USA – NEW YORK Law and Practice Contributed by: Lindsey E. Haubenreich, Joseph P. Heins, Timothy P. Moriarty and Kimberly R. Nason, Phillips Lytle LLP
3.6 Formalities When a Borrower Is in Default In New York, a mortgage is used to create a security interest in real property. A mortgage is perfected upon its recording in the local county clerk’s office. Prior to enforcement, it is a customary require - ment in a commercial mortgage for a lender to be required to send a notice of default and pro - vide the borrower with an opportunity to cure the default. If the mortgage is considered “home loan” under New York law, then an additional 90-day statutory notice is required to be sent before a foreclosure of a mortgage can com - mence. The length of a mortgage foreclosure action may vary greatly depending on the jurisdiction within the State of New York, the type of mort - gage involved and the litigiousness of the par - ties. Once commenced, a commercial mortgage foreclosure action may take as little as one year to complete. Conversely, in the City of New York, it is estimated that a standard foreclosure of a home loan will take approximately six years. Generally, the administrative laws and orders that restricted mortgage foreclosure actions dur - ing the COVID-19 pandemic have been lifted or removed. 3.7 Subordinating Existing Debt to Newly Created Debt It is possible for existing secured debt to become subordinated to newly created debt in any cir - cumstances, but ideally parties should take several steps in their documentation to avoid pitfalls.
3.8 Lenders’ Liability Under Environmental Laws
Lenders are generally exempt from liability under federal and state environmental laws as long as the lender does not take title to, or “participate in the management” of, a contaminated property. Requiring a borrower to take action to address contamination, or renegotiating the terms of the secured interest, does not generally equate to “participating in the management” and will not subject a lender to liability. However, decision- making control over day-to-day activities or the environmental compliance of the site (ie, haz - ardous waste management), controlling expen - ditures, or taking title to the property may make a lender liable. 3.9 Effects of a Borrower Becoming Insolvent When a security interest is created and a foreclo - sure action is commenced prior to the filing of a bankruptcy by the borrower, the mortgage lien is generally secure and will typically survive the bankruptcy unless discharged by payment dur - ing bankruptcy. However, attempts to enforce the mortgage or pursue the foreclosure action are generally stayed unless and until the auto - matic bankruptcy stay is lifted. 3.10 Taxes on Loans On 22 January 2021, New York State Assem - bly members reintroduced legislation which would require the recording of, and payment of recording tax on, mezzanine debt and preferred equity investments related to the real property, whenever a mortgage is recorded with respect to the property. This legislation, however, was not enacted.
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