The legal framework for foreclosures can be challenging to navigate, as requirements and regulations vary by state and require specialized knowledge. The process can be a real marathon, especially in the Big Apple, where it can take a whopping 3 years to conquer.
This article shares everything you need to know, from the nitty-gritty lender responsibilities to empowering homeowner rights.
In New York, the state follows judicial foreclosure procedures, which involve the lender filing a lawsuit in court before foreclosing on a home. Foreclosures can be resolved either through court proceedings or through alternative methods, although court proceedings are more commonly utilized.
The duration of proceedings can be influenced by various factors, including the occupancy of the property and whether the lender obtains a ruling from the court or the case goes to trial. On average, New York foreclosures are anticipated to last 445 days or longer.
Step 1: Pre-foreclosure
Mortgages, promissory notes, late charges
When purchasing residential property in New York State, it is common to sign both a mortgage agreement or deed of trust and a promissory note, which is often called a "note." The mortgage or deed of trust is recorded in county records, while the promissory note is held by the lender until the loan is paid off, at which point it is given to the borrower.
Another option available to delinquent borrowers is the avenue of deed-in-lieu of foreclosure. Under this arrangement, the borrower voluntarily relinquishes all legal claims to the property to avoid foreclosure. In exchange, the lender agrees to consider all financial balances settled. This option is advantageous for borrowers as it prevents a deficiency judgment or foreclosure sale from appearing on their credit report.
According to the ruling by the Consumer Financial Protection Bureau on Jan. 10, 2014, foreclosure proceedings cannot be initiated by a lender or loan servicer until 120 days have passed from the date of the first missed payment. This timeframe is provided to allow delinquent borrowers to explore previously mentioned loss mitigation options. The lender has the option of sending notices informing the delinquent borrower about the remaining balance, any late fees, and the number of days since the initial missed payment, also known as loan default.
Breach notice or letter of demand
Many mortgage contracts in New York State include a breach clause which mandates lenders to send a letter of breach or demand to delinquent borrowers before initiating foreclosure proceedings. The notice of breach typically includes a 30-day deadline for the borrower to make up missed payments and any late fees. Failure to comply with the demand notice gives the lender the right to initiate foreclosure proceedings and, if applicable, accelerate the loan.
The power given to lenders to demand immediate repayment of the loan can ultimately lead to the sale of the property.
According to New York State law, defaulting homeowners must receive a pre-foreclosure notice that includes specific information such as the number of days the mortgage has been in default, the outstanding amount, contact information for the mortgage servicer or lender, and a list of government-approved non-profit housing counseling agencies in the borrower's area.
Missing one payment
Loans in New York come with a handy 15-day grace window, allowing borrowers to be fashionably late without any penalties or legal drama. Once you cross that line, a late fee will be lurking around, typically around 2% of the overdue payment. To avoid any surprises, double-check your promissory notes or monthly mortgage statements for the exact amount.
Missing multiple payments
When multiple mortgage payments are missed, the mortgage servicer will typically reach out to the delinquent borrower(s) to remind them of their legal and financial responsibilities and to collect the overdue balance. Ignoring communication attempts from the servicer may seem like a tempting defense strategy for some homeowners, but it is counterproductive.
Foreclosure loss mitigation period
Typically, after 30 days of missed payment, it is important to reassess the situation and minimize losses by reaching an agreement with the loan servicer, which can include options such as a payment plan or loan modification. Looking for help with foreclosure? Look no further! Government programs like HARP can be a lifeline for homeowners in need. And if that's not your style, don't worry - there are other options too. You could refinance with another lender or even sell your property at a short sale. The possibilities are endless!
The lis pendens
When a borrower falls behind on three consecutive payments and all the required legal notices have been delivered, the lender takes a bold step by filing a lis pendens with the county clerk. This initiates a lawsuit against the property, questioning its very title and ownership. Brace yourselves, for the actual foreclosure process has begun. This exciting opportunity allows potential buyers to dive into the treasure trove of public records, revealing a captivating legal battle over ownership that adds intrigue and suspense to the property.
When the lender files a lis pendens, they are legally bound to send a "summons and complaint" notice, shaking up the delinquent borrower and letting them know that a full-blown lawsuit has been unleashed in court, challenging their ownership of the property. Brace yourself, because this summons and complaint letter is packed with juicy details, like the exact date when both borrower and lender (or their representatives) must make their grand entrance in court. Get ready for the legal showdown of a lifetime!
The lender is required to provide evidence to the court that the borrower received the summons and complaint notice. Once a proof is filed, the borrower has a specific timeframe to respond, depending on how the summons was delivered. If it was delivered in person, the borrower has 20 days to respond, and if it was delivered by mail, they have 30 days. If you do not respond or show up on the assigned court date, the court may issue a default ruling in favor of the lender, potentially resulting in foreclosure of the property. If the borrower decides to respond, this response serves as their explanation for not meeting payment obligations and is formally documented with the court.
Hiring a foreclosure attorney is the most common way for a borrower facing delinquencies to potentially have their case dismissed or obtain an extension if the court determines there are valid reasons. This can occur if the attorney or borrower, if self-representing, presents a case to the court regarding potential predatory lending practices, among other factors.
