Articles Posted in Foreclosure

self.jpg Our firm often receives inquiries from potential clients, many related to foreclosure and landlord-tenant matters. Often, an individual will inform us that they have been representing themselves in a Court proceeding, or are considering doing so, and will question us as to whether an attorney is necessary.

In New York State, individuals are generally permitted to represent themselves in Court proceedings, without an attorney. One exception to this is a corporation. Even if an individual is the sole owner of a corporation, corporations must generally be represented by counsel when they are a party to a litigation proceeding.

However, simply because an individual may representative herself in Court, does not mean that this is the best decision when confronted with an adversarial proceeding concerning potentially sophisticated legal issues, such as a foreclosure proceeding, or landlord-tenant matter. Many of the people who make inquiries to our firm will ask what benefit is gained from hiring an attorney, especially since there is an increased cost involved when attorney’s fees are incurred.

reverse.jpg A recent article in the New York Times discusses the pitfalls of reverse mortgages, including the effect such a mortgage may have on the heirs of the borrowers in question. A recent blog post also examined the possible negative legal ramifications of reverse mortgages on seniors and their surviving spouses. This article will discuss possible legal defenses when a reverse mortgage is being foreclosed, or threatened to be foreclosed, by a lending institution.

The first person to be impacted by a reverse mortgage default is usually the surviving spouse of the borrower. This situation can occur when only one spouse is obligated under the reverse note and mortgage. There are several reasons why this can happen. It is possible that one spouse has poor credit, and cannot qualify for a loan. In addition, in order to qualify for a reverse mortgage, the borrower must be at least 62 years old. A couple may own a property jointly, where one spouse is over 62, and the other is younger. In that case, the reverse mortgage may be made to only the older of the owners. In this example, the lender will often force the non-borrowing spouse to remove their name from the title of the property being borrowed against as a condition to making the loan. This may cause additional legal problems if the non-titled spouse survives the borrowing titled spouse.

If the borrowing spouse passes away, the terms of the reverse mortgage usually call for the entire sum that was borrowed to be immediately paid in full. The surviving spouse may receive collection letters from the lender, demanding that the mortgage be repaid in full. This obviously comes at a time when the surviving spouse is probably undergoing emotional and financial stress.

foreclosure_eviction.jpgSome of our prior blog posts have dealt with the legal issues relating to foreclosure prosecutions and defenses in New York State. As discussed in these posts, foreclosures are legal actions in which a mortgage holder will legally obtain title to real property from a defaulting borrower. After obtaining a foreclosure judgment, the property is auctioned to the highest bidder, which is usually the lender bringing the action. The Referee will then prepare a Referee’s Deed transferring title to the successful bidder.

One question that often arises is when the owner continues to occupy the foreclosed property, or when there are tenants in the foreclosed property. What happens to these occupants when the foreclosure procedure is complete and title is transferred? There are several answers to this question.

When the original owner continues to live in the property after a lender has obtained title by a Referee’s Deed in foreclosure, the new owner must take legal action to evict the occupant. In New York State, such evictions can be accomplished under New York Real Property Actions and Procedures Law § 713. This section provides grounds for eviction “where no landlord-tenant relationship exists.” Subsection 5 provides that if the property has been sold in foreclosure, then a certified copy of the deed in foreclosure must be exhibited to the persons to be evicted from the premises.

foreclose.jpegSome of our firm’s clients are in the business of purchasing notes and mortgages encumbering properties which are being foreclosed. This blog post will discuss the legal necessities behind such transactions. Careful planning, as well as consultation with legal counsel, can ensure that such acquisitions comply with all legal requirements and ensure that the purchaser obtains marketable title so that properties so acquired can be resold expeditiously if desired.

Most purchases involve notes and mortgages obtained from banks or other major institutional lenders. Although private mortgages can be purchased, a potential buyer may encounter more issues when buying a mortgage from a private lender, as opposed to a large financial institution. The first step in such a transaction is agreeing on the purchase price. The purchaser must determine the overall value of the property, usually through an appraisal as well as an inspection of the premises. Other financial information can also be obtained, such as rent rolls, which show rental income for commercial or other rental properties, such as apartment buildings. The purchaser then offers to buy the outstanding mortgage from the lender for a price lower than the amount owed by the defaulting current owner.

Major financial institutions will generally have a form contract that the purchaser of the mortgage in question must execute. Such agreements are usually not subject to substantial negotiation. The seller of the mortgage needs to agree to provide an assignment of the mortgage to the purchaser of the mortgage. The seller should also be obligated to provide the original note and mortgage documents as signed by the mortgagor. It is essential that the original loan documents be obtained in such a transaction. Without them, the right to collect on the mortgage by the purchaser may be challenged in Court, creating a major issue for a purchaser.

reverse mortgage.jpgMany of us have seen the slick advertisements on television for reverse mortgages. An actor who is popular with our seniors will advocate the advertiser’s reverse mortgage program as a way to tap home equity and enjoy the “good life”, the long awaited vacation or purchase of a new car or boat. However, the reality of reverse mortgages can be quite contrary to these advertisements.

