It is clear that secured creditors -- both in the consumer and commercial context -- will face a variety of monetary and non-monetary defaults as a result of the effects of the COVID-19 pandemic. It is important that secured creditors understand the applicable regulations when responding to their borrowers' requests for accommodation, as well as the practical and legal limitations before seeking to enforce loan default. Secured creditors should note the following:

  1. On March 20, 2020, Governor Cuomo issued an Executive Order stating that "there shall be no ... foreclosure of any residential or commercial property for a period of ninety days" from March 20, 2020 (i.e., to June 18, 2020). This means that a secured lender could not sell a property at a foreclosure auction in New York before June 19, 2020. This Executive Order does not itself bar prosecution of an existing foreclosure action or the enforcement of rights in connection with a loan. However, in connection with Governor Cuomo's Executive Order, the Chief Administrative Judge in New York issued an Administrative Order on March 22, 2020 barring all non-essential filings in New York State Courts, electronic and paper, effective immediately – until further notice. This Administrative Order effectively prohibits (a) the commencement any new collection litigation (foreclosure or otherwise) in New York State Courts or (b) the filing of any papers in any existing collection litigations pending in New York State Courts until further notice.
  2. The New York State Department of Financial Services has issued an industry letter directed to Regulated Financial Institutions for consumers and businesses impacted by the COVID-19, urging all regulated financial institutions "to do their part to alleviate the adverse impact caused by COVID-19 on those consumers and small businesses that can demonstrate financial hardship caused by COVID-19, including by providing "accommodations to their borrowers" and by "refraining from exercising rights and remedies based on potential technical defaults under material adverse change and other contractual provisions that might be triggered by the COVID-19 pandemic."
  3. The New York State Department of Financial Services has issued an industry letter directed to Regulated and Exempt Mortgage Servicersfor mortgage borrowers impacted by the COVID-19, urging all regulated and exempt mortgage servicers "to do their part during this outbreak to alleviate the adverse impact caused by COVID-19 on those mortgage borrowers ("mortgagors") who demonstrate they are not able to make timely payments", including by: (a) forbearing mortgage payments for 90 days from their due dates; (b) postponing foreclosures for 90 days; and (c) proactively reaching out to mortgagors via app announcements, text, email or otherwise to explain the above-listed assistance being offered to mortgagors.
  4. On March 21, 2020, Governor Cuomo issued an Executive Order providing that:  "it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of [New York State Department of Financial Services] shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days."
  5. On March 24, 2020, The New York State Department of Financial Services issued new emergency regulations to establish standards and procedures that regulated institutions must follow when reviewing requests for COVID-19 relief from their residential mortgage borrowers and in making "determinations to provide financial relief to those [residential mortgagors] experiencing financing hardship." These latest regulations do not apply to commercial mortgages.

ACTION ITEM: An immediate review of any loan in default and any potential modification or forbearance terms should be undertaken and all judicial and non-judicial enforcement options should be considered before calling any monetary or non-monetary default. Secured creditors should carefully document all COVID-19 related requests for modifications or forbearance agreements to ensure compliance with Executive Orders and other regulations and guidance.

The Bankruptcy and Creditors' Rights Department at Pryor Cashman stands ready to guide you through these legal issues during these uncertain times. We are available to review your existing loan documents and to discuss COVID-19's impact on your loan portfolio and to discuss any questions you may have on what steps to take next to ensure safe passage through this storm. Please contact your Pryor Cashman attorney for specific advice or counsel, and please refer to our dedicated COVID-19 Resource Library for further information on other impacts to your business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.