Recently, New York State amended its foreclosure laws to provide mandatory protections for homeowners who have defaulted on a reverse mortgage. Homeowners are now entitled to additional notice protections and to a mandatory foreclosure settlement conference all of which are intended to increase the likelihood of a resolution. Typically, a default is triggered when the homeowner fails to pay the real estate taxes. Immediately reimbursing the bank for the back real estate taxes can permit the homeowner to reinstate the mortgage and result in the foreclosure case being discontinued. Some homeowners are unable to immediately reimburse the bank and may need to enter into a workout plan to repay the bank over a period of time. If, however, the homeowner does not have sufficient monthly income, he or she may not be granted a repayment plan which would permit the bank to continue with its foreclosure. It is still early to predict how the courts will address loss mitigation options with respect to reverse mortgages, and I will keep you all posted.
When a loan modification has been denied, the homeowner/borrower must decide if he/she wants to appeal. The appeal time is generally listed on the denial. Most of the time it is 30 days. If the denial is erroneous then it is necessary to appeal. Many times, the denial does not have a detailed analysis and is merely an unsupported denial. If this is the case, it is recommended to send a request for a detailed explanation with a reservation of rights to appeal the denial upon you receiving a detailed explanation for the denial. Sometimes the loan servicer that issued the denial may have misapplied the regulations which often results in a wrongful denial. In these cases, it is vital to appeal the decision and, if possible, bring the issue to the attention of the court overseeing the foreclosure action. In cases where the denial is based on insufficient income, it is important to make sure that the lender or its servicer relied on the correct sources of income that was documented in the application, i.e., pay stubs, rental income, and all other sources of income. Typically, rental income is discounted by a lender and/or the servicer. The rental income is usually reduced by 25%. If the lender or its servicer did not include all income then a homeowner must timely appeal the denial and submit documentary evidence supporting the unacknowledged income. This could make all the difference. Additionally, many homeowners think that increasing the monthly expenses will increase their chances to receive a modification, but this could actually do the opposite. Always be sure to reflect accurate monthly expenses in your application for mortgage assistance. It is best to consult with an experienced attorney before you apply for a loan modification or when you are denied one.
When a foreclosing bank is the successful bidder at the foreclosure auction, the bank can list the property with a local realtor to sell the property or the bank may instead decide to list the property with a foreclosure auction company that auctions properties through an online auction process. In the latter, the bank has a minimum reserve price which means that the bank will not accept a bid for less than its minimum reserve price. Because the online auctions are relatively new, many real estate attorneys are unfamiliar with the various protocols and the issues that may arise. Each site is different and has many terms and conditions. Some companies do not fully disclose all relevant facts and may charge a commission to the purchaser, who must pay it at time of closing. This commission can be as much as 5% of the winning bid amount. Additionally, many online foreclosure auction sites are owned and operated by companies in other states which can be an issue if you have been wronged by the company and want to sue it for breach of contract and/or fraud. New York has what is referred to as a "long arm statute" which subjects foreign companies to the jurisdiction of New York courts so long as the transaction arose out of minimum contacts with New York State. The application of the statute is heavily dependent on the facts of each case. Additionally, many online auction companies contract with an "escrow agent" or title company that acts as an intermediary for the successful bidder and the bank that is permitting the property to be auctioned off. This escrow agent may not always act in the best interest of the purchaser and it is vital that an attorney experienced in these matters be retained to represent the successful purchaser. What is of further concern is that the escrow agent will be accepting the down payment at the time of the winning bid and the balance funds at the time of closing. These funds are not protected against the agent's misappropriation. Unlike New York, many states permit the escrow agent's insurance provider to issue a "closing servicing letter" or 'closing protection letter" to the purchaser. Such a letter insures the purchaser against any misappropriation of the funds while in the custody of its escrow agent. This is very important coverage, but the New York State Department of Insurance has not approved such letters in this state, and the letter cannot be issued in New York. Consequently, the winning bidder will have little or no recourse against an escrow agent's misappropriation of funds or if the agent goes out of business. It is, however, uncommon for escrow agents to misappropriate escrow funds or go out of business over night, but I can assure you that it does occasionally happen, and when it does, it can be disastrous for the purchaser. Perhaps New York State Department of Insurance should jump on the band wagon and do what most other states have been doing for many decades. Until then, the winning bidder must accept the risk. Unfortunately, there are other risks involved in these auctions and a winning bidder would be wise to retain an experienced foreclosure attorney to minimize such risks.