A reverse mortgage is a home equity mortgage program only available to homeowners over the age of 62. These mortgages are insured by the Federal Housing Administration, a division of the Department of Housing and Urban Development. A portion of the home equity is made available for the loan, which proceeds are distributed in several ways. The homeowner can receive the proceeds in (1) monthly installments for so long as he lives in the house, (2) monthly installments for a set period of years or (3) as a line of credit that can be used as needed. Unlike a conventional mortgage, a reverse mortgage does not need to be paid until the borrower dies or no longer occupies the home as his primary residence. Not needing to make a monthly payment while having funds available for home improvements, medical expenses or other retirement needs is obviously highly attractive to seniors.

However, this author wishes to demonstrate particular concerns with respect to reverse mortgages that have actually been experienced by some of her clients. A reverse mortgage borrower must be at least 62 years of age. Let us consider a married couple that jointly owns their home, the wife is 57 and the husband is 63, meaning that only the husband can become the borrower. If the husband dies first, the surviving widow will be unlikely to repay the loan which is now due in full (without selling the house in which she may wish to continue living). The primary residence requirement may also cause difficulties. If the borrower needs to live in a residential care facility indefinitely due to medical issues, the loan will be due in full and the borrower will be unlikely to have the funds to repay. Of course, once the borrower dies, triggering the due in full provision, the lender may not patiently await receipt of the house sale proceeds needed to repay the loan and may commence a foreclosure or other legal proceeding. After the financial crisis of 2008, homes have not sold as readily as in the past, making it more difficult for survivors to sell homes to satisfy the reverse mortgage lender’s schedule. Further, with home values having dropped in recent years, there may be insufficient proceeds from the house sale to pay the loan, making the balance due from the estate.

flip.jpgThe resurging real estate market brings with it the real estate “flipper”. A flipper is a person or entity that purchases property with the goal of renovating it for a quick sale at a substantial profit. The flipper never intends to occupy the property in the neighborhood. Recently, the Wall Street Journal reported that luxury homes are joining more modest properties in the flip market. Even cooperative and condominium apartments can be subject to flipping.

In a market-oriented society such as ours, one could argue that it is one’s own business as to how one invests and that properties can be purchased and sold despite one’s intent. However, others may argue that it is unseemly for opportunists to purchase properties merely with the intent to harvest a profit. The following are examples of how this plays out. A lender takes back a house in disrepair through the foreclosure process. Prior to the foreclosure, which took years, the house fell into significant disrepair and was unsightly to neighbors. Perhaps hazardous conditions developed from a dismantled oil tank and the removal of copper materials from the home. The foreclosed eyesore potentially reduces the property values of the surrounding neighbors. In this scenario, anyone who eventually purchases the house from the foreclosing lender and rehabilitates it into a habitable and cosmetically pleasing condition should be appreciated. Since the flipper’s goal is to sell to a person who will occupy the home, the flipper is this instance is beneficial to the neighborhood. Ultimately, there will be an occupant who becomes a neighbor contributing to the community.

Flipping takes on a different complexion in a cooperative building. It is not unusual for cooperative apartment corporations to charge a “flip tax” upon the sale of a unit. While flip taxes are typically charged on all sales, the philosophy behind them is to discourage short term ownership merely intended to raise a profit and to move funds back to the cooperative community upon sale in a means to benefit the entire cooperative “neighborhood”. Flip taxes are calculated in several ways, such as by a certain dollar amount per share. If one owns 200 shares and the flip tax is $5 per share, then the flip tax collected would be $1,000. Some buildings calculate the flip tax as a percentage of the sale price. If the sale price is $400,000 and the flip tax is at 1%, then the flip tax charged would be $4,000. Flip taxes may also be calculated as a percentage of the net profit, such as sale price minus original purchase price, less sale expenses such as brokerage commissions and transfer taxes. Flip taxes are to be enacted in accordance with the building’s governing documents, giving particular attention to whether the Board or all shareholders must vote on their enactment and the percentage approval vote required. Since most units within a building are similar and the state of repair is not apparent from the hallway or outside the building, flipping a unit is not necessarily beneficial to the rest of the building unless a flip tax is charged to the seller.

frontview2.jpg The Law Offices of Weiss & Weiss are located within walking distance of both New York State Supreme Court (Westchester County) and the United States District Court for the Southern District of New York (White Plains). Our firm handles cases in all forums, including these two Courts. This blog post will discuss the differences between litigating cases in state court as opposed to federal court.

