1.    WHAT IS NEW YORK BUSINESS LAW SECTION 9-X?

Section 9-x of the New York State Banking Law {see, SECTION 9-X https://www.nysenate.gov/legislation/laws/BNK/9-X }, was signed into law on June 17, 2020, by New York Governor Andrew Cuomo as part of his signing Senate Bills 8243C and 8428. The section seeks to deal with Covid-19 caused mortgage arrears as follows:

a) Forbearance Availability – By making applications for forbearance readily available and granting mortgage forbearance for persons with Covid hardship, initially for 180 days, but with proof of continuing hardship extendable to a maximum period of 360 days;

b) Giving Borrowers 4 Post-Forbearance Options – By giving borrowers four (4) post-forbearance options including: i) extending the loan term based on the length of forbearance; ii) spreading the forbearance caused through the remining portion of the loan; iii) allowing the borrower to negotiate a reasonable modification; and iv) if a reasonable modification is not possible, putting the forbearance caused arrears to be put at the back of the loan to be paid back in a lump sum.

c) The Text of Section 9-x Show that its Substance is Strong but its Applicability is Narrow – The text and substance of Section 9-x is sweepingly strong, but its applicability is severely limited due to its only protecting borrowers actually affected by Covid-19 and only applying for a maximum of 6 to 12 months during the “covered period” of the Covid-19 pandemic. It is, however, mostly narrowed by its only applying by to New York State “Regulated Banking Organizations” and any New York State “Regulated Mortgage Servicers”. The text of Section 9-x of the NYS Banking Law States:

SECTION 9-X

Mortgage forbearance

Banking (BNK) CHAPTER 2, ARTICLE 1

• § 9-x. Mortgage forbearance. 1. As used in this section, the
  following terms shall have the following meanings:

(a) “Covered period” means March 7, 2020 until the later of December 31, 2021 or the date on which none of the provisions that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals of any size for any reason in Executive Orders 202.3, 202.4, 202.5, 202.6, 202.7, 202.8, 202.10, 202.11, 202.13 or 202.14, as extended by Executive Orders 202.28 and 202.31 and as further extended by any future Executive Order, issued in response to the COVID-19 pandemic continue to apply in the county of the qualified mortgagor’s residence;

(b) “qualified mortgagor” means an individual (i) whose primary residence is located in New York and is encumbered by a home loan pursuant to paragraph (a) of subdivision six of section thirteen hundred
four of the real property actions and proceedings law or whose primary residence is located in New York and is a co-operative unit whose shares
are encumbered by any loan otherwise meeting the requirements of a home loan under paragraph (a) of subdivision six of section thirteen hundred
four of the real property actions and proceedings law, from or serviced by a regulated institution; and (ii) who demonstrates financial hardship as a result of COVID-19 during the covered period;

(c) “regulated institution” means any New York regulated banking organization as defined in this chapter and any New York regulated mortgage servicer entity subject to supervision by the department; and

(d) “trial period plan” means an agreement whereby the mortgagor is required to make trial payments in full and on-time in order to be considered for a permanent loan modification.

2. Notwithstanding any other provision of law, New York regulated institutions shall:

(a) make applications for forbearance of any payment due on a residential mortgage of a property located in New York widely available to any qualified mortgagor who, during the covered period, is in arrears or on a trial period plan, or who has applied for loss mitigation; and

(b) grant such forbearance of all monthly payments due with respect to the mortgage secured by the qualified mortgagor’s primary residence in New York for a period of up to one hundred eighty days to any such qualified mortgagor, with the option to extend the forbearance of such monthly payments for up to an additional one hundred eighty days provided that this extension is subject to the mortgagor demonstrating continued financial hardship. If any qualified mortgagor has already received a forbearance pursuant to executive order 202.9 of two thousand twenty, the time of such forbearance shall be considered as part of the requirement of this section to provide a forbearance of up to one hundred eighty days, and any extension thereof pursuant to this section.