Some homeowners in foreclosure who have not been successful with typical loss mitigation options (repayment plan or modification) still have an absolute right to reinstate their mortgages. Reinstatement is when the borrower is able to cure all mortgage arrears by paying the full sum of such arrears. Once the lender receives the reinstatement funds, it is required to reinstate the mortgage and discontinue the foreclosure action if one was commenced. The homeowner will continue making all future monthly mortgage payments. Many mortgages are contracts and have provisions limiting this right. Many mortgages prohibit reinstatement after a judgment of foreclosure and sale is granted by a court. Despite this prohibition, the homeowner has an absolute right to reinstate the mortgage. RPAPL Section 1341 permits a homeowner/mortgagor to reinstate a mortgage from the date of default to the time just before the mortgaged property is sold at auction. Whenever a homeowner is in foreclosure, he or she should always contact an experienced foreclosure attorney to fully protect the homeowner's rights.
In foreclosure actions commenced in New York, the CPLR Section 3408 requires the court to schedule a mandatory foreclosure settlement conference. Such conference is to the benefit of both the bank and the homeowner. During the conference(s) the bank is prohibited from moving forward with the foreclosure until the court determines if the parties are able to resolve the matter through some type of loss mitigation. If the homeowner or his/her attorney does not appear at the conference, the homeowner will be deemed in default and the case will be transferred to the active foreclosure part which permits the bank to move forward with the action. During the conference(s) the law requires that the parties negotiate in good faith in trying to resolve the foreclosure through some type of loss mitigation or settlement. Although the obligation to act in good faith applies to both parties, the banks are often accused of acting in bad faith by frustrated homeowners. How then is bad faith defined by the courts? Recently, the Appellate Division for the Second Department clarified the meaning of “negotiate in good faith”. The court held that the standard was not a showing of gross disregard or conscious or knowing indifference to another’s rights but rather under the totality of circumstances did the party's conduct fail to constitute a meaningful effort at reaching a resolution. See US Bank N.A. v. Sarmiento, 121 AD3d 187 (2nd Dept 2014). Obviously each case is different, but the bank may be acting in bad faith if it can be shown that it failed to take meaningful steps in trying to resolve the matter such as consistently delaying the mortgage assistance application process, misrepresenting the facts such as the amounts owed on the reinstatement letter or wrongfully denying a modification to the homeowner. Always speak to an experienced attorney early in the foreclosure process.
When a homeowner is in foreclosure, it is likely that the homeowner will receive solicitations from "investors" who will offer money for the homeowner's deed. In the typical situation where the mortgage debt exceeds the value of the house, an investor may approach the homeowner early in the foreclosure process and offer the homeowner a few thousand dollars in exchange for the deed and keys to the house. Typically the homeowner is unaware of how long the foreclosure process is and out of fear of being evicted by the bank, the homeowner may agree in haste to convey the deed for a few thousand dollars. The investor is likely inclinded to rent out the property and contest the foreclosure to delay the action as long as possible. The investor will likely be made whole for the few thousand dollars paid to the homeowner once the investor receives from the tenant two months' deposit and one month's rent. All rent after that is pure profit. Since the investor is not paying real estate taxes, the investor is earning pure profit. Depending on the county, the investor could collect rent for up to three years! Other times, the mortgage debt may be significantly less than the value of the property, but the homeowner has no equity due to various judgments. In this situation, the investor may again approach the homeowner early in the foreclosure process and offer a few thousand dollars to the homeowner in exchange for the deed to the property. The investor will do this if he/she feels that it is highly likely that the property will sell at the foreclosure auction for more than what is owed the foreclosing bank, and if it does, the difference between the amount owed the bank and the selling price is deemed surplus money, which will be paid to all subsequest lienors who petition for all or a share of the surplus money. If the subsequent lienors do not petition or file claim for thesurplus monies then they will be barred after the proceeding is completed. The homeowner can petition for surplus money but in this case, the investor steps into the shoes of the homeowner and may petition for all or a share of the surplus money. If the investor petitions for surplus money and the subsequent lienors fail to file claim then the investor could be entitled to all the surplus money. There are, however, many nuances to these scenarios that are beyond this post, and the real point of this post is to alert homeowners to always speak with an experienced foreclosure attorney before agreeing to transfer a deed to property in foreclosure.
