Extends provisions of article 14 of the real property actions and proceedings law providing for proceedings for non-judicial foreclosure of a mortgage by power of sale

1 Co-sponsor

• John A. DeFrancisco

Title of bill

An act to amend chapter 231 of the laws of 1998 amending the real property actions and proceedings law relating to mortgage foreclosure, in relation to extending the expiration of the provisions thereof

Purpose

This bill extends, for an additional year, the provisions of Chapter 231 of the Laws of 1998, which established a non-judicial proceeding for uncontested commercial mortgage foreclosure.

Summary of provisions

Section one of the bill amends §2 of Chapter 231 of 1998 by extending the effective date of this law until July 1, 2010. Section two of the bill provides that the bill will take effect immediately, provided however that if it is enacted on or after July 1, 2009, it shall be deemed to have been enacted and to be in full force and effect on and after July 1, 2009.

Existing law

Chapter 231 was enacted in 1998 and extended in 2001 and 2005. It repealed existing Article 14 of the Real Property Actions and Proceedings Law and added a new Chapter 14 to permit foreclosure of real property improved by a non-residential building or certain multi-family buildings by the power of sale. It also contained numerous exclusions designed to protect the rights of residential tenants. This law is currently scheduled to expire on July 1, 2009.

Justification

This legislation would extend the provisions of Chapter 231 of 1998 for an additional year (to July 1, 2010). During the past decade since Chapter 231 was enacted, the law has provided legal certainty for both commercial mortgagors and mortgagees with regard to their respective rights in commercial foreclosure proceedings. Virtually all commercial real estate loans and mortgages written today contain clauses that contemplate the use of the power of sale in the event of an uncontested foreclosure. In the absence of a mortgagee's ability to use the power of sale in an uncontested proceeding, New York law provided no convenient way for mortgagors to transfer ownership of a building in foreclosure. Lengthy court proceedings and complex procedures for uncontested foreclosures under the previous Article 14 RPAPL caused virtually all foreclosures to proceed through judicial means, causing significant deterioration in many commercial properties during the extended period in which these properties sat awaiting foreclosure. The existing owner had neither the resources nor the incentive to maintain or improve the property, and the prospective foreclosing mortgagee could not risk investing in the property while awaiting the outcome of court proceedings. The foreclosure by sale provisions of Article 14 that were enacted by Chapter 231 of 1998 remedied this deficit by providing legal certainty for both lenders and borrowers. It contributes to the maintenance of property during foreclosure proceedings and shortens those proceedings materially. It also provides additional leverage in real estate negotiations for prospective borrowers, as lenders are willing to provide significant concessions in loan negotiations in order to ensure that a foreclosure by sale clause is included in loan documents. By extending Article 14, this bill will continue to enhance the flow of credit to commercial real property in New York and allow for more effective planning of commercial real property developments.

Legislative history

New bill.

FISCAL IMPLICATIONS :. None. LOCAL FISCAL IMPLICATIONS : None.

Effective date

Immediately, provided however that if it is enacted on or after July 1, 2009, it shall be deemed to have been enacted and to be in full force and effect on and after July 1, 2009.