This article was published in partnership with THE CITY.
Christine Fife was “speechless with joy” when she won her foreclosure case in January 2020, she recalled, believing her decade under threat of foreclosure in her Upper West Side condo was finally over.
Now, though, Fife is once again facing the seizure of the apartment she has owned since 1990.
In February 2021, New York’s top court issued a decision that eliminated a path that New York homeowners had used for years to fight foreclosure.
The decision in Freedom Mortgage Corporation v. Engel allowed Fife’s lender to renew its foreclosure suit against her.
“They 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 believed that their cases had been settled in their favor are now once again facing foreclosure due to the Engel decision. Many are in danger of losing their homes, even as two bills aimed at protecting owners wend their way through the state Legislature.
In New York, if a borrower misses a mortgage payment, the lender is allowed to demand the entire remaining balance immediately and then move to foreclose after 120 days, if the money owed remains unpaid.
But a lender must start the legal proceedings within six years of first demanding full payment, or the suit becomes invalid.
Until recently, the clock kept ticking until the lender informed the borrower that they were no longer seeking foreclosure. In Fife’s case, the lender had never done so. The bank sued Fife twice: first in 2010, a case the lender claims it later voluntarily withdrew, and again in 2017.
Her lawyers, representing Fife pro bono, successfully argued that the bank’s second foreclosure suit was barred by the six-year limit and got it dismissed.
But the Engel decision changed the rules. The Court of Appeals found that voluntarily ending a foreclosure suit stops the clock on the six-year time limit — even if the homeowner is never notified. The court’s ruling applies retroactively to any foreclosure cases ongoing or still open to appeal at the time the decision was issued.
Following the ruling, many foreclosures that expired under the six-year limit have been reopened or appealed to higher courts. Holly Meyer, a Suffolk County lawyer who represented one of the defendants in the Engel case, estimated that the number of affected homeowners could be in the tens of thousands.
Fife’s was one of them. In April 2021, the bank moved to renew its foreclosure suit against her — and the trial judge cited the Engel ruling as a reason to rehear the case.
“I was shocked at this decision, because I had put all my faith in [the foreclosure court’s] initial decision, which was in my favor,” Fife said.
With Fife’s best defense gone, her hopes for avoiding foreclosure now appear slim, her legal counsel acknowledged.
‘Incompetently’ Managed Loans
It’s not uncommon for lenders to allow their right to foreclose to expire, according to real estate lawyers.
“There are millions of residential loans being serviced somewhat incompetently, so these things do sometimes slip between the cracks,” said Joshua Stein, a commercial real estate lawyer.
Real estate industry supporters of the Court of Appeals’ decision say it made little sense for a foreclosure case to fail because of what they consider a clerical error — one that basically lets borrowers shirk their debts.
“The idea that you should still be at risk because you haven’t repaid the money you borrowed doesn’t strike me as egregious,” Stein said.
Homeowner attorneys say that cases get dropped all the time in the legal system because of technical violations of procedural requirements, and that foreclosure cases should be no different.
“If you have somebody on trial for murder, but you find that their constitutional rights were violated, they go free. It’s the same thing here,” Meyer said.
Chief Judge Conflicted?
The day after the Court of Appeals ruled on the Engel case, the law firm Greenberg Traurig, which had represented two of the plaintiffs, cheered what it called a “ground shifting” victory for lenders.
“Statewide application will likely protect billions in assets for mortgage holders,” its press release claimed.
Chief Judge Janet DiFiore, who wrote the majority opinion in Engel, was a Greenberg Traurig client at the time that she ruled in favor of their bank clients in that and other cases, the New York Law Journal reported in April. The firm defended her in a suit brought by judges forced into retirement as a cost-cutting measure.
Defense attorneys said they had not been informed of the potential conflict for the judge who ruled against their clients.
“The law’s not on our side anymore, and that means that there are a number of people who will be facing foreclosure when they wouldn’t have faced it a couple of years ago,” Julie Howe, a senior staff attorney at the New York Legal Assistance Group, who is representing 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 decision originally stemmed from the real estate crash of 2008 and freewheeling lending leading up to it.
