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Senate Bill S885: Notice to Tenants in Foreclosure Actions

  • Julia Singer

Senate Bill S885, a chapter amendment to the Real Property Actions and Proceedings Law § 1305, was recently signed into law by the Governor. This bill was enacted to protect tenants in foreclosure actions by permitting tenants who did not occupy the premises at the commencement of a foreclosure action to remain in occupancy for the remainder of the lease term, up to a maximum of three years, provided that the lease was entered into in good faith and that the unit is not subject to rent control or rent stabilization. The reasoning behind this is that they did not know about a pending foreclosure and eviction and are thus entitled to stay through their lease terms. The bill will take effect on the first of January of 2023.

The bill does not necessarily change the law. In New York, under the Protecting Tenants at Foreclosure Act and previously under the Real Property Actions and Proceedings Law § 1305, tenants were permitted to finish their lease while the premises is the subject of a foreclosure action. This amendment merely establishes a time period by which they can remain.

This bill may keep potential bidders for foreclosures on the sidelines as potential buyers may not want to risk buying a home that they cannot move into immediately or for three years.   This could decrease bidding prices harming borrowers hoping bidders will pay off the mortgage with the winning bid and allows for less inventory on the market if less people are looking for homes in a market that does not include foreclosures.  This will equate into higher home prices for buyers.

Buyers are usually unable to visit a property in foreclosure prior to purchasing.   Because of this, the bill may cause harm in the entirety of the property market. Additionally, this will have a negative effect on borrowers, as people will likely be willing to pay less at foreclosure sales for a building where they are prohibited from evicting current tenants for up to three years. This will lead to deficiency judgements and borrowers’ credit will be affected.

These implications, while helping the tenant, will likely put borrowers in a worse position than prior to the legislation.  While legislative intent was likely to protect vulnerable tenants, this may have a negative economic effect on the property market, making it harder for anyone to purchase property. And while we can imagine these effects, we will not become aware of the complete ramifications of this bill until it takes effect on January 1, 2023.

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