts to reach a settlement or change with the bank have failed, according to Azcuy’s attorney, Derek Tarson of the Legal Aid Society of Rockland County.
If the bank sues another foreclosure action, which Tarson says is likely, Azcuy won’t be able to rely on the defense that more than six years have passed.
âIt’s really scary. We are still in trouble, âsaid Azcuy. âI was very, very hopeful that I would be able to continue living here. “
State lawmakers have introduced two bills aimed at reversing some of Engel’s effects.
A measure, sponsored by Sen. Kevin Thomas (D-Nassau) and Assembly Member Helene Weinstein (D-Brooklyn), would require lenders to notify borrowers if they withdraw their payment requests, as the action serves to stop the clock on the six-year countdown. If lenders withdraw the lawsuit but do not notify borrowers, the clock continues to tick – a return to the status quo before Engel.
The bill would also ban lenders to seize if part of the loan had already expired – a move that would prevent the resumption of lawsuits against homeowners like Fife and Azcuy.
The legislator is also considering a second invoice, sponsored by Senator James Sanders (D-Queens) and Assembly Member Latrice Walker (D-Brooklyn).
This bill would prevent lenders from interrupting a demand for full payment, stopping the six-year countdown, without the borrower’s consent. The measure would also trigger the countdown from when a mortgagee has missed a payment.
While intended to protect homeowners, the Sanders-Walker Bill could actually make lenders start foreclosure faster, a foreclosure defense attorney told New York Focus. “If time is of the essence, all the plaintiffs will want to do is start their case,” said the lawyer, who asked not to be named.
Sanders dismissed the criticism. “I don’t think you can push financial institutions more” to seize after the leeway given to them by Engel, he said.
Whether any of the bills would retroactively apply to homeowners like Fife and Azcuy is an open question. “It may not be able to help them, but it is our desire,” said Sanders. âWe will get advice on whether we can do it. “
Sanders said he spoke to Gov. Kathy Hochul and legislative leaders about his bill, and although they did not approve it, he said they were ready to support it. (A spokesperson for Hochul said the governor “will review all laws that come to his office.”
âWe are making great progress with both and we expect good things in the next few days,â said Sanders.