The moratorium on foreclosures expires on August 20th (EO 202.28) and a foreclosure tsunami is coming.

According to CNBC, "32% of U.S. households missed their July housing payments" based on a survey by Apartment List, which also advises that 17% of "homeowners [are] concerned about foreclosure."

To prepare for the tsunami, we are giving you our 10-Point Inspection Checklist to evaluate a foreclosure case. Whether we are representing the lender or the borrower, we utilize this list to evaluate the strength of the case, which, when coupled with an evaluation of the borrower's current mortgage terms (i.e., L/V ratio front end/back end, interest rate, principal, interest to date, penalties, attorneys' fees, months of missed payments, prior modifications/forbearances, etc.) is how we assess whether a modification, or other workout, should be considered.

10 Point Inspection Checklist:

1. Standing of plaintiff (owner / holder of note on date of commencement or authorized agent of such owner / holder pursuant to Pooling and Servicing Agreement or other agreement)
2. Record admissibility (swearing to business records of another entity; failure to attach business records to affidavits)
3. RPAPL 1303 / 1304 / 1305 / 1306 compliance
4. Acceleration / Deacceleration (statute of limitations) 
5. Notices tendered in satisfaction of note terms
6. Lis Pendens filing
7. Payment history for default calculations / date (requisite missed months for default requirement in note / aligned with notices / statute of limitations)
8. Default on Answer with time since settlement conference for late answer availability
9. Service / personal jurisdiction issues
10. Pleadings requirements (Certificate of Merit - CPLR 3012-B, RPAPL 1302)

In our upcoming Real Estate Investing shows, WRCN / FM 103.9 / Sundays at Noon, we will be breaking down this list into plain English and showing you how to litigate foreclosure cases whether you are the lender or the borrower.

If you are a NYS landlord, you MUST read the decision from the case Elmsford Apartment Associates LLC v. Cuomo if you want to be on the top of your game.

We aren't going to discuss the results, beyond saying the Court ruled that Governor Cuomo can legally suspend evictions and more during a pandemic.

We focus on these other gems given to us by the Court - Every property investor (landlord, property manager, broker, flipper, etc.) should read and accept this reality before getting into the investment game:

Evicting a tenant – especially a residential tenant – in New York is a slow, cumbersome and extremely tenant-favorable process, especially when compared to analogous procedures in other states.

Governor Cuomo did nothing to impede the commencement of holdover proceedings… Nor does EO 202.28 suspend[] the landlords’ right to initiate a common law breach of contract action in the New York State Supreme Court to redress a tenant’s failure to perform its payment obligations under his or her lease.

Tenants will continue to accrue arrearages, which the landlord will be able to collect with interest once the Order has expired.

One who chooses to engage in a publicly regulated business… by so doing surrenders his right to unfettered discretion as to how to conduct same.

The expected costs of foreseeable future regulation are already presumed to be priced into the contracts formed under the prior regulation

New York landlords do not enjoy a constitutional right to realize a profit from their rental properties – let alone all the profits contemplated in each of their individual rental agreements.

If the tenant uses the security deposit to pay a month’s rent, and the tenancy ends before the deposit is fully replenished, the landlord can obtain a judgment for the amount expended in repairs.

A special shout-out to the eviction explanation -

To secure an eviction warrant from the housing courts, a New York landlord must serve the tenant a notice of nonreceipt of payment, and give the tenant one final chance to pay by making a demand of payment within 14 days. If the landlord is still owed payment after two weeks have passed, he may commence what is known as a summary proceeding by filing a petition in the civil court, returnable by the tenant within 10 days. If the tenant does not respond in ten days, the court may (but rarely does) issue an eviction warrant immediately. However, if the tenant does respond, however, a trial is set for eight days hence. The trial may be adjourned up to ten additional days if the parties so require in order to produce their witnesses. If, after trial, a judgment is entered for the landlord and the court issues a warrant for eviction, the Sheriff must give the tenant 14 days’ notice in writing prior to execution. There are the usual provisions for appeal and stays issue routinely so that non-defaulting tenants are not evicted before their cases are fully reviewed. But even if the evidence supports a judgment for the landlord, the housing court is not required to order the tenant’s immediate eviction. A tenant may obtain a stay of the issuance of the warrant for up to one year by showing that ‘it would occasion extreme hardship to the tenant or the tenant’s family if the stay were not granted’. Such stays are far from uncommon.

