The Foreclosure Abuse Prevention Act was recently passed by the state legislature and signed by the governor. This law adds additional protections to mortgagors with respect to the six-year statute of limitations and with respect to situations in which a foreclosing plaintiff commences a second foreclosure action while a first action is still pending. There are many technical nuances to the law. Below is a link to the new law and if you believe that your case may be affected by the new law, you should contact an experienced foreclosure attorney to guide you.
Village Tax Lien Sale and Redemption for Westbury, Rockville Center, Garden City, Bayville and Hempstead Villages
In my practice I have reviewed village tax lien sales and tax deeds issued by the village treasurers for Hempstead, Rockville Center, Bayville, Garden City and Westbury. Many of the villages like the aforementioned villages are relying on a repealed statute (former version of the current Article 14 of the Real Property Tax Law) and there are many issues with this repealed law from the 1990's. Those who are affected by these tax proceedings should not delay in retaining competent counsel to protect their rights in their properties. I will provide a free consultation, but you must take the first step by calling me.
The New York State Homeowners Assistance fund may grant a homeowner up to $50,000 towards their mortgage default and or forbearance under certain conditions. For instance, a homeowner must reside in the property that is encumbered by the mortgage in default or in forbearance and the homeowner must have been adversely impacted by the Covid-19 pandemic. If the mortgage was in default before the national declared emergency then it is unclear if the fund will be of assistance. Notwithstanding, it is advisable to apply early even if you suspect that you may not qualify. For more information and the application, you can click the link below:
If I defaulted by not answering a foreclosure complaint, can I still raise defenses later on in the action?
It depends on the facts of the case. Generally, if the borrower lives in the house that is the subject of the foreclosure action then the law permits the borrower to serve an answer within 30 days after the first foreclosure settlement conference. This could be many months after the time to answer expired. If the answer is not served within this time then the borrower will need to make a formal motion to set aside their default. In order to succeed on such a motion, the borrower must show a reason for their delay and a meritorious defense to the foreclosure action. If however, the borrower was not properly served with the summons and complaint, the borrower does not have to show a meritorious defense and must prove that service was defective. There are too many technical issues to address here. Obviously, it is always best to protect one's rights by retaining a foreclosure defense attorney asap.
Generally, a homeowner or tenant living in a residential property that is being foreclosed is entitled to a stay or moratorium until January 15, 2022 so long as the homeowner or tenant was affected by the coronavirus pandemic. The declaration form can be viewed and printed from the below link. The form must be sent to the attorney handling the foreclosure for the bank or the attorney for the tax lienor and the original form sent to the Supreme Court in the county where the action is pending.
My property was sold in a village tax lien foreclosure, and I want to know if I can redeem my property.
Many folks may pay their county and school taxes but sometimes forget to pay a village tax. A village is required to notify a homeowner of their tax delinquency by sending a notice via first class mail to the homeowner's last address on file. If the homeowner moved and failed to notify the village then the homeowner may not receive the notice. The notice must indicate the amount of the lien and warn that if the payment is not made then the lien or property may be sold at a public auction. In Nassau county, some villages sell the tax lien at a tax lien sale which is advertised in a local newspaper. Once the lien is sold to the successful bidder at the public auction, the town may permit two years for the homeowner to redeem the property. Typically, the bidder must send a certified notice to the homeowner before the two year period ends and the notice must indicate the bidder's name, address, the amount needed to redeem and a warning that if the property is not redeemed before the end of the two year period that the homeowner may be divested of title. This divesting of title (loss of the home) will happen when the bidder applies to the village for a tax deed from the village treasurer. After the deed is conveyed, it is difficult to undue the process, but each case is unique and should be reviewed by an experienced tax lien foreclosure attorney.
In situations where the homeowner fails to pay school and or county (general) taxes then in some counties, like Nassau County, the lien is sold at a public auction and after the lien is sold to the successful bidder, the bidder must wait two years and after that period, the bidder cannot apply for a tax deed, but must commence a tax lien foreclosure action in court which is very similar to a mortgage lien foreclosure action except that some of the protections that apply to homeowners in mortgage foreclosures do not apply in tax lien foreclosures. Unlike the village tax lien sale mentioned above, the county tax lien usually affords more protections to the homeowners. In either case, it is crucial that anyone faced with a tax lien foreclosure act quickly and meet with a tax lien foreclosure attorney to see what can be done to save the home.
