This article outlines the most notable legal and legislative developments affecting commercial foreclosure in New York as of 2025.

 

⚖️ I. Legislative Proposals Impacting Commercial Foreclosure

1. 

Proposed Amendments to Delay Foreclosure Based on Unpaid Rent

Legislation pending in Albany would prohibit commercial landlords from commencing foreclosure based solely on unpaid rent unless a prior special proceeding to recover rent has been concluded.

 

Under Senate Bill S125 and Assembly Bill A4377, a foreclosure action based on nonpayment of rent would not be permitted unless the landlord had first:

• Initiated a rent recovery lawsuit, and
• Obtained a judgment or exhausted that process.

 

If enacted, this reform would force landlords and lenders to pursue conventional rent enforcement before triggering foreclosure remedies, changing the sequence and strategy of enforcement. The measure is especially relevant where rent defaults form the basis of default under commercial loan agreements or leasehold mortgages.

 

2. 

Advance Notice Requirements to Commercial Tenants Facing Foreclosure

Senate Bill S1264 would impose a new duty on landlords or mortgagors to provide at least 14 days written notice to commercial tenants before renewing or entering into a lease if a foreclosure action is pending. The bill would:

• Require disclosure that a summons and complaint has been filed,
• Mandate a $500 rent credit for failure to provide notice, and
• Empower courts to grant equitable remedies.

 

This measure is designed to prevent tenants from unknowingly entering into lease agreements that may soon be disrupted by foreclosure proceedings particularly relevant in mixed-use or retail properties where tenants rely on long-term occupancy stability.

 

3. 

Proposed Duty to Mitigate for Commercial Landlords

While New York law historically does not impose a duty to mitigate damages on commercial landlords following early lease termination or abandonment, Senate Bill S421 would change that.

 

If passed, this bill would require commercial landlords to:

• Act in good faith to relet abandoned premises at fair market value, and
• Prohibit lease provisions that attempt to waive this duty.

 

The practical effect would be to limit the damages recoverable in foreclosure-related commercial lease defaults and expand commercial tenants defenses.

 

???? II. Trends in Commercial Foreclosure Filings

Recent data highlights a rebound in commercial foreclosure filings, with patterns differing significantly by borough and asset class.

 

NYC Metro Area Trends

• 2024: Commercial foreclosure filings declined 20% year-over-year, with just 72 actions citywide.
• Brooklyn led all boroughs, accounting for more than 70% of all filings.
• Manhattan saw limited filings but included high-value assets, such as office buildings and retail spaces.

 

Q1 2025

:

• 16 new commercial foreclosures were filed citywide.
• Major filings involved properties with liens exceeding $30 40 million, including downtown Manhattan offices and mixed-use buildings.

 

Q2 2025

:

• Commercial foreclosure filings surged by 85% year-over-year, to 24 filings in the quarter.
• Affected properties included NoMad office buildings, mixed-use retail centers, and warehouses.
• The uptick suggests growing market stress in the face of tighter credit, refinancing challenges, and continued shifts in commercial occupancy patterns.

 

???? III. Practical Considerations for Lenders, Borrowers, and Tenants

✅ 

For Lenders

• Increased scrutiny over rental income streams as part of underwriting and enforcement strategy.
• Greater emphasis on ensuring rent recovery steps are taken before initiating foreclosure, particularly if new legislative reforms pass.

 

✅ 

For Commercial Landlords

• Must be mindful of pending reforms that may require:
  
  
• Pre-foreclosure litigation for unpaid rent,
• Early disclosure to tenants of foreclosure risks, and
• Reasonable mitigation efforts following default.
•  
• Lease agreements may need revision to reflect new statutory duties and avoid unenforceable terms.

 

✅ 

For Commercial Tenants

• May gain new protections under proposed laws, including:
  
  
• The right to early disclosure of foreclosure proceedings,
• Protections against large damage claims if they vacate early,
• Increased leverage to negotiate lease renewals or terminations.
• Tenants should monitor the financial health of landlords, particularly in multi-tenant commercial buildings or retail centers.

 

Conclusion

Commercial foreclosure law in New York is in a period of significant procedural and legislative transition. Pending reforms, if enacted, would impose greater procedural fairness for tenants and more defined preconditions on landlords and lenders seeking to foreclose. Combined with a visible increase in foreclosure filings in 2025, these changes reflect a legal system adapting to complex post-pandemic realities in the commercial real estate market.

 

Stakeholders including property owners, lenders, and tenants should consult legal counsel to prepare for evolving requirements and ensure their lease and enforcement strategies remain compliant and effective.