Fife, for instance, had borrowed $731,000 against her apartment in April 2007 to pay living expenses after a disabling injury and divorce. Monthly payments were nearly $5,000, with adjustable rate mortgage that started at 8% annual interest, potentially rising as high as 15%.
“I didn’t know anything about mortgages,” Fife said. “I was just so happy that I was able to live on another day. I was probably the easiest take on the block.”
Within a year, the bank alleged that she had fallen behind on her mortgage payments — kicking off foreclosure proceedings that her loan’s holder, Wilmington Trust Association, has resurrected more than a decade later.
‘It’s Really Scary’
Rockland County resident Susan Azcuy is in a situation similar to Fife’s — believing that she’d survived foreclosure only to find the cloud hanging over her once again.
For 23 years, Azcuy and her husband kept up with the mortgage payments on their house in Pomona, including a 2005 refinancing, for which she took on a debt of $210,000 at 5.75% interest. But in 2012, after Azcuy’s husband was fired from his job, they missed a payment and their lender quickly moved to foreclose.
The bank voluntarily withdrew the suit in March 2016 for technical reasons but did not notify Azcuy, refiling the case the next month. It went to trial in 2019, and Azcuy won, after a key prosecution witness failed to show up.
Before Engel, this would have been the end of the case, since more than six years had elapsed since the 2012 foreclosure suit.
But thanks to Engel, the six-year clock restarted in 2016 — giving Azcuy’s lender another chance to sue.
Due to penalties and foreclosure fees, Azcuy now owes nearly $400,000, just shy of double the amount of the 2005 refinancing. Efforts to reach a settlement or a modification with the bank have been unsuccessful, according to Azcuy’s attorney, Derek Tarson of the Legal Aid Society of Rockland County.
If the bank brings another foreclosure lawsuit, which Tarson believes is likely, Azcuy will not be able to rely on the defense that more than six years have passed.
“It’s really scary. We’re still struggling,” Azcuy said. “I was very, very hopeful to be able to continue living here.”
State lawmakers have introduced two bills seeking to reverse some of Engel’s effects.
One measure, sponsored by Sen. Kevin Thomas (D-Nassau) and Assemblymember Helene Weinstein (D-Brooklyn), would require lenders to inform borrowers if they withdraw their demands for payment, since that action serves to stop the clock on the six-year countdown. If lenders withdraw the lawsuit but fail to notify the borrowers, the clock would keep ticking — a return to the status quo before Engel.
The bill would also forbid lenders from foreclosing if any part of the loan had previously expired — a measure that would bar reviving suits against homeowners like Fife and Azcuy.
The legislature is also considering a second bill, sponsored by Sen. James Sanders (D-Queens) and Assemblymember Latrice Walker (D-Brooklyn).
This bill would prevent lenders from discontinuing a demand for full payment, stopping the six-year countdown clock, without the consent of the borrower. The measure also would start the countdown from the time that a mortgage holder missed a payment.
Though meant to protect homeowners, the Sanders-Walker bill could actually incentivize lenders to begin foreclosure more quickly, one foreclosure defense attorney told New York Focus. “If the clock is ticking, all plaintiffs are going to want to do is get their case started,” the attorney, who asked not to be named, said.
Sanders rejected the critique. “I don’t think that you can further incentivize the financial institutions” to foreclose after the leeway granted them by Engel, he said.
Whether either of the bills would apply retroactively to homeowners like Fife and Azcuy is an open question. “It may not be able to help those, but it is our desire,” Sanders said. “We will get guidance on whether we can do that.”
Sanders said that he has spoken to Gov. Kathy Hochul and legislative leaders about his bill, and while they have not endorsed it, he said they are open to supporting it. (A Hochul spokesperson said the governor “will review all legislation that reaches her desk.”)
“We are making excellent progress with both, and we expect good things in the coming days,” Sanders said.