With the economy in recession, and home interest rates having significantly risen due to efforts to forestall inflation, many borrowers now find themselves at risk of foreclosure. The first legal protection in place is that if the home loan is in default, the lender must give a written notice of one hundred and twenty (120) days prior to commencing a foreclosure action. Other legal notices may also be required to be sent by the lender (or their attorneys) prior to a lawsuit being filed.
Once a lawsuit commences and an Answer is filed, the Court will then schedule a foreclosure settlement conference. Under New York law, the matter cannot proceed further until all parties meet in a settlement conference to discuss the case and attempt, in good faith, to negotiate a resolution. Depending upon the results of the settlement conference, the Court may schedule additional conferences, as the lender may require submission of financial documents from the borrower so that a loan modification can be negotiated and approved. If a loan modification is made, the borrower must show that he is complying with its terms by making regular payments before the foreclosure case can be dismissed.
However, there are certain situations in which these protections may not be available to a borrower. The New York Post recently reported about a case in which disgraced actor Bill Cosby is facing foreclosure for a multi-million dollar loan that he took out on an Upper East Side townhouse that he purchased for his wife, Camille Cosby.
A check of the Court records shows that the property is actually titled in the name of a limited liability company owned by Mr. Cosby. As there is no individual owner of record, the protections of a 120-day notice and a foreclosure settlement conference may not apply to this situation. The statutes in question require that the property be owned by an individual or individuals, is residential in nature, and is the primary residence of the homeowner. Although Mr. and Mrs. Cosby are being sued as guarantors of the loan, the property is owned by an entity, and the safeguards in place to protect individual homeowners will not apply.
Certain lenders may require a borrower to transfer title from their individual name to an entity (created specifically for this purpose) as a prerequisite to closing a loan. They will likely also require the borrower to personally guarantee the now-entity loan. The purpose of such a requirement is usually to circumvent the statutory protections available to individual borrowers in the case of default. Once the property is transferred to entity ownership, Courts may not require the important notices to be sent, and will not automatically schedule a foreclosure settlement conference as they would for an individual owner.
As a result, borrowers whose property is titled in an entity (such as the Cosbys) may find themselves subject to a much more expedited foreclosure process than those who retain title in their individual name, and use the property as their primary residence. We recommend that any party who owns property, either individually or through an entity, that may be foreclosed consult counsel to ensure that all of their rights are being protected.