Many times when a homeowner is in default on a mortgage or is in foreclosure, the homeowner will be contacted by "investors" who are interested in purchasing the property. Some investors are looking to prey on the homeowner by offering an arrangement that at first blush seems to offer some degree of hope to the homeowner who typically is desperate to save the home and is inclined to sign a contract that may not be in the homeowner's best interest. This act is designed to protect the homeowner from being such victims of shady type investors and it is codified in Real Property Law Section 265-a. For the act to apply, the homeowner must be residing at the property at the time the contract is entered into, and the purchaser/investor is not intending to reside at the property. Generally the act covers the following contracts: 1). A contract incident to a sale of a residence in foreclosure or 2). a contract incident to a sale of a residence in foreclosure or default where such contract includes a reconveyance arrangement. A reconveyance arrangement is similar to a lease with an option to buy back the property. Before any homeowner in default and/or in foreclosure enters into a contract with someone, he or she should speak to a qualified attorney who specializes in foreclosure and real estate law. If an investor is looking to purchase your property or is offering some type of arrangement that promises to offer a solution to your situation then there is pause to consider why the investor is interested. Perhaps the mortgage is defective and the investor knows that the foreclosure action can be dismissed for substantive reasons or perhaps the second lien holder is willing to take pennies on the dollar which increases the homeowner's equity. There are many other possible scenarios, and it's the wise homeowner who consults with an experienced attorney before ever signing on the dotted line. A brief summary of the act may be found on the website below:
For a further discussion of investors see my August 2016 post entitled "We buy houses for all cash"
Reverse mortgages are a great way for seniors to use the equity in their primary residence to receive monthly payments to help pay for living expenses. Reverse mortgages are generally associated with the FHA's Home Equity Conversion Mortgage (HECM). Mortgage companies must comply not only with state procedural and substantive laws, but must also comply with FHA and HUD rules and regulations since reverse mortgages are insured through FHA and/or the Department of Housing and Urban Development (HUD). When the mortgagor/owner dies, the mortgage company is entitled to demand that the entire outstanding balance be satisfied. The first thing it will do is determine if an estate proceeding has been commenced and if so, it will serve the representative of the estate with a default notice. If no estate proceeding has been commenced, then the mortgage company will likely seek to file a petition for administration and the court will appoint an administrator (usually a public administrator). Once the administrator or estate representative is served with the default notice, the estate will have the right to demand that the mortgage company undertake to have an appraisal done (must be a HUD certified appraiser). If the appraisal shows that the value of the property is greater than the amount owed on the mortgage then the estate is entitled to pay the amount owed in return for a satisfaction of the mortgage. In the alternative, If the appraisal shows that the value of the property is less than the amount owed on the mortgage then the estate is entitled to pay the 95% of the current appraised value in return for a satisfaction of the mortgage. This could be a Godsend if the amount owed is significantly higher than the appraised value of the mortgaged property.
Generally, if the default is not cured within 30 days, then the mortgage company can move to commence foreclosure proceedings. However, if the decedent was married and living with a spouse at the house, then the spouse may be entitled to stay in the house, but in order for this to occur, certain conditions must be met. There are many other nuances that are too long to discuss. Always speak with an experienced foreclosure lawyer who is also familiar with the HUD regulations and contract provisions pertaining to reverse mortgages.
In NY, the law does not permit a lawsuit to pursue against an individual who is deceased (you can't sue the dead), but the lawsuit can be permitted if the plaintiff has named the decedent's estate representative(s) and or heirs. For instance, if your uncle owned the real property and died without a will (died intestate), the plaintiff, in order to proceed, can name your uncle's natural heirs at law. In New York, real property passes by operation of law to the decedent owner's heirs at law which is based on the laws of succession pursuant to the intestacy statute. If your uncle had a will (died testate) then the plaintiff must name the representative in the probate proceeding and no need to name the natural heirs since they are bound by the probate proceeding. If, however, the plaintiff is seeking a deficiency judgment against your uncle's estate (let's assume he signed a promissory note in favor of the foreclosing plaintiff) then regardless of whether your uncle had a will or not, the plaintiff must serve your uncle's personal representative. If there is no personal representative, the plaintiff will need to file a petition in surrogate's court to have a representative appointed. Once the representative is appointed, the plaintiff can serve the representative and the representative will be bound by any court order or judgment in the foreclosure action. If the foreclosing plaintiff is seeking a deficiency judgment against the decedent's estate then it must name and serve the decedent's personal representative.