Mortgage Payment Relief and the Declared National Emergency Pertaining to the Coronavirus a/k/a Covid19
Anyone who is experiencing a loss of income due to the National Emergency and is unable to make their regularly scheduled mortgage payments are directed to contact their mortgage servicer. Regrettably, most if not all mortgage servicers are operating with reduced staff and it is very difficult to contact them. If you have automatic withdrawal you may want to stop it immediately. If you are lucky and make contact with the servicer, you will need to submit an application for mortgage assistance and you may be given a forbearance from 3 to 12 months. After a forbearance is completed, the servicer will determine if you qualify for a loan modification, and if approved, the unpaid payments are essentially added to the principal balance and the loan is re-amortized over 30 or 40 years. If, however, you still do not have sufficient income after the forbearance period is completed, you may be denied a modification and the account may go into foreclosure. This is what happened after the financial crisis of 2008.
If your mortgage is state regulated then in NY, you may qualify for a three month forbearance, but again, you need to submit an application for assistance with your mortgage servicer. I understand that the NYS Department of Financial Services has required all state regulated mortgage companies to waive late fees and not report any negative credit history to the credit bureaus. If you have a federally insured mortgage (FANNIE MAE or FREDDIE MAC) then you may qualify for a forbearance up to 12 months. I understand that late fees are waived and all negative credit reporting is suspended. If you do ultimately receive a loan modification, it is likely that the modification will be reported to the credit bureaus. Lastly, the application process for a forbearance is lengthy (3 months on average) and you will need to provide your tax returns, bank statements, all sources of income and hardship letter. After the forbearance period is over, you will need to apply for a mortgage modification which is almost identical to the forbearance application and the process will likely be another three months before a final decision is made. Note: if you have large sums of money and or assets, you may not qualify for a modification. My best advise is to save as much money as you can during these challenging times because whatever you save can be used to pay down any arrears if your are denied a modification later on. I wish you all well and bless us all!!!
Below are useful sites to further assist you in determining whether your mortgage is federally insured with FANNIE MAE or FREDDIE MAC. Stay Safe everyone!!!!
May 25, 2020 UPDATE:
FANNIE MAE and FREDDIE MAC are now offering a new deferral option which will permit borrowers in forbearance due to Covid-19 pandemic to defer their missed mortgage payments (up to one year while on forbearance) and they will not have to pay the missed payments until the end of their mortgage term (the mortgage maturity date). In other words, if a borrower/homeowner's mortgage has 20 years remaining then the deferred payments will become due immediately after the remaining 20 years. If the borrower/homeowner sells or refinances the mortgaged property before the maturity date then the deferred payments become due at the time of the sale or refinance. lenders are required to offer this deferral option beginning July 1, 2020. As of now, it is unclear if the borrower/homeowner will be required to submit a formal application for the deferral. It is also unclear if the deferral applies to the entire missed payments including escrows or if it only applies to the principal and interest portion of the mortgage payments. Obviously, any forbearance will result in an escrow shortage and it is unlikely that Fannie Mae or Freddie Mac will be reaching into its coffers to pay the taxes while allowing borrowers to defer the entire missed mortgage payments until their mortgage maturity dates. See below link for Fannie Mae's official press release:
June 18, 2020 UPDATE: Fannie Mae and Freddie Mac are extending the temporary three-month forbearance for up to 12 months to homeowners who continue to reside in their homes that have mortgages insured by Fannie Mae and Freddie Mac. Homeowners should contact their loan servicers to make sure that the initial three-month forbearance is extended another three-months. Failure to make the request may cause problems with the loan account. After the additional three month extention, homeowners can decide if they need additional extensions (totaling no more than 12 months). At the end of the forbearance terms, homeowners can request that the principal and interest portions of their missed payments during the forbearance term be added to the loan balance. The servicers are not to charge any additional interest or late fees and the sum for the missed principal and interest will be payable at the end of the mortgage maturity date or upon refinance or transfer. There will be no formal application process for this unless a homeowner cannot make payments due to financial reasons and in those cases, a homeowner will need to submit a formal loss mitigation application to the lender to see if the mortgage can be modified. If, however, a homeowner lacks sufficient income to resume mortgage payments then it is likely the servicer will deny an application for loan modification. It is still too early to know how things will play out and whether the current pandemic will result in additional considerations that prompt servicers to offer additional relief to homeowners...so hang in there!
Missed tax and insurance escrows during the forbearance term(s), however, must be paid back after the last forbearance term ends (maximum of 12 months), and the missed escrows can be paid down and/or paid back over a one year period or whatever period the servicer permits. This will result in a larger mortgage payment upon homeowners resuming the regular monthly mortgage payments after the last forbearance term ends. It is therefore recommended that homeowners save as much money as they can to pay down or pay off the missed escrows.