Still think that being a landlord is for you?

This hasn't diminished our motivation to invest in real estate, but as the Court makes clear - we respect the rules and adjust our prices / reserves to account for more rules in the future.

Some years there are less rules and other years there are more, but we know that a keen understanding of the rules will make us profitable as property investors.

If you want profitability too, you need to increase your compliance budget immediately and respect the rules of the game because, as you can see, fighting the governor's office is a losing battle.

5-Step Plan to Reopen Your Long Island Business

2. The default or other event which caused the natural person to become personally liable for such obligation occurred between March 7, 2020 and September 30, 2020, inclusive.

1. Whether there is a contractual relationship;
2. Whether a change in law impairs that contractual relationship; and
3. Whether the impairment is substantial. U.S.C.A. Const. Art. 1, § 10, cl. 1; American Economy Ins. Co. v. State, 30 N.Y.3d 136 (2017).

Nassau County Supreme Court Justice Jeffrey Brown struck down Nassau County’s $355 fee to verify a property’s section, block and lot due to it being unlawful and unconstitutional.

In Falk v. Nassau County, the Plaintiff alleged that Nassau County excessive fees for tax map certification letters (TMCLs) as issued pursuant to Nassau County Administrative Code § 6-33.0. These TMCLs are issued by the Nassau County Department of Assessments and must be filed with real property documents when submitted to the Nassau County Clerk for recording. Plaintiff alleged that the fees are excessive and not reasonably necessary to maintain the County’s real property registry and such fees are taxes as their purpose really is for general revenue. In this regard, the Plaintiff sought a declaratory judgment deeming Administrative Code § 6-33.0 unconstitutional because it is excessive and an unlawful tax.

Among other reasons, the court granted the Plaintiff’s motion for summary judgment and found the TMCL fees unconstitutional as it was established that its purpose was for general revenue purposes only and that the fee itself is “indisputably disproportionate to the cost associated with its issuance.” Further, the Court found that they are excessive and not tied to the County’s responsibility in maintaining its property registry nor were such fees assessed or estimated on the basis of studies or statistics.

Nassau County is expected to file an appeal to Judge Brown’s decision. Stay tuned.

The Coronavirus Aid, Relief, Economic and Security (CARES) Act allows borrowers to request a forbearance on their mortgage. (You can read more about the CARES Act and mortgage forbearance requests in our article HERE.) As bankruptcy filings are expected to rise due to the COVID-19 pandemic, the U.S. Bankruptcy Court system implemented a few system changes to their Case Management/Electronic Case Filing (CM/ECF) Database in relation to borrowers who have requested a forbearance. These changes are effective May 11, 2020.

Specifically, a new bankruptcy event, “Notice of Mortgage Forbearance” was created to docket such event on the CM/ECF database. In addition to clicking such event, a question was also added to ask, “is a Notice of Mortgage Forbearance being filed with this filing?” in relation to established events on Notice of Mortgage Change. This change has been made to prevent filers from choosing the “Notice of Mortgage Change” event when only a forbearance has been obtained.

As the Court works towards streamlining and implementing a more efficient process, readers are advised to contact their counsel to ensure that the Court’s bankruptcy process and its recent changes be followed to a T to prevent any delays or other issues with filings.

In Episode 42, Andrew and Lauren breakdown the cost/benefit analysis of whether you deserve a mortgage modification. We discuss foreclosure lawsuits, mortgage terms and what motivates a modification from your lenders perspective.