(c) Such forbearance may be backdated to March seventh, two thousand twenty, provided that the maximum length of the forbearance may be no longer than one hundred eighty days and any extension thereof pursuant to this section.

3. Notwithstanding any other provision of law, any mortgage forbearance granted by a regulated institution pursuant to executive order number 202.9 of two thousand twenty, this section, or 3 NYCRR Part 119 to a qualified mortgagor as a result of financial hardship shall be subject to the following provisions:

(a) the mortgagor shall have the option to extend the term of the loan for the length of the period of forbearance. The regulated institution shall not charge additional interest or any late fees or penalties on the forborne payment; or

(b) the mortgagor shall have the option to have the arrears accumulated during the forbearance period payable on a monthly basis for the remaining term of the loan without being subject to penalties or late fees incurred as a result of the forbearance; or

(c) the mortgagor shall have the option to negotiate a loan modification or any other option that meets the changed circumstances of the qualified mortgagor; or

(d) if the mortgagor and regulated institution cannot reasonably agree on a mutually acceptable loan modification, the regulated institution shall offer to defer arrears accumulated during the forbearance period as a non-interest bearing balloon loan payable at the maturity of the loan, or at the time the loan is satisfied through a refinance or sale of the property. Any late fees accumulated as a result of the forbearance shall be waived.

(e) The exercising of options provided for in paragraph (a), (b), (c) or (d) of this subdivision by a qualified mortgagor shall not be reported negatively to any credit bureau by any regulated institution.

4. Notwithstanding any other provision of law, adherence with this section shall be a condition precedent to commencing a foreclosure action stemming from missed payments which would have otherwise been subject to this section. A defendant may raise the violation of this section as a defense to a foreclosure action commenced on the defendant’s property when such action is based on missed payments that would have otherwise been subject to this section.
5. Notwithstanding anything to the contrary in this section, this section shall not apply to, and does not affect any mortgage loans made, insured, purchased or securitized by any agency or instrumentality of the United States, any government sponsored enterprise, or a federal home loan bank, or a corporate governmental agency of the state constituted as a political subdivision and public benefit corporation, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.
6. Notwithstanding any other provision of law or of this section, the obligation to grant the forbearance relief required by this section shall be subject to the regulated institution having sufficient capital and liquidity to meet its obligations and to operate in a safe and sound manner. Any regulated institution that determines that it is not able to offer relief pursuant to this section to any qualified mortgagor must notify the department within five business days of making such determination. Any such notice filed with the department shall include information about the qualified mortgagor, the reason the regulated institution determined that it was unable to offer any relief pursuant to this section, information about the regulated institution’s financial condition supporting the regulated institution’s determination, and any other information required by the department. At the same time that the regulated institution provides notice to the department, it shall advise the qualified mortgagor that the application for relief was denied and provide a statement that the applicant may file a complaint with the New York state department of financial services at 1-800-342-3736 or http://www.dfs.ny.gov if the applicant believes the application was wrongly denied.

• NB There are 2 § 9-x’s

Section 9-x of the NYS Banking Law, See https://www.nysenate.gov/legislation/laws/BNK/9-X

2.    WHAT IS THE HISTORY AND LEGISLATIVE PURPOSE OF SECTION 9-X?

a) The History of Section 9-x – On March 30, 2020, Executive Order 202.8 {See Executive Order 202.8, https://www.governor.ny.gov/sites/default/files/atoms/files/EO_202.8.pdf }, was issued by Governor Cuomo which suspended foreclosure and eviction activities for ninety (90) days. On May 7, 2020, another Executive Order 202.28 {See, Executive Order 202.28 https://www.nyla.org/userfiles/Advocacy/EO202.28.pdf }, was issued by the Governor which enlarged such period by another sixty (60) days. During such time the legislature worked on a bill to deal with relief for homeowners unable to pay their mortgages due to hardship caused by the Covid-19 pandemic in the form of forbearance and post-forbearance relief. Such legislation, Senate Bills 8243C and 8428 {see, Senate Bills 8243C, https://www.nysenate.gov/legislation/bills/2019/s8243/amendment/c} {see, Senate Bill 8428 https://www.nysenate.gov/legislation/bills/2019/s8428 },. resulted in New York Banking Law Section 9-x which became law upon the Governor’s signature on June 17, 2020.