October 27, 2021 UPDATE: By now, many borrowers who were in forbearance have already entered into some type of agreement with their mortgage servicer to resume regular monthly mortgage payments. Many other borrowers, however, are still adversely affected due to the pandemic and must communicate this with their mortgage company or servicer ASAP who in turn will likely review borrowers for some form of assistance if they can continue making payments via a "flex" modification or other repayment plan that doesn't typically require submission of any formal application. Those who cannot make the new payments will be forced to sell their homes or continue living in their homes until they are divested of their title. It certainly is a sad commentary.
Those who are unable to resume payments should seek out the advice of experienced foreclosure counsel to provide guidance and direction during these challenging times.
One of the most effective defenses to assert in a mortgage foreclosure action is the Plaintiff's lack of standing. What does lack of standing mean? Simply put, it's when the Plaintiff cannot prove that it is the holder (owner) of the note. If the Plaintiff bank commences a foreclosure action and fails to demonstrate "standing", the foreclosure action will likely be dismissed by the court. This seems like a great result, but if there is also a statute of limitations defense that can be asserted (the Plaintiff bank waited more than six years after accelerating the mortgage (declaring entire loan amount due and owing) then the statute of limitations defense can be deemed moot if the Plaintiff bank or its predecessor never had standing when the mortgage was accelerated. The statute of limitations defense only applies when the loan was accelerated by the actual owner of the note. A statute of limitations defense is a complete defense to a foreclosure action while a lack of standing defense may or may not act as a complete defense to a foreclosure action (i.e. the real owner of the note commences a new foreclosure action). Thus, when a borrower has grounds to assert both defenses, the borrower may need to make a strategic decision not to raise the standing defense. Below is a court case that essentially disallowed the statute of limitations defense when it was shown that the Plaintiff bank did not have ownership of the note at the time it allegedly accelerated the loan. Obviously, there are many intricacies and it is imperative that a borrower in foreclosure always consult with an experienced foreclosure attorney. The case mentioned above can be reviewed by clicking the following site:
A mortgage lender (bank) will typically refer a mortgage loan account to foreclosure when the borrower (homeowner) is in default, such as when the homeowner fails to pay the mortgage payment(s), property taxes, hazard insurance, etc. If the house is occupied by the homeowner, the bank is required to serve the homeowner with a 90 day pre-foreclosure notice (aka the "RPAPL Section 1304 notice") advising the homeowner that s/he must pay all arrears to the bank and that the homeowner can contact the bank to find out if the homeowner qualifies for any mortgage assistance (modification, forbearance, repayment, etc.). The notice permits a 90 day breathing period for the homeowner to try and resolve the default before the bank commences foreclosure. If the default is not resolved within the 90 day period, the bank will likely send another notice (notice of default) indicating that if the default is not cured within thirty days, the bank will accelerate the loan balance and the entire loan amount will become due. If the default is not cured after the thirty days, the bank can commence foreclosure proceedings anytime thereafter. Formal foreclosure proceedings begin when the bank records a notice of pendency in the land records and files a summons and complaint seeking the right to foreclose against the homeowner's house. There are numerous legal requirements that the bank must comply with when it serves the summons and complaint on the homeowner. Typically, the homeowner has 20 or 30 days to file an answer contesting the bank's foreclosure action. Usually sixty days after the foreclosure action is commenced, the court will order the parties to appear for a mandatory foreclosure settlement conference which is intended to see if the homeowner is eligible for mortgage assistance. If the borrower is denied mortgage assistance and does not have the ability to pay the arrears, the litigation will proceed. The below link offers additional information pertaining to the typical motions that the bank will file with the court. If the motions are not contested by the homeowner, the bank will be granted the right to foreclose and sell the house at public auction.
Is a Mortgage Clause Waiving a Borrower's Statute of Limitations Defense Effective to Waive Such Defense?