Owners of houses in foreclosure are frequently approached by all sorts of "investors" claiming that they will offer all cash for a property in foreclosure. Before you engage such investors, be very suspicious since you do not want to unwittingly give any of your personal information to a fraudster who is looking to self-deal and take advantage of your situation. How can you tell if an investor is legitimate or not? Well, it's not so easy. You can begin by checking with the department of consumer affairs in the county where the property is located and in the adjoining counties to see if any complaints have been filed and if the investor or company was fined. You can also "google" the investor and see what you find. One effective method is to see how many lawsuits the investor is involved in and what kind of litigation it involved. Our firm can assist you in this and provide free general advice over the phone. When someone offers you money for a deed to your property, don't give any personal information and tell the person you will call him/her back after you speak with a lawyer. Our firm can guide you in any situation involving your property. Call us for a free consultation!
Effective this December 20, 2016, vacant and abandoned properties that are the subject of foreclosure actions will be covered under the new law. The law now obligates lenders to frequently inspect, secure and maintain the vacant and abandoned property even before the foreclosing lender obtains a judgment of foreclosure and sale. After the lender commences its foreclosure action and the homeowner's time to answer the complaint expires, the lender, upon proof and certification that the property is abandoned, will be permitted to move via order to show cause for an accelerated judgment of foreclosure and sale. This will clearly accelerate the foreclosure of abandoned properties which will likely lead to quicker rehabilitations. The order to show cause must state in bold letters that the property is vacant and abandoned and that it may be foreclosed on without any further proceedings if the motion is not opposed. The court is also required to send a separate notice advising the homeowner that the lender has filed for an expedited foreclosure action based on the property being abandoned and vacant. The owner of the property must respond to the motion or appear on the return date to challenge the lender's determination that the property is abandoned and vacant.
Additionally, the law requires the Department of Financial Services (DFS) to maintain a statewide electronic registry and the lender is required to furnish information to the DFS within 21 days from when it learns that the property is abandoned and vacant. RPAPL Section 1309 requires that the Plaintiff prove by a preponderance of evidence that it conducted at least 3 inspections, each between 25 to 35 days apart and at different times of the day, and at each inspection, no occupancy was present. Evidence of this includes: overgrown vegetation, accumulation of newspapers and or flyers, past due utility notices, disconnected utilities, accumulation of trash, absence of window coverings, broken, boarded or missing windows, property that is open to entry or property that is unsound and poses a potential threat or danger. The new law carves out exceptions, such as when property is under construction, renovation, seasonal use, subject to a Surrogate Court proceeding or a quiet title action, occupied by someone who has a legal right to occupy, etc. In addition to the typical mortgage foreclosure action, the new law will cover tax lien foreclosures too. Failure of lenders to comply may result in fines that can be as much as $500.00 per day. The law allows all municipalities to enforce the law and collect the fines.
If an owner of vacant property is served with any notice declaring the property to be abandoned and vacant, the owner must determine if the property is worth saving and if so, such owner must take immediate action to avoid the plaintiff from obtaining the judgment of foreclosure and sale. My firm will provide a free phone consultation in such matters, but it is vital that the owner not waste anytime otherwise the property may be lost at a foreclosure sale.
Sometimes when a foreclosed property is sold at a public auction, the winning bid may exceed the amount that is owed to the foreclosing bank. This excess amount over the amount owed the bank is deemed surplus money. The court appointed referee handling the foreclosure is required to deposit the surplus money with the county treasurer in the county the foreclosed property is located in. After this deposit is made, anyone with an interest or claim (a lienor and/or owner) to the money must bring a "surplus money proceeding". This is a legal action whereby the claimant is requesting some or all the surplus funds. Typically, the claimant will have a lien against the foreclosed property or an ownership interest, like the foreclosed owner. A lienor is usually a second mortgage company or a judgment creditor or another creditor like the IRS. A lienor or owner who appeared in the foreclosure action will likely be notified of the foreclosure sale and can attend the sale to see what the property sells for. Once the lienor or foreclosed owner learns that there is a surplus, either one can make claim to the funds. In a surplus money proceeding, the court requires that a title report be submitted for purposes of disclosing what liens are against the foreclosed property. The lienor making claim for the proceeds does not have to be in any particular lien position (can be the holder of a lien that is inferior to other liens). This lienor, however, is required to notify all other lienors, which lienors can then assert their own claims or assert priority if their liens are prior to the lien held by the lienor bringing the action. If, however, the other lienors fail to appear and/or fail to assert claims of priority then they may be barred from receiving any of the funds. Similarly, if the foreclosed owner is noticed in the surplus money proceeding then he/she can make claim for any remaining funds or can contest any of the lienors' claims. Moreover, if the foreclosed owner brings the action, he/she must notify all lienors. The bottom line is, if you snooze, you lose; hence, it's always advisable to retain an experienced foreclosure attorney to help ensure your rights are protected.