b) The Legislative Intent and Purpose of Section 9-x – In the early part of the Covid-19 Pandemic, the New York Legislature was motivated in giving temporary forbearance and more permanent mortgage adjustment relief to mortgage borrowers affected by Covid hardship that caused them to be unable to pay their mortgages. The goal of the legislation was to give temporary forbearance relief and then more permanent relief once the forbearance period was over. The Legislative Justification of Section 9-x is stated in Senate Bill 8243C as follows:

JUSTIFICATION:

As the COVID-19 pandemic continues to wreak havoc on New York, and with State and local governments mandating the shuttering of all but essen- tial businesses in the interest of protecting public health, New York has seen a rapid and unprecedented economic decline. Many New Yorkers, facing severely reduced or entirely lost wages, will not be able to keep up with mortgage payments during this time. With the Governor’s issuance of Executive Order 202.9, some mortgagors were given a three-month forbearance period, but this has only slightly averted the danger of mass displacement still at hand. This bill would extend the spirit of the Governor’s executive order to all state-regulated mortgage lenders and servicers, requiring them to grant a six-month forbearance period – with the option to extend another 180 days – to any mortgagor who certi- fies they have a loss of income during the COVID-19 crisis, including those already struggling to make payments. This brings forbearance for mortgages issued or serviced by state-regulated institutions in line with federally-backed mortgages.
While the Governor’s Executive Order provides immediate relief to some homeowners, it still allows for mortgage lenders to collect the back payments as soon as the forbearance period is over. Many homeowners will not be able to pay the lump sum of their arrears once forbearance ends if they have been unable to work. This bill requires regulated lenders and servicers to allow mortgagors to either extend their mortgage for a period of time equal to the forbearance or pay the deferred payments as a balloon payment upon the maturity of the loan. Under this legislation, mortgagors will also be prohibited from: charging interest during forbearance, or on the balloon payment; charging late fees; or negative- ly reporting the mortgagor’s decision to a credit reporting bureau. Compliance with this law will also be required in order for a foreclo- sure action to proceed against a mortgagor for payments that would otherwise have been covered by this deferment period.
By giving homeowners this flexibility, we can provide essential security to New Yorkers, ensuring that no one will be subject to foreclosure, or punished with fees because of the economic havoc brought on by COVID-19.

Legislative Justification of Section 9-x is stated in Senate Bill 8243C, {see, Senate Bills 8243C, https://www.nysenate.gov/legislation/bills/2019/s8243/amendment/c}

3.    WHAT DOES SECTION 9-X COVER IN TERMS OF: “COVERAGE PERIOD”, “REMEDY PERIOD”, LENDERS, LOANS, BORROWERS AND REAL ESTATE? THE NARROWING OF THE APPLICABILITY OF 9-X

a) Only Applicable to Loans Where the Lenders are Chartered or Regulated By New York State; This Significantly Narrows the Reach of Section 9-x {CITE} –

b) Borrowers who are “Qualified Mortgagors” Who Incurred Covid Hardship; This is Not Well Defined and May Lead to Litigation – A “qualified mortgagor” is defined in Section 9-x(1)(b) which uses language from RPAPL 1304 which requires a borrower to be a natural person whose primary residence is in New York State and for the loan to be a “home loan” under RPAPL 1306(6)(a). The secured The part of the statute that may lead to the most litigation may be the section that states under Section 9-x(1)(b)(ii) that the qualified mortgagor “demonstrates financial hardship
as a result of COVID-19 during the covered period”.

c) “Coverage Period” {CITE} – Under Section 9-x(1)(a), it is March 7,2020 until the later of December 31, 2021 or the date on which NYS closure/restriction provisions in an area ceased pursuant to NYS Executive Orders. As long as a borrower.