Step 2: The Settlement Conference
Beginning on Feb. 15, 2010, a court-ordered settlement conference must be scheduled for all residential foreclosure cases involving owner-occupied properties. This conference takes place within 60 days after the lender or servicer has provided proof to the court that the borrower has been served with the summons and complaint notice. The court typically grants a delay in the settlement conference upon request from either party.
It is recommended that borrowers who are behind on payments attend the settlement conference with a foreclosure attorney to increase their chances of a favorable outcome. The borrower should also bring proof of income and tax returns for this court date. If the defendant borrower appears without counsel, they may receive guidance, and the lender or their representatives may be allowed to participate in the court proceeding remotely.
During a settlement conference, the lender and borrower will discuss the initial loan amount, outstanding loan amount, up-to-date balance (including late charges), the borrower's financial status, reasons for defaulting, and any paperwork supporting claims. Additionally, the borrower's potential eligibility for loan modification or government programs will be considered.
Once the settlement conference triumphs and the lender and borrower find common ground, the lender or their representatives are bound by law to swiftly dismiss the lawsuit by filing a discontinuation of the lis pendens within a mere 150 days following the officially recorded day of the settlement.
Step 3: The Judgement
If the borrower fails to respond to the summons and complaint notice or skips out on court, they may be hit with a default judgment, resulting in a crushing loss for the borrower. But wait, there's more! If the borrower does show up for the settlement conference, but things don't go their way, the lender can swoop in and file for summary judgment.
By taking this avenue, the lender will request a favorable ruling from the court by highlighting the borrowers' lack of defense or evidence of unlawful lending practices, or by arguing that there are no valid reasons for defaulting on mortgage payments. If the court grants a summary judgment, the borrower will be unsuccessful in the case. If the judge doesn't make a quick decision, buckle up because we're headed for a wild courtroom showdown.
If the borrower fails to win the trial or is slammed with a summary judgment by the court in favor of the lender, it's game over for the borrower. A foreclosure judgment is slapped on them and a fiery sale date is set by the court for the contested property.
Pre-sale reinstatement
Even when all hope seems lost, there's still a glimmer of redemption for delinquent borrowers in New York State. Like a Phoenix rising from the ashes, reinstatement is possible if they can muster the courage to bring their delinquent loan back from the brink by paying off all due mortgage payments, along with the dreaded arrears. And get this, it's not even too late if a non-favorable court decision has been dealt their way, but remember, time is of the essence - once the date of sale has passed, all bets are off. Once the borrower finally gets their act together and pays off those pesky arrears, the whole foreclosure mess gets put on hold, just waiting for them to keep their end of the mortgage bargain. In the unfortunate event that the borrower decides to bail on their responsibilities, the court can swoop in and unleash the full force of foreclosure upon them.
Step 4: The Foreclosure Auction
Don't miss out on the thrilling finale of New York's foreclosure process! Witness the drama unfold as the foreclosed property takes center stage at a public auction, hosted at the iconic County Courthouse. Brace yourself for fierce bidding battles, as anyone has the chance to claim this coveted property, and only the highest bidder will emerge victorious. After the sale, the borrower cannot regain ownership of the property by paying off debts.
The bidding typically begins at $1,000 or the upset price. If a bidder is successful, they are required to make a down payment of 10%, while the remaining selling price must be paid within 30 days. If the winning bid does not close within the given timeframe, the buyer forfeits any rights to the property and the entire down payment.
When the bidding starts below the upset price and falls short, the lender has the power to reclaim ownership of the property. At that moment, the property transforms into a magnificent realm of real estate owned (REO). Don't miss out on your chance to snag this property! Once the foreclosure process is complete, you can swoop in and make a bold offer directly to the lender. Selling your item through this process is a safer bet than an auction, as it allows potential buyers to custom tailor the terms of the sale to their liking.
Don't get caught in a real estate nightmare! Before jumping into foreclosure auctions, arm yourself with knowledge and research. Avoid unexpected expenses and legal headaches caused by building violations, stubborn tenants, etc.
Deficiency judgment
In certain situations, the outstanding mortgage debt on the property can exceed the foreclosure sale price or the fair market value of the property. This value difference, known as a deficiency, can be pursued by the lender in New York State if the borrower was personally served or participates in the lawsuit. The lender has the option to seek payment for the deficiency by pursuing a personal judgment in court against the borrower. If the court approves the lender's request, a deficiency judgment is issued, allowing the lender to recover the remaining debt from the borrower.
Step 5: Foreclosure Eviction
After a negative court decision and the sale of the property due to foreclosure, the borrower will typically be required to leave the foreclosed property. This can occur either through a cash-for-keys arrangement or eviction. If the new owner opts for a cash-for-keys method, the previous owner will be given a monetary incentive to willingly vacate the premises. Suppose the previous owner refuses or fails to adhere to this approach. In that case, the new owner will not hesitate to take legal action, potentially resulting in eviction through the formidable realm of the Housing Court. According to the legal code of the land, the freshly minted owner is obliged to bestow upon the previous owner a generous 10-day notice to vacate the premises.
The foreclosure process in New York can take multiple years with ample opportunities for borrowers to ask for delays. This is primarily due to New York being a judicial foreclosure state with very liberal-minded courts that have always tended to be highly sympathetic toward borrowers vs lenders.
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