Fortunately most mortgage agreements do not contain a provision waiving a borrower's potential statute of limitations defense, but occasionally we do see some mortgages with such clauses. It seems oppressive to require a borrower to waive such a right at the time of the mortgage execution which would obviously occur before any statute of limitations defense would arise. Why is this oppressive, you ask? Although the defense is not typically availing in most foreclosure cases, the defense is the most potent defense that can prevent a mortgage holder from foreclosing against the mortgaged property; therefore, waiving the defense could result in a large loss to the borrower/homeowner assuming of course that the mortgage goes into default. Typically, the mortgage agreement is a one sided agreement in favor of the lender. The waiver could be deemed an "adhesion clause" which essentially means that the borrower possessed no meaningful bargaining power to negotiate the terms of the mortgage which was drafted by the lender and for its own advantage; thus, it would be unfair to deprive the borrower of his/her right to assert such defense. Regrettably, New York Courts do regularly uphold such "oppressive" waivers in a mortgage agreement and even in cases when the borrower is unsophisticated and unable to fully appreciate the significance of waiving such rights. The below case is illustrative of the appellate court's willingness to apply an even more "oppressive" waiver--the waiving of defenses and counterclaims. Seems fundamental that a borrower should be entitled to raise meritorious defenses and counterclaims regardless on the boiler plate language in the mortgage agreement, but it's the terms of the mortgage that control. Although this particular waiver is not a complete bar to raising ALL defenses, the waiver is still problematic for a sympathetic borrower. The case that illustrates the point can be found here:
Some homeowners in foreclosure who have not been successful with typical loss mitigation options (repayment plan or modification) may have a right to reinstate their mortgages. Reinstatement is when the borrower is able to cure all mortgage arrears (all prior missed payments) 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. Thereafter, the homeowner will continue making all future monthly mortgage payments. Regrettably, mortgages are contracts and typically have provisions limiting the homeowner's right to reinstate. For instance, most mortgages prohibit reinstatement after a judgment of foreclosure and sale has been granted by a court. Some private mortgages (mortgages granted to non-institutional lenders) prohibit reinstatement after a number of successive missed payments! Despite these unforgiving prohibitions, the homeowner may be able to reinstate the mortgage in a Chapter 13 bankruptcy. Once a Ch. 13 bankruptcy petition has been filed, the foreclosure is stayed and the homeowner (debtor) agrees to pay each monthly mortgage payment going forward after the bankruptcy filing and the full arrears (missed mortgage payments) will be paid back by way of monthly payments to the U.S. Trustee in the bankruptcy case. The arrears can be amortized over a period of time not to exceed five years (60 months). Under this scenario, the homeowner (debtor) will be making two payments each month--the current mortgage payment to the lender and a payment to the trustee to cover the arrears. Obviously the lower the arrears the better the chance for a successful resolution; thus, it pays to be proactive from the beginning and to contact an experienced foreclosure attorney as soon as possible to fully protect a homeowner's rights.
In addition to state laws that offer protections to homeowners in mortgage foreclosures, homeowners can avail themselves to additional protections if the mortgage was insured through HUD (Housing and Urban Development). The servicer of a HUD insured loan is required to comply with HUD regulations and failure to comply may provide the homeowner with additional defenses in a foreclosure action. HUD regulations put a heavy emphasis on loss mitigation and require that when a borrower has missed three mortgage payments, the servicer must contact the borrower for a face-to-face meeting for purposes of reviewing the borrower for loss mitigation options (24 CFR Section 203.604). HUD intended that its loan servicers take a proactive approach when a default has occurred and for good reason.
Additionally, most HUD mortgages contain a paragraph that likely creates a condition precedent to foreclosure. Paragraph 9(a) of a typical HUD mortgage provides: “Default. Lender may, except as limited by the regulations issued by the Secretary, in the case of payment defaults, require immediate payment in full of all sums secured by this security instrument if : (1) Borrower defaults by failing to pay in full any monthly payment required by this security instrument prior to or on the due date of the next monthly payment…”(emphasis added). The language in bold type mandates that before the servicer can commence foreclosure it must be in compliance with HUD regulations.
Recently, the Appellate Division for the Third Department addressed the issue of whether a foreclosing Plaintiff must comply with HUD regulations prior to accelerating and foreclosing on a HUD insured mortgage. See Green Planet Serv., LLC v. Martin, 141 AD3d 892 (3rd Dept 2016). In that case, the court held that compliance with HUD regulations was a condition precedent to acceleration and foreclosure. Id. at 893. The court also held that where the defendant’s answer alleges non-compliance with such condition precedent in accordance with the pleading requirement of CPLR Section 3015(a), the plaintiff-lender has the burden of demonstrating the occurrence of the condition precedent as part of its prima facie case. Id. at 893. The court went on to hold that the plaintiff-lender was not entitled to summary judgment because its moving papers were “wholly devoid of any proof, explanation or argument” regarding the plaintiff-lender’s compliance with the face-to-face meeting requirement. Id. at 893.
Failing to raise these defenses may seriously limit the homeowner's chances of prevailing in a foreclosure action; consequently, it is imperative that the homeowner consult with an experienced foreclosure attorney. Every defense matters and failing to raise just one defense can make all the difference.
My House Sold at a Foreclosure Auction, andI received an IRS Form 1099-A. What Should I Do?!