Unfortunately New York State does NOT have a right of redemption period post foreclosure sale. Once the property is sold at the public auction to the highest bidder, the original foreclosed owner has no right to satisfy the entire amount owed the lender. Unless the prior foreclosed owner has legal and/or equitable defenses to the foreclosure action, once the sale has occurred, the owner will be without a remedy. The only thing the prior owner can do in such case is to retain an attorney to determine if the sale was properly held and conformed to statutory law. If the sale was not proper then there could be grounds to move to set aside the sale. If the sale is set aside, then the prior owner would have the chance to satisfy the loan. If, however, the sale was proper, then the prior owner would need to show a defense to the foreclosure action, and if such defense is meritorious, it may result in the foreclosure sale being vacated and maybe the action being dismissed.
Typically, the foreclosing attorney will file a request for judicial intervention (the "RJI") which essentially is a request by the moving party to have the court schedule a foreclosure settlement conference in the foreclosure part of the supreme court located in the county where the property is situated. Once the request is filed and served, the court will schedule a foreclosure conference for the sole purpose of determining if the homeowner will be seeking some type of mortgage assistance from the lender, such as a HAMP mortgage modification or some other workout arrangement. The court will send notification of the first conference and the date the parties must appear. Essentially, the foreclosure action is stayed (put in temporary abeyance) during the time the case is in the foreclosure settlement part. At the conference, a court appointed referee will preside over the conference and ask questions regarding the feasibility of a modification and/or workout. If it appears that a workout can be accomplished then the referee will adjourn the conference to permit the parties time to complete the process. If the homeowner does not appear at the conference or the homeowner is unable to enter into a modification or workout, the referee will likely transfer the case out of the foreclosure settlement part, which will end the stay on the foreclosure permitting the bank to continue with its foreclosure. Generally, the conference is not intended to discuss the merits of the bank's foreclosure action, but rather intended to discuss workout options.
Additionally, the court will often inquire as to whether the borrower is residing at the subject property, as to the monthly gross income, and as to the reason for the loan default. If the borrower does not reside at the subject property or does not have sufficient monthly income then the borrower may be disqualified for certain government modification programs. Sometimes, however, when a borrower is ineligible for a government modification, the bank may have its own "in-house loan modification program" or a forbearance or repayment option that it may offer to the borrower. Generally, if a borrower is intent on a modification, whether it be through a government program or an in-house modification program, the borrower will want to make sure that he or she provides all documentation and complies with court directives. Always consult with an experienced foreclosure attorney.
RPAPL Section 1304 generally applies to situations where there is an individual homeowner who has defaulted on his/her home mortgage. As long as the borrower is still residing in the property, the holder of the home mortgage ("the mortgagee") may be required to serve the borrower with a 90 day pre-foreclosure notice and failure to do so may be fatal to any subsequent foreclosure action filed by the mortgagee. The section 1304 notice is intended to permit the borrower breathing time to seek mortgage counseling and to apply for mortgage assistance directly with the mortgagee. Sometimes, the mortgagee may issue the section 1304 notice, and contemporaneously issue a standard default notice pursuant to the terms of the mortgage. If this is the case, the default notice issued pursuant to the mortgage will need to be compared with the section 1304 notice to see if there is any conflict. If there is a conflict, it can be a strong legal defense which must be raised in the foreclosure action. It is sage advice to always seek representation from an experienced foreclosure lawyer.
Typically it is better to apply for a mortgage modification as early as possible. Delaying in applying increases the mortgage arrears and the larger the arrears the higher the chance the borrower will be denied a modification. Contact an experienced foreclosure/modification attorney before it is too late.
The Home Assistance Mortgage Program (HAMP) was set to expire at the end of 2015, but fortunately the program has been extended to the end of 2016. This extension is a blessing for struggling homeowners who need some type of mortgage foreclosure assistance; however, not all mortgage companies are participating in the HAMP program, and if you're not sure if your lender is participating then you can contact your lender directly for clarification.
Another program that has helped many struggling homeowners in default and foreclosure is the New York State Mortgage Assistance Program (NYSMAP) which program offers borrowers grant money up to $40,000.00 towards reinstating their mortgages, allowing them to resume making mortgage payments, but like the requirements under HAMP, the borrowers will need to demonstrate sufficient monthly income covering the mortgage payment along with the additional monthly household expenses shown by the borrowers on the application. The NYSMAP will usually approve the grant funds when the borrowers have been denied mortgage assistance through their lenders.
