New York has a new law that allows prevailing homeowners in many foreclosure actions to claim attorney fees from lenders. According to supporters of the new law, the Access to Justice in Lending Act will encourage attorneys to take cases for homeowners facing foreclosure, many of them who cannot afford to hire their own lawyers.
The new law, codified as part of Real Property Law §282, provides that all mortgage agreements giving prevailing lenders the right to attorney fees, must be read to also grant that right to borrowers that prevail. The law takes effect 60 days after its signing, and applies to all mortgages in effect on or after Oct. 20 and all proceedings begun on or after that date.
The law was opposed by the state Bankers Association. In its memorandum specifying the reasons for its opposition, the association's lawyers argued the bill was unconstitutional in its application to existing mortgages. The memo also noted that the two most common laws used by homeowners to fight foreclosure, the federal Truth in Lending Act, 15 USC Sec. 1640, and the federal Fair Debt Collection Practices Act, 15 USC Sec. 1692k, already allowed the recovery of attorney's fees and thus further legislation was unnecessary. Association lawyers also warned that the bill's broad language could open up the possibility of homeowners being awarded attorney's fees to which they had no right.
The significance and impact of the New York attorney fee-shifting law for foreclosures will be judged by the amount of new cases filed on behalf of borrowers seeking to avoid foreclosure. The law may create further incentives for borrowers to initiate litigation, and flood the courts with petitions to review foreclosure practices. It may also lead to the passage of similar statutes in other states.