Major NEW Fair Housing Regulations are effective June 20, 2020 according to the NYS Board of Real estate meeting that was held on April 27, 2020.

On April 23, 2020, the U.S. Small Business Administration issued new guidance on the Paycheck Protection Program under the CARES Act, specifically concerning the SBA’s position on good faith certifications and limiting PPP funding to public companies.

All applicants and recipients of PPP funds should pay close attention to Question 31 of the SBA Guidance: 

Governor Cuomo has signed Executive Order 202.18 which extends deadlines for condominium offering plans, offering breathing room to developers. The deadlines for the following requirements have been tolled:

• Requirement of filing an offering statement or prospective within 15 months of date of issue of the letter from the attorney general stating that the offering statement or prospectus has been accepted for filing is tolled until May 16, 2020 (see Section 352-eeee(2)(a) of the General Business Law);

• Filing fees required at the time of submission and filing of each offering statement or prospectus also suspended until May 16, 2020 but payment must still be made to the department of law by August 14, 2020 (see Section 352-e(7)(a) of the General Business Law);

• Requirement of Sponsor’s preparation of a budget for the first year of condominium operation is tolled until May 16, 2020. However, the Sponsor must update the first year of operation, as necessary, within 30 days from expiration of Executive Order. The Sponsor shall not be required to offer rescission, to the extent the first year’s budget for operation does not increase by 25% or more during the pendency of the state of disaster emergency (see 13 NYCRR §§ 18.3(g)(1), 20.3(h)(1), 23.3(h)(1)); and

• Rule requiring a sponsor to offer rescission if the first closing of a unit does not occur within first year of operation is tolled until May 16, 2020, but the sponsor must update the first year of operation, as necessary, by June 15, 2020 (see 13 NYCRR § 20.3(o)(12)).

On April 12, employers were ordered to provide their staff with face coverings.

The Executive Order 202.16 provides:

For all essential businesses or entities, any employees who are present in the workplace shall be provided and shall wear face coverings when in direct contact with customers or members of the public. Businesses must provide, at their expense, such face coverings for their employees. This provision may be enforced by local governments or local law enforcement as if it were an order pursuant to section 12 or 12-b of the Public Health Law.  This requirement shall be effective Wednesday, April 15 at 8 p.m.

Employers must get their face coverings now!!!

Interestingly, the order does not require a specific type of face covering so it's conceivable that even a homemade option would satisfy the requirement. However, try to get N95 masks if you can - safety first. 

Do you need Medicaid and can’t wait for a 5-year lookback to qualify?

Then, consider Spousal Refusal, which with the Reverse Rule of Halves, represent 2 options to avoid the 5-year lookback requirements.

Spousal Refusal means that assets are transferred from the Medicaid applicant to such applicant’s spouse (the community spouse or the spouse not receiving Medicaid). Luckily, these transfers of assets to a spouse are exempt from the five-year look back period and thus, don’t trigger a penalty period.

Under Medicaid law, the community spouse can sign a Spousal Refusal which states that the community spouse refuses to make their income and resources available to the Medicaid applicant. This can be done especially when the community spouse may have assets over Medicaid’s allowable recourse limit or in excess of the income allowance.

In New York, Social Services Law §366(3)(a) provides that if the community spouse refuses or fails to provide the applicant with the necessary care and assistance, the medical assistance furnished to the applicant creates an implied contract with the community spouse. The cost of the medical assistance then may be recovered from the community spouse. However, this takes a lawsuit, which is often settled for far less than what was transferred, if the lawsuit is pursued in the first instance. Also, if repayment is pursued, the repayment rate is only based on the Medicaid reimbursement rate, which is significantly less than the private pay rate so there is very little to lose for a spouse to claim Spousal Refusal when they cannot plan in advance of the 5-year lookback.

Regardless, those needing Medicaid often have unique circumstances and everyone should get tailored legal advice on any strategy they seek to pursue before effectuating such strategy.