If you need additional information, you may contact us, and we will be happy to assist you.
Anyone who has applied for a mortgage modification knows how difficult and confusing the process can be. Most of the delay and confusion is completely unnecessary.
A significant part of the problem is that financial institutions overburden their individual underwriters with an unrealistic number of loan modification files which invariably results in long delays and in the applications going stale. State and federal agencies should consider new rules that limit the number of files that any individual underwriter can have at any given time. Such a requirement would force financial institutions to hire additional underwriters which would result in less delays. Insurance companies that handle claims need to have an appropriate ratio of claims per claim examiner, and why is this not the case with financial institutions reviewing mortgage assistance applications?
Additionally, many times when a financial institution renders a loan modification decision, it provides little or no information pertaining to how the decision was made: what formulas and calculations were used? Was the borrower considered for other types of assistance? How did the borrower fail to meet the requirements for such other types of assistance? Because most financial institutions do not provide any real explanations for their decisions, borrowers are left in the dark and they cannot determine if their applications were reviewed appropriately for the most favorable outcome that they were entitled to under existing rules and regulations. Such omission to provided a detailed analysis leads to unnecessary complaints to regulatory agencies as well as to appeals which result in further unnecessary delay.
Perhaps if the financial institutions were required to use a standardized form that provided an actual breakdown with calculations regarding how they came to their decisions and why the borrowers were not entitled to other forms of assistance, then such requirement would likely result in less delay while also ensuring that the borrowers were receiving the relief that they were entitled to under all existing and applicable programs.
Until the financial institutions are required to set limits on the number of applications assigned to an underwriter and required to provide a detailed analysis regarding how their decisions are made, it will be business as usual with continued delay, and confusion.
In New York, if a borrower executes a promissory note and then subsequently defaults under the terms of the note, the creditor, who holds the note, can sue the borrower for the full amount due under the terms of the note.
If in addition to the note, the borrower executes a mortgage pledging real estate as security for repayment of the note then if the borrower defaults, the creditor, who holds the note, will decide if it will elect to sue on the note or foreclose against the property. If the creditor chooses to foreclose and is successful in bringing the property to auction then assuming that the property is worth less than what is owed under the note, the creditor can seek a deficiency judgment against the borrower for the difference between the fair market value of the property and the amount owed under the note.
A deficiency judgment can result in the creditor filing restraining notices against the borrower's bank accounts, executing on other assets and garnishing a percentage of the borrower's employment income.
There are ways to minimize the chances of being personally liable for a judgment and and consulting with an experienced attorney can potentially save a judgment debtor from the wrath of a judgment creditor.
The New York State Court of Appeals decided in Aurora Loan Services, LLC v. Taylor that a foreclosing plaintiff only needs to show that it has possession of the note at the time the foreclosure complaint is filed. Thus, if the foreclosing Plaintiff has possession of the note, the mere fact that it does not have an assignment of mortgage is essentially meaningless. The mortgage is merely incidental to the promissory note and the mortgage naturally follows the note; hence, whoever has possession of the promissory note will be entitled to foreclose even if an assignment of mortgage is in a different entity.
Notwithstanding, the promissory note secured by a mortgage is a negotiable instrument and is governed by the Uniform Commercial Code (UCC).
UCC 3-202 provides: [n]egotiation is the transfer of an instrument in such form that the transferee becomes a holder. If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery (emphasis added).
Based on this requirement that the note be physically delivered, the foreclosing plaintiff must demonstrate that the subject note was physically delivered, and it will do this by typically submitting an affidavit by someone with knowledge attesting to the circumstances surrounding the delivery of the note. If the affidavit is not thorough enough then it may not serve as sufficient evidence to support the claim of possession and or delivery.
Typically, the note is transferred more than once and the foreclosing plaintiff will usually provide allonges to prove the chain of ownership. There are many technical issues that come into play with allonges, and if the foreclosing plaintiff is not careful, the action could be dismissed for lack of standing.
Always seek out the advice of an experienced foreclosure attorney before it's too late!
