LEGAL CORNER: The State of Eviction and Foreclosure Bans in New York and at Federal Level
John Dolgetta, Esq. | May 11, 2021
On May 4, 2021, Gov. Andrew Cuomo signed legislation (see https://bit.ly/2RIW8bq) extending the statewide ban on certain residential and commercial evictions and foreclosures in New York. The bill extends the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 and the COVID-19 Emergency Protect Our Small Businesses Act. The legislation extends protections prohibiting residential and commercial evictions, foreclosure proceedings and credit discrimination and negative credit reporting related to the COVID-19 pandemic until Aug. 31, 2021.
The bill’s sponsor, New York State Senator Brian Kavanagh, cited the findings of the Center for Disease Control that these moratoriums help prevent the spread of the COVID-19 virus because they provide individuals with a stable place to live. Similarly, President Trump and the CDC had also put in place nationwide bans on evictions. However, on May 5, 2021, a federal judge struck down the CDC’s Order extending the nationwide ban on evictions. The Federal District Court decision would not affect the validity of the New York State ban.
Foreclosures and Evictions Banned Until August 31st
Gov. Cuomo first announced a statewide moratorium on residential and commercial evictions last year on March 20th, to ensure that no tenant would be evicted during the height of the COVID-19 Pandemic. The governor signed the Tenant Safe Harbor Act on June 30, 2020 which became effective immediately, as well as additional legislation providing financial assistance to residential renters and landlords. There were also numerous Executive Orders that are still in effect, which prohibited charges or fees for late rent payments. In addition, tenants facing financial hardship are still able to use their security deposit to pay rent and then have the right to replenish the security deposit over time. Below are the main highlights of the eviction and foreclosure moratorium legislation.
A residential eviction moratorium is in place until August 31st for any tenant who has suffered a COVID-related hardship. Tenants must submit a hardship declaration, or a document explaining the source of the hardship, to prevent evictions. A form of the declaration may be found on the New York courts’ website (see https://bit.ly/2R6xIsf). The legislation does allow landlords to evict tenants in limited circumstances such as “…tenants that are creating safety or health hazards for other tenants, and those tenants who do not submit hardship declarations.” While the tenants are required to fill out the hardship declaration form, according to the governor’s office, “…they are not required to submit proof that they are unable to pay.” These hardship declarations are signed under penalty of perjury.
Residential Foreclosure Proceedings
Residential foreclosure proceedings are also prohibited until Aug. 31, 2021. According to the governor’s office, “Homeowners and small landlords who own 10 or fewer residential dwellings can file hardship declarations with their mortgage lender, other foreclosing party or a court that would prevent a foreclosure.” Again, while hardship declarations are required, proof of inability to pay is not required.
The legislation also prohibits the filing of eviction proceedings against commercial tenants that have suffered a “COVID-related hardship” until Aug. 31, 2021. The moratorium applies to small businesses having less than 50 employees. The small businesses must demonstrate that they are suffering a financial hardship. Again, such commercial tenants “…must submit a hardship declaration, or a document explaining the source of the hardship, to prevent evictions.”
Commercial Foreclosure Proceedings
During the moratorium, all commercial foreclosure proceedings are also prohibited from being filed through Aug. 31, 2021.
Tax Lien Sales
Local governments are prohibited from initiating a tax lien sale or a tax foreclosure until at least Aug. 31, 2021. Property owners, however, are still required to make payments when due.
Credit Discrimination and Negative Credit Reporting
Lending institutions are not permitted to discriminate against an owner who is seeking a loan or submitting a credit application where such an owner “…has been granted a stay of mortgage foreclosure proceedings, tax foreclosure proceedings or tax lien sales.” Further, lenders are not permitted to engage in negative credit reporting involving any creditor until August 31st. Lenders are also prohibited from discriminating against any owner who owes money and has filed a hardship declaration.
Lawsuit Filed to Overturn Extended Eviction Moratorium
On May 6, 2021, the Rent Stabilization Association filed a lawsuit challenging the constitutionality of the legislation extending the moratorium to August 31st. The lawsuit seeks an injunction against the ban on evictions and foreclosures.