Generally, most civil cases handled by our firm are filed in New York State Supreme Court. Despite its name, New York State Supreme Court is the lowest level of trial court in the State, and is used generally for litigating cases where the amount in dispute is greater than $25,000.00. Each county in the State has its own Supreme Court, so, for the “downstate” portion of New York State, there are Supreme Courts in each of the five boroughs, named for the counties in which they are located (New York, Kings, Queens, Bronx, and Richmond), as well as Nassau, Suffolk, Westchester, and Putnam). The Westchester Supreme Court is located at 111 Dr. Martin Luther King Boulevard in downtown White Plains, a few blocks from Weiss & Weiss.

In order to “make a federal case out of it,” there are certain requirements that must be met to file a case in United States District Court for the Southern District of New York. The Southern District has Courthouses in downtown Manhattan, as well as downtown White Plains. All bankruptcy cases are filed and heard in Federal Court. Therefore, when a debtor files for bankruptcy, our firm is able to file a bankruptcy claim in the White Plains Federal Courthouse on behalf of any creditor that our firm represents.

title insurance.jpgReal estate transactions commonly involve the inclusion of title insurance policies. For the purposes of this blog post, we will be discussing title insurance obtained when a person purchases a house. Title insurance is a unique type of insurance, in that the events that are to be covered have already occurred. For instance, an automobile policy covers loss resulting from an accident that could happen after the policy is bound. On the other hand, title insurance covers acts that have already happened but not discovered prior to closing, such as a fraudulent deed in the chain of title.

Attorneys who practice real estate law rely upon title insurance companies and their examiners to identify problems with a particular property. Our firm maintains relationships with the major title insurance companies in our region and determines the most appropriate company to use for particular clients. Title companies also play an important role in reviewing closing documents such as Powers of Attorney to confirm that they are valid and in proper form to record. Ideally, title examiners do not miss documents recorded against a property, such as open mortgages that need to be satisfied as of closing. If the title examiner failed to locate a recorded mortgage or if the seller intentionally or inadvertently misled the parties as to the existence of a mortgage, the title insurance company is generally legally obligated to pay the claim for loss suffered by the purchaser (and its lender) because the mortgage lien was not paid and removed as of closing.

At the request of the purchaser’s attorney , title companies can provide enhanced coverage in certain situations. For instance, by paying a slightly higher premium at closing, the purchaser can obtain a “market value rider” to the policy. This rider provides that the policy coverage limit will inflate to the future market value of the property, regardless of the amount that the purchaser paid at the closing for the property. Generally, a property sold by a real estate broker to an unaffiliated purchaser reflects market value, making the purchase of the market value rider unnecessary to a purchaser looking for prudent means to reduce closing costs. However, if a property is acquired through foreclosure, an estate or through a seller who was not introduced by a real estate broker, the price paid at closing may be well below market value, making the purchase of the market value rider an intelligent move.

Our firm is often retained to defend, as well as prosecute, foreclosure actions in New York State. When we are representing the defendant in a commercial or residential foreclosure action, we examine many legal issues to determine whether the action can be successfully defended in Court. Often, a defendant is simply seeking a delay in the lawsuit to enable it to attempt to refinance the property and pay off the mortgage, or to negotiate with the lender during the course of the litigation for more favorable loan terms.

In several cases litigated by our firm, the lender’s attorney used a basic “foreclosure form” lawsuit for the complaint against our client. However, the basic facts as alleged in the lawsuit may not match the actual facts of the individual case. Many foreclosure specialty firms operate on a volume basis, and there is not always complete and thorough review of the contents of the pleadings. In those situations, we have been able to have the lawsuit dismissed or delayed, allowing our clients time to obtain additional funding for the property or to remain as occupants of the property.

Another important defense available to a potential foreclosure defendant involves the legal owner of the mortgage and note at issue. Many loans are sold from the original lender to a servicing company. The servicing company may also sell the loan to another company during the loan period in question. By the time there is an alleged default, the borrower may be dealing with a different company than the original lender.

There are several situations where ownership of real estate in New York generates the need for an accounting procedure. When a new owner takes over a property as a result of a lawsuit or successful foreclosure action, the property in question may have been managed by third parties, such as a managing agent, over a period of time after a new owner has legal title to the property, but before the new owner can hire a new managing agent and transition from prior ownership to new ownership.

Other similar situations occur when there are multiple owners of a property, but where not all owners take an active role in the property management. There may come a time where the “inactive” owners feel that they are not receiving their fair share of the property’s profits, or simply want an accurate accounting of the income and expenses from the property in question.

Finally, there may be a situation where a managing agent is hired by an owner to run the property, and the owner feels that the managing agent is not accurately reporting the property’s profits or turning over the profits as is their legal obligation.

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