d) Remedy Period –

e) Loans {CITE} –

f) Real Estate {CITE} –

4.    HOW DID SECTION 9-X TRY TO BE PROTECTIVE OF BORROWERS, FAIR TO LENDERS AND CONSTITUTIONAL?

a)    Protective of Borrowers {CITE} – Can complain to Department of Financial Service and use violation of Section 9-x as a defense in a foreclosure action

b)    Fair to Lenders {CITE} – If inadequately capitalized can decline to follow Section 9-x

c)    Constitutional {CITE} – Question if the crisis and police powers justify all the elements of Section 9-x including giving the Borrower the discretion to change significant contractually agreed to loan terms.  The Pandemic has justified broad government emergency powers. But as we distance ourselves from the height of the pandemic, will it seem like some provisions may be tested constitutionally.

5.    FORBEARANCE ISSUES –

a)    “Covid Defaults” No Good Definition {CITE}

b)    How to Make Forbearance “Readily Available” {CITE}

c)    Extension for Another 180 Days, Beyond the First 180 Days {CITE} –

6.    POST-FORBEARANCE ISSUES, CHOICE OF FOUR (4) REMEDIES –

a)    It is the Borrower Who Decides Among Four (4) Remedies {CITE} –

b)    Challenging Mechanics; When and How is the Borrower Deciding and When and How is the Solution Implemented? How Is this Coordinated? Is it Really to Be Done Immediately After 180 or 360 Days at the End of the Forbearance? Otherwise there Are Also Non-Covid Arrears Which Could Challenge the Remedies –

c)    The 1^st Remedy, to Extend the Loan by the Forbearance Period (a Maximum of One Year) {CITE} –

d)    The 2^nd Remedy, to Spread the Amount Not Paid During the Forbearance Through the Remaining Loan; A Good Choice If the Loan Continues Long Enough {CITE} –

e)    The 3^rd Remedy, to Decide to Negotiate a “Reasonable Modification”; Although this Remedy Depends on Lender Participation in the Decision Making, It is the Only Remedy to Also Potentially Address Non-Covid Arrears {CITE} –

f)     The 4^th Remedy, to Put the Entire Amount Not Paid Due to the Forbearance in the Back of the Loan; This Remedy is Good One But Depends on the Borrower Not Being Offered a “Reasonable Modification” for the 3^rd Remedy {CITE} –

7.    COMPARISON OF SECTION 9-X OF NEW YORK STATE AND THE CARES ACT OF THE FEDERAL GOVERNMENT –

a)    The CARES Act Had Much Broader Applicability Given that Many More and Larger Lenders Are Regulated by the Federal Government Than By New York State {CITE}

b)    While Both Encouraged Modification, the CARES Act Ended While Section 9-x Is In Effect and Has Continuing Applicability {CITE}

c)    The Post-Forbearance Solutions for the Federal Government Are Decentralized, Suggested to Lenders but Not Mandated and are Not Being Actively Supervised, Emphasized or Implemented Given the Ending of the CARES Act; In Sharp Contrast, Discretion Under Section 9-x Was Given Mostly to the Borrower with the Oversight of the NYS Department of Financial Services. Where Relief Was Denied. {CITE} {CITE Results Up Until January 2023 With Permanent Modification and/or Post-Forbearance Solutions}

d)    While Section 9-x Has More Limited Applicability and Has Many Issues With Vagueness, Constitutionality, Mechanics Etc. It is More Powerful and Potentially More Protective of Borrowers Who Have Covid Caused Mortgage Arrears

8.    CONCLUSION: SECTION 9-X IS A POWERFUL, AMBITIOUS AND CONTROVERSIAL LAW BUT IT IS GREATLY NARROWED BY ITS APPLICABILITY TO ONLY NYS BANKS AND REGULATED SERVICERS AND TO COVID ARREARS UP TO ONE YEAR