The CDC Order Extending Nationwide Ban on Evictions To June 30th is Vacated by Federal District Judge
On May 5th, a day after Gov. Cuomo signed legislation imposing the ban on foreclosures and evictions in New York, U.S. District Court Judge Dabney Friedrich in her decision in Alabama Association of Realtors, et al. v. U.S. Dept. of Health and Human Services (see https://bit.ly/3tttCaF) vacated the CDC’s order banning evictions. Under the original CARES Act enacted in March 2020, a nationwide 120-day eviction moratorium was first put in place. This 120-day eviction moratorium applied only to rental properties that participated in federal assistance programs or were subject to federally-backed loans.
President Trump then issued an Executive Order directing the CDC to “…consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one state or possession into any other state or possession.” The CDC, which was delegated the authority to do so by the Secretary of the Department of Health and Human Services, ultimately issued an order banning residential evictions based on health and safety concerns relating to the COVID-19 pandemic. The order was extended several times and was now set to expire on June 30th.
Judge Friedrich in vacating the CDC’s order explained that although, according to HHS, Congress granted the Secretary of HHS the ‘“broad authority to make and enforce’ any regulations that ‘in his judgment are necessary to prevent the spread of disease,’” this broad language does not expressly provide the Secretary, or in this case, the Director, with the authority to implement and extend moratoriums. Judge Friedrich explained that “An overly expansive reading of the statute that extends a nearly unlimited grant of legislative power to the Secretary would raise serious constitutional concerns, as other courts have found.” Therefore, neither the Secretary, nor the Director, had the authority to extend the moratorium. Ultimately, it would be up to Congress to do so as it had done previously when it extended the previous moratorium to Dec. 31, 2020, under the Consolidated Appropriations Act.
HHS Files Emergency Order to Stay District Court Order
On May 6, 2021, HHS filed an emergency motion to stay the order issued by Judge Friedrich pending an appeal. Judge Friedrich granted a temporary administrative stay and provided the plaintiffs until May 12th to respond to HHS’s motion. HHS would then have four days from the filing of the plaintiffs’ response to reply. Thereafter, Judge Friedrich would rule quickly to determine whether to grant a stay or simply affirm her prior decision to vacate the CDC Order.
Fair Debt Collection Practices Act: CFPB New Interim Rule
On May 3, 2021l, the Consumer Financial Protection Bureau and the Federal Trade Commission issued a press release announcing a new CFPB rule dealing with debt collection practices and the protection of individuals who have been affected by the pandemic. The CFPB and FTC announced that letters were sent to large landlords nationwide putting them on notice about the “…federal protections in place to keep tenants in their homes and stop the spread of COVID-19.” A copy of a sample letter that was sent to landlords can be viewed at https://bit.ly/3vWaWCm.
The CFPB announced the issuance of an Interim Final Rule that would be effective as of May 3rd. The Interim Rule establishes new notice requirements under the Fair Debt Collection Practices Act. The Interim Rule requires debt collectors, including attorneys, to provide written notice to tenants who may have rights under the CDC moratorium and prohibits them from misrepresenting tenants’ ineligibility for protection from eviction under the CDC moratorium. However, if the CDC’s moratorium is vacated, then CFPB’s Interim Rule may not apply until the moratorium is specifically extended by Congress and kept in place.
CFPB Acting Director Dave Uejio states in the release, “Landlords should ensure that FDCPA-covered debt collectors working on their behalf, which may include attorneys, notify tenants of their rights under federal law. Nearly nine million households are at risk of eviction due to the economic effects of COVID-19, but no one should lose their home without understanding their rights… [and] [w]e will hold accountable debt collectors who move forward with illegal evictions.”
Frequent Developments: Stay Informed
It is clear that the state of the law is changing on a daily basis and it is extremely difficult to keep up with the frequent developments. As real estate agents, it is imperative to stay informed so that you are able to provide your client with the necessary information. Real estate professionals who represent tenants and landlords need to provide as much information to their clients as possible. During the past year, the legal and regulatory landscape has changed substantially and it is critical for agents and other real estate professionals to seek assistance and guidance relating the new laws and requirements. The COVID-19 pandemic has not only changed the way we do business, it has changed the legal framework within which we operate, and one must keep up with the fast-paced changes.