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As the United States slowly moves beyond the COVID-19 pandemic and returns to some degree of “normalcy,” it would appear that the easing of restrictions has likewise extended to the commercial-mortgage arena in New York State. Executive Orders 202.8 and 202.28, which placed a moratorium on the initiation and enforcement of commercial mortgage foreclosures, have not been further extended. Consequently, both lenders and borrowers might assume that commercial mortgage foreclosure proceedings may now be filed and enforced without undue delay. However, the decision not to further extend these Executive Orders has not eliminated all restrictions and obstacles to the initiation and prosecution of commercial mortgage foreclosure proceedings. Indeed, some very important “pandemic-related” obstacles remain in place.

First, certain commercial owners are shielded from foreclosure under the COVID-19 Protect Our Small Businesses Act of 2021 (the “Act”), enacted by the New York State Legislature on January 6, 2021. The Act provides, inter alia, certain protections against commercial eviction and foreclosure proceedings for small businesses in New York, impacted by COVID-19, until May 1, 2021 (although it may potentially be extended). To qualify for protection under the Act, the property owner must:

• be a business registered in New York;
• own ten or fewer commercial units, either directly or indirectly;
• be independently owned and operated;
• not be “dominant” in its field; and
• employ 50 or fewer persons.

Second, it is important to remain aware that the Executive Orders barred the initiation of commercial foreclosure proceedings for non-payment, as well as the enforcement of such proceedings. Thus, under the plain language of the Executive Orders, an action filed during the time period covered by an applicable Executive Order is subject to dismissal.

Finally, New York Courts are now grappling with an increased backlog in their litigation dockets, and we anticipate, in many cases, that the time to obtain a judgment of foreclosure may be considerably delayed as a result.

Certainly, both lenders and borrowers will need to take into consideration these “pandemic-related” obstacles in formulating their strategies in connection with commercial mortgage foreclosures for some time.

For more information on the topic discussed, contact:

• Alyssa C. Goldrich  |  goldrich@thsh.com  |  212-508-7523