Recently, one of my clients advised that she was contacted by someone claiming to be a bank servicing representative with the mortgage company servicing her loan and further claimed that the bank was offering a modification and requested that my client immediately tender the new mortgage payment. My client was excited to hear this especially since the "new mortgage payment" was less than what she was previously paying. Unfortunately for my client, her excitement got the best of her and after she sent in the check which was quickly cashed, she realized that she had been taken advantaged of since the "servicing representative" had disappeared as quickly as she cashed my client's check. There are other types of scams to be on the outlook for, such as, an offer made by an alleged bank representative who states that the bank is going to "write off" the loan if you send in one lump sum payment. It is very tempting to think that the bank will write off the loan for pennies on the dollar, and in rare situations banks have been known to do this, but it is unlikely and before you rush to send out a check to make your mortgage obligation go away, think again and make sure you investigate to see if it's the real deal. Don't be fooled by any scam. This is another reason to entrust your foreclosure matter in the hands of an experienced foreclosure attorney who can minimize this kind of risk while at the same time fighting the foreclosure action.
In New York, a mortgage is a contract between the bank, as mortgagee and the homeowner/borrower, as mortgagor. The promissory note is also a contract as well as a personal guarantee by the person receiving the funds, the borrower/obligor. The mortgage is an agreement whereby the obligor permits the real property to be used as security for the repayment of the promissory note. If there is a default under the terms of the note and or mortgage, say for example nonpayment, then the bank can elect to sue on the note or instead, elect to foreclose on the real property securing the note. This is called an "election of remedies". Thus, the bank, as mortgagee, could elect to commence a mortgage foreclosure action, or commence an action on the promissory note. The bank can only choose one of the two remedies; therefore, if the bank commences a foreclosure action, it cannot later commence an action on the note and vice versa.
In New York, the promissory note and mortgage are contracts and the six-year statute of limitations is applicable. There is much confusion as to how the six-year statute of limitations applies in mortgage foreclosure cases. In order to know how to apply the statute, we need to know if the loan was accelerated or not. Acceleration occurs when the bank declares the entire loan balance immediately due and payable. Once the loan is accelerated, the bank has six years to sue and failure to commence an action within the six year time period may result in a bar to recovery. If, however, during the six year period the borrower or his/her spouse filed for bankruptcy, the statute of limitations would be tolled, meaning stayed during the bankruptcy along with an additional time period tacked on in favor of the bank. Additionally, if the borrower filed for mortgage assistance during the six year period, the bank may assert that the borrower reaffirmed the debt and that the six year statute of limitations should run from the date of reaffirmation, i.e., the date the mortgage assistance application was made.
If, however, the bank did not accelerate the loan but has merely demanded that the borrower pay the loan arrears (missed payments and/or escrow charges, late fees, etc.), then each month that goes by is deemed a continuous loan default. Under this scenario, if the bank waited longer than six years from the date of the first default to commence its foreclosure, the bank would still be able to foreclose since in this situation the six-year statute of limitations applies only to missed payments that accrued more than six years. Since the loan balance was never accelerated, the bank can still foreclose and demand payment for the unpaid principal balance and all charges that accrued less than six years prior to filing the action. It is therefore likely that banks will decide not to accelerate their loan balances until they commence suit. If the bank does commence suit more than six years after the first missed payment, it only forfeits missed mortgage payments and charges that accrued more than six years. As discussed above, if the bank declared the entire loan due and payable (acceleration) then the bank MUST commence suit within the six years, unless of course the statute was tolled by a bankruptcy filing.
Additionally, if an action is timely commenced, but later dismissed before trial and at time of dismissal, the statute of limitations has expired or has less than six-months remaining then the aggrieved party, the bank, would be permitted an extension of six months from the date of dismissal to re-file the same action and serve process on the homeowner. Thus, just because the action was dismissed prior to a trial and at a time when the statute of limitations had expired does not necessarily bar the bank from commencing a new action. However, there are exceptions to this rule: the dismissal was on the merits or dismissal was due to the voluntary discontinuance by the bank, or the dismissal was based on the bank's failure to prosecute. See CPLR Section 205 (a). The attached link below will upload this section: http://codes.lp.findlaw.com/nycode/CVP/2/205
So, let’s assume the bank accelerated the loan three years prior to commencing foreclosure and the action has been inactive in court for another three years. If the borrower's attorney is able to have the action dismissed on the merits of the case then the bank may be barred from commencing a new foreclosure since the six year statute of limitations would apply. "On the merits" generally refers to substantive issues as opposed to procedural issues. For example, if an action is dismissed because the court determined that the homeowner was not properly served, this would not be deemed a trial on the merits of the case, and the bank would be permitted to recommence the same action within six months from the date of dismissal so long as it served process on the homeowner within that time period. If, however, the action was dismissed due to lack of standing then this would be on the merits, and the bank may be prohibited from refiling a new action so long as the borrower raises the statute of limitations defense in the answer.
