If members of the New York State Assembly have their way, lenders and investors with loans in New York state will soon have to contend with a one-year moratorium on foreclosure activity in the state. Members of the state Assembly passed a legislative package of four housing-related measures Wednesday, one of which would force a one year delay between the moment a notice of default is filed through the foreclosure sale itself. Under Assembly bill A09695B (available here), sponsored by Assemblyman James Brennan (D-Brooklyn), borrowers would be able to assert their right to the moratorium as a positive defense to a foreclosure action, and even prior to a foreclosure, if one is deemed to be forthcoming. “The foreclosure moratorium provides immediate relief for New York families faced with this crisis and that foreclosure of their homes. This encourages lenders and homeowners to settle cases out of court through modification, refinancing or other means to avoid the devastation of losing a home,” Brennan said. Under the terms of the bill, lenders would need to certify their complete cost of carry — traditionally, around 1.5 percent of unpaid principal balance per month — which would be paid by the borrowers in lieu of their full mortgage payment during the stay period. Specifically, the bill says that the “lender must establish to the satisfaction of the court the minimum monthly amount necessary to preserve their relevant financial position so as to prevent an erosion of the mortgagee`s financial position.” Amusingly, the bill also says that “the purpose is to postpone the mortgagee’s profit and not to cancel or alter the terms of the mortgage agreement.” For one thing, lenders don’t profit from a foreclosure, so the bill is essentially winding up losses for all parties, not postponing some sort of phantom profit; for another, the bill most certainly alters the terms of the borrower’s mortgage agreement — that’s the very textbook definition of a one-year moratorium on payments. The idea, Brennan said, is to encourage a settlement “outside of the foreclosure process.” The Assembly passed three other measures as part of its housing package, including a measure that will use state funds to pay up to three months of mortgage payments for borrowers facing foreclosure. “The federal government was quick to bail out big businesses like Bear Stearns from near-collapse, but seems to have all but forgotten the everyday common household victims of this national crisis,” said Assembly Speaker Sheldon Silver (D-New York City). “Our package is not a bail out. It’s an assistance program to help homeowners in our state keep the American dream from turning into a nightmare.” The New York legislature’s lower house slants strongly Democratic, while the state Senate majority is very slightly Republican — Democrats only need one additional seat in the New York State Senate to unseat the Republican majority. Nonetheless, the bill heads to current Senate members for consideration next.

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