On November 12, 2021, a judge in Orange County, New York held that the state foreclosure ban did not protect a shell company from foreclosure.

In March 2018, Pamela Lee (Lee) formed an LLC called 6 Turtle Knoll, LLC (Turtle Knoll). The following year, Lee took out a mortgage, listing Turtle Knoll as the borrower, to purchase real property located at 6 Turtle Knoll, Monroe, New York. On the loan application, Lee indicated that the real property would be used as an investment property, but Lee moved in the real property as a residence.

Wilmington Savings Fund (WSF) purchased the note in May 2019. Thereafter, Lee defaulted on mortgage payments, and WSF initiated a foreclosure. In an effort to stall the foreclosure, Lee filed a hardship application, listing Lee as the mortgagor on the application, under the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (L. 2020, c. 381) (CEEFPA).

CEEFPA requires a lender to provide a hardship declaration with notice provisions to an affected mortgagor before a foreclosure. Under the legislation, a COVID-19-related hardship prevents a lender from beginning a foreclosure until the deadline set by the legislature.

The legislation expressly authorizes a lender to file a motion and request a hearing to challenge a hardship declaration. Accordingly, WSF brought a challenge in Orange County, New York, challenging that the New York foreclosure ban did not apply to shell companies.

Orange County's Judge Bartlett ruled that Turtle Knoll was not subject to the state’s emergency foreclosure moratorium as it was designed to protect individuals, not corporations, allowing WSF to move forward with foreclosure.

New York's moratorium is one of several current measures to assist the state's homeowners in dealing with the COVID-19 crisis (see Legal Update, Supreme Court Partially Enjoins Enforcement of New York's Residential Eviction Moratorium). Many initiatives to provide foreclosure relief have faced strong pushback from lenders.

Counsel must continue to monitor developments at the federal, state, and local levels as the pandemic progresses and authorities' mitigation efforts evolve. For information on relevant moratoriums in select states, see:

For a continuously updated collection of real estate resources addressing COVID-19, see Practical Law's Real Estate Global Coronavirus Toolkit.