After a home in foreclosure is sold at a foreclosure auction, the foreclosing lender is required to file a 1099-A which reports the foreclosure auction to the IRS. The auction is deemed a sale for IRS purposes, and the homeowner/borrower is required to report the sale on his or her tax returns for the year in which the auction/sale occurred. If, however, there was a cancellation of debt, the lender would then be required to file a 1099-C (the 1099-C was discussed in detail in my July 24, 2014 blog post).
Because most foreclosures involve non-recourse loans (where the borrower is personally liable for the repayment of the loan) the sale price is deemed the fair market value (FMV) of the property at the time of the auction sale. The homeowner/borrower will then need to determine the adjusted basis in the property and subtract that sum from the FMV which will then determine if there is a loss or a gain. If there is a gain then it may result in a tax bill unless the homeowner/borrower can claim the $250,000 Lifetime Capital Gains Exclusion ($500,000 for married couples). If there is a loss, the homeowner cannot use such loss to offset any income if the property was a personal residence. There are many rules that apply here and it is best to consult with an experienced CPA. Additional information is available through the IRS's link: www.irs.gov/taxtopics/tc432
It is often enough when a homeowner is served with a supplemental summons and amended complaint which can occur anytime after the initial summons and complaint were served on the homeowner. Typically, the foreclosing attorney will seek to file a supplemental summons and amended complaint when there is a need to change or add to the allegations in the the complaint-for example, another defendant is being added or an additional cause of action seeking to correct the mortgage recording information or amend the legal description. The serving of the supplemental summons and amended complaint will permit the homeowner to file an answer which can be important if the homeowner previously defaulted in responding to the initial summons and complaint.
There is a statutory rule (CPLR Section 306[b]) that requires that a defendant be served within 120 days of the filing of the summons and complaint. Thus, CPLR 306(b) must be complied with if the foreclosing attorney is seeking to add another Defendant in the action; however, if the foreclosing attorney can show good cause for amending the complaint to include an additional defendant, the court upon motion may grant permission to serve such party after 120 days. It is vital for a homeowner to consult immediately with an experienced foreclosing attorney before unwittingly defaulting in answering a foreclosure complaint or an amended complaint which will result in the homeowner waiving important defenses that may prevent the bank from foreclosing.
A Qualified Written Request (QWR) is simply a borrower's request to have a mortgage company or its servicing agent provide loan account information. A QWR applies to loan account issues as opposed to issues pertaining to a modification of the loan. The requests come under the Real Estate Settlement Procedures Act (RESPA) and they are broken down into two categories: 1) request for information, and 2) notice of error. A Request for information is just that, a request for specific information. For example, you want an account history which is a statement showing the credits and debits to a loan account. Another example is requesting copies of the loan documents and a current reinstatement and payoff letter.
A notice of error is alerting the mortgage company that it committed an error in the handling of the account. For example, the mortgage company failed to credit a payment or charged your account for something, say an insurance premium for a forced placement insurance policy when you already had insurance in place. Another example of an error could be that the amount of arrears claimed by the mortgage company is incorrect or the mortgage company is engaged in dual tracking (moving the case in a foreclosure proceeding despite the borrower submitting a full mortgage assistance application).
Whether the request is for information or is a notice of error, the mortgage company is required to respond within thirty business days. Any request or notice of error should be sent via certified mail. If the mortgage company fails to respond, it could be subject to a claim by the borrower for actual damages including reasonable attorney fees.
The QWR and notice of error can provide an opportunity to have an issue resolved within a relatively short period of time, assuming of course the mortgage company responds. If it does not respond, a borrower should file an online complaint with the Consumer Financial Protection Bureau (CFPB). This federal government agency is not always adequate in resolving disputes between a borrower and a mortgage company, but it does provide an avenue that should be pursued when facing a recalcitrant mortgage company. For more information of the CFPB click the site below.
Retain Counsel ASAP!
When a homeowner has defaulted on his or her mortgage loan, it is vital that the homeowner immediately contact an experienced foreclosure attorney to guide him/her in the best direction in accordance with the homeowner's goals. Many homeowners who are in default, procrastinate and if the delay is significant enough, it could then significantly reduce the homeowner's chance in saving the property. It a sage advise to consult with an experienced attorney ASAP. Our firm provides free legal consultations so there is no reason to delay. Thus, the message here is clear: do NOT delay and call an experienced foreclosure attorney before your situation worsens.
Reverse Mortgage Foreclosure
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.
Online Foreclosure Auctions
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.
New York Mandatory Foreclosure Settlement Conferences and the Duty to Negotiate in Good Faith.
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.
Home Equity Prevention Act
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.
New York foreclosure summons and complaint named my deceased uncle. Is this permitted?
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!
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.