Additionally, if the mortgage maturity date has passed, then the bank has six years from the maturity date to sue. This is not something we see often since most mortgages have a maturity date greater than 15 yrs, but it is something to consider.
Ultimately, the issues involving the statute of limitations in mortgage foreclosure actions are very complex and should only be handled by an experienced attorney.
Many times, either before or during the foreclosure process, the homeowner's insurance policy lapses, and the bank usually sends notification that unless the policy is renewed or replaced, it will purchase forced placement insurance to protect the bank's interest in the property. More often than not, such notices are ignored and the bank buys such insurance which is usually much more than the cost of the homeowner's original policy. In addition to the significantly higher cost in the premium, the cost is passed to the homeowner. Additionally, this forced placement insurance may not protect the homeowner from personal liability. For instance, if an injury were to occur on the mortgaged property then the forced placement policy may not insure the homeowner against a potential lawsuit. Furthermore, if there is any damage to the mortgaged property, the homeowner also may not be entitled to anything since the s/he may not be deemed an insured under the policy. Homeowners should seriously consider keeping the insurance current otherwise they may have big problems down the road. Homeowners in foreclosure should review their insurance policies and make sure they are covered. Recently, there have been some class actions against banks for purchasing forced placement insurance that did not insure the homeowners. Some of these class actions have resulted in large settlements and many affected homeowners have received notifications to join in the class action; however, these homeowners should seriously consider speaking with an experienced attorney before deciding to join the class. Joining the class in return for a small monetary award could backfire. This recommendation applies to any class action involving a bank. Speak to an experienced attorney before making any decision.
Reverse mortgages are a great way for seniors to use the equity in their primary residence to receive monthly payments to help pay for living expenses. Reverse mortgages are generally associated with the FHA's Home Equity Conversion Mortgage (HECM) Mortgage companies must comply not only with state procedural and substantive laws, but must also comply with FHA and HUD rules and regulations since reverse mortgages are insured through FHA and/or the Department of Housing and Urban Development (HUD). The mortgage company will likely find out that your dad, the mortgagor, has passed and his passing will entitle the mortgage company to demand that the entire outstanding balance be satisfied. The first thing they will do is determine if an estate proceeding has been commenced and if so, they will serve the representative of the estate with a default notice. If no estate proceeding has been commenced, then the mortgage company will likely seek to file a petition for administration and the court will appoint an administrator. Once the administrator or estate representative is served with the default notice, the estate will have the right to have the mortgage company undertake to have an appraisal done (must be a HUD certified appraiser). If the appraisal shows the value of the property less than the amount owed on the mortgage then the estate is entitled to pay the amount owed the bank or 95% of the appraised value, whichever is less. Generally, if the default is not cured within 30 days, then the mortgage company can move to commence foreclosure proceedings. However, if your dad was married and living with his wife at the house, then his wife may be entitled to stay in the house, but in order for this to occur, certain conditions must be met. There are many other nuances that are too long to discuss, and I recommend that you speak with an experienced foreclosure lawyer who is also familiar with the HUD regulations and contract provisions pertaining to reverse mortgages.
An interesting case has come down where a New York State Supreme Court Judge has ruled in favor of HSBC which was accused by the NYS Attorney General to have purposefully delayed filing foreclosures in New York. The NYS Attorney General has yet to decide to appeal the decision. See: http://www.bloomberg.com/news/articles/2015-03-31/hsbc-wins-dismissal-of-new-york-foreclosure-practices-lawsuit
Many homeowners have war stories about how their individual foreclosure cases have dragged on for years. Sometimes, the delays are welcomed by homeowners who have no viable way to make affordable mortgage payments. Others, however, are more than qualified and willing to resume making mortgage payments, but due to a long delay in the bank filing for foreclosure, the outstanding loan balance has increased significantly which has the effect of increasing the amount of the mortgage payment and thereby potentially preventing these homeowners from being granted an affordable loan modification later down the road. These homeowners may want to save their money and put it aside so that they can pay down the arrears later on so that they increase their chances to receive an affordable mortgage modification; however, this approach may not work in every case since each case is different. What is true in every case is finding an experienced foreclosure attorney who can navigate the homeowner through the murky waters of a New York mortgage foreclosure. As for the HSBC case referenced above, it will be interesting to see if the attorney general appeals to the appellate division. Stay tuned!
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.