Medicaid provides a penalty period for the transfer of assets for less than its fair market value within 5-years of an individual’s application for Medicaid. The penalty is calculated by taking the amount of the transfer and dividing it by the average cost of one month of nursing home care in the region where the applicant resides.

A strategy used to maximize an applicant’s excess assets is the Reverse Rule of Halves. Essentially, this strategy allows the applicant to retain at least half of his excess assets and to become eligible for Medicaid sooner. When using this strategy, the Medicaid applicant gives 100% of their excess assets to a family member or multiple members. As this transfer may be a violation of Medicaid’s look back rule, a penalty period of Medicaid ineligibility will result. The family member, however, can return half of the gifted assets in installments back to the Medicaid applicant through a promissory note, so that the penalty period is also cut in half. The applicant, then, can use the returned assets to pay for care during the penalty period.

To utilize this strategy, the assets must be accessible either through a competent individual’s signature, joint ownership, or a Durable Power of Attorney. The return of assets will need to be done through a Deficit Reduction Act (DRA) compliant promissory note. To determine the value of assets that can be preserved with this strategy, the following factors are considered: 

On March 9, 2020, Executive Order 202.6 mandated non-essential businesses to reduce their in-person workforce by 50% and later, by 100%. Today, the Empire State Development (ESD) issued guidance on Executive Order 202.6 to further determine which businesses are considered essential.

What does the ESD Guidance mean for real estate professionals?

Through Executive Order 202.14 and effective from April 7, 2020 to May 7, 2020, the act of witnessing as required in signing a will, healthcare proxy, disposition of remains, recording of instruments regarding real property, power of attorney and living trusts may now be done through audio-video technology.

To do so, the following requirements must be satisfied:

• The person requesting that their signature be witnessed, if not personally known to the witness(es), must present valid photo ID to the witness(es) during the video conference, not merely transmit it prior to or after;
• The video conference must allow for direct interaction between the person and the witness(es), and the supervising attorney, if applicable (e.g. no pre-recorded videos of the person signing);
• The witnesses must receive a legible copy of the signature page(s), which may be transmitted via fax or electronic means, on the same date that the pages are signed by the person;
• The witness(es) may sign the transmitted copy of the signature page(s) and transmit the same back to the person; and
• The witness(es) may repeat the witnessing of the original signature page(s) as of the date of execution provided the witness(es) receive such original signature pages together with the electronically witnessed copies within thirty days after the date of execution.

Similarly, video notarization has been permitted since March 19, 2020 through Executive Order 202.7, which we blogged about HERE.

This is one major step closer to remote real estate closings and estate planning.

Now, the NYS legislature needs to make this permanent and not let Coronavirus innovation be a wasted opportunity.

By Executive Order 202.14, Governor Cuomo has permitted the use of this form for "any parent, a legal guardian, a legal custodian, or primary caretaker who works or volunteers in a health care facility or who reasonably believes that they may otherwise be exposed to COVID-19... [to] designate a standby guardian" for their children:

By Executive Order 202.14, Governor Cuomo enacted new penalties for violating Coronavirus Executive Orders, in addition to what we discussed in our blogs - Penalties for Keeping Your Real Estate Opened in Coronavirus Expanded and What Happens When You Ignore the Essential Services Executive Order. 

The new penalty order states as follows:

The enforcement of any violation of the foregoing directives on and after April 7, 2020, in addition to any other enforcement mechanism stated in any prior executive orders, shall be a violation punishable as a violation of public health law section 12-b(2) and the Commissioner of Health is directed and authorized to issue emergency regulations. The fine for such violation by an individual who is participating in any gathering which violates the terms of the orders or is failing to abide by social distancing restrictions in effect in any place which is not their home shall not exceed $1,000.

You've been warned. 

The Coronavirus Aid, Relief, & Economic Security Act (CARES Act), signed into law on 3/27/2020, includes expeditious relief for America's small businesses through loans funded at $349 billion.