Foreclosure

November 13, 2012

Legal Defenses to Foreclosure Actions in New York State

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.

August 30, 2012

Actions for an Accounting in New York Real Estate

By Weiss & Weiss

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.

August 9, 2012

Short Sales of Real Estate in New York

By Weiss & Weiss

The large number of foreclosed properties in New York State has caused a situation where banks may be more willing to compromise when a borrower cannot make their mortgage payments. If a lender proceeds with a foreclosure to its final conclusion, the lending institution will end up taking title to the property. Many lending institutions would rather not be “in the business” of owning, selling, and managing real estate. As a result, there are several alternatives to foreclosure which may be available. The first is a loan modification. As discussed in a prior blog post, courts in New York State are required to attempt to settle foreclosure actions in a separate foreclosure part.

Another alternative is a short sale. A short sale happens when the mortgage balance exceeds the current value of the property. This is an increasingly more common situation in our times, as lenders in the past were overly generous in issuing loans on properties, including second mortgages. Overly optimistic appraisals and credit reports were the foundation of said loans. Combined with a recent decline in real estate values, the result is that many homeowners find themselves unable to pay their mortgage, and also find that the total debt on their property may exceed the current fair market value of the property.

When this occurs, the borrower may ask the lender to allow a “short sale” on the property. A short sale is when a lender allows the property to be sold for less than the amount due on the mortgage, and then forgives the rest of the debt on the property after the sale. The main reason that this may be an acceptable alternative for a homeowner is that they remain personally liable on the Note and Mortgage, even after foreclosure and sale of the property. A lender may seek a deficiency judgment against the borrower if the property is auctioned for less than the amount owed by the borrower. This can result in a large judgment entered against the borrower, and could result in the borrower having their personal credit damaged, or being forced to file for personal bankruptcy.

August 2, 2012

A New York Bidder’s Expectations Concerning the Property Auction Process

By Weiss & Weiss

Those who bid at property auctions in New York are confronted with many potential issues. Auction properties are often attactive to first-time homeowners and to investors because they are perceived as being less expensive than comparable properties. If the property is residential, the bidding process differs based upon whether the property is a single-family house, a condominium unit or a cooperative unit. The type of property, whether it is commercial or residential, may have implications for tenants already in occupancy and whether such tenants may have statutory occupancy rights.

The auction process for a single-family home is similar to the auction process for a condominium unit, because both types of property are real property. The major difference is that common charges are levied by the Board of Managers of a condominium, allowing for the filing and foreclosure of a lien for unpaid common charges by the condominium Board. However, once the matter is in foreclosure, it is supervised and directed by a Court, meaning that same is litigated and requires a judgment of foreclosure issued by a judge before proceeding to auction. In a condominium, mortgage balances take priority over unpaid common charges. As such, in many cases, an auction bidder in an auction for unpaid common charges will likely be taking the unit subject to the outstanding mortgage, requiring the successful bidder to pay mortgage arrears and keep the mortgage current to avoid foreclosure.

Cooperative bidders will experience an auction process that is non-judicial (not supervised or litigated in the Court) unless a party requests that a Court issue an injunction to prevent or delay the auction. Since cooperative maintenance charges take priority over a share loan, it is possible for an auction bidder to obtain the unit for only the amount of the maintenance arrears and sever the security interest of the lender, provided that the auction is properly noticed. Our readers should note that this is an unlikely scenario because most lenders will choose to cure a maintenance default by paying it themselves, because a cooperative unit is likely to be more valuable than the maintenance arrears due to the cooperative.

July 19, 2012

The Role of a Receiver in a Foreclosure Action in New York State

By Weiss & Weiss

Once a plaintiff files a foreclosure action, the next step in the procedure is generally to have a Receiver appointed by the Court. The reason for this is that foreclosure actions can take quite some for a Court to resolve. It would not be unusual for a Court with a busy docket (such as those in Queens, Brooklyn, or Manhattan) to take more than a year to resolve a foreclosure action. During this period of time, it is important that the property be physically maintained, the property’s expenses be paid in a timely fashion, and that the property’s income, if any, be collected by the proper party.

The court-appointed Receiver is the mechanism generally used to achieve these goals. A Receiver is an individual appointed by the Court to manage a property during the foreclosure process. Generally, they are attorneys, but this is not a legal requirement. Retired court personnel, such as judges, also are often appointed as Receivers.

The first step in having a Receiver appointed in a foreclosure action is to consult the legal documents which are the basis of the action, such as the mortgage and note. If the documents have been properly prepared, they will contain a clause permitting a Receiver to be appointed, without notice, in the event of a default on the loan. Once a foreclosure action has been filed, the attorney for the foreclosing party should then file an ex parte (without notice) application with the Court, requesting that a Receiver be appointed for the property in question. This application should contain an Affidavit from the plaintiff stating that the loan is in default, as well as copies of the documents entitling the plaintiff to the appointment of a Receiver in the event of default.

July 5, 2012

Legal Responses to Defaults by New York Cooperative and Condominium Unit Owners- Part II

By Weiss & Weiss

Our readers should be aware that if the default remains uncured and an auction is necessary, that the distinction between cooperatives and condominiums becomes pronounced. The auction procedure in a cooperative is non-judicial, meaning that it does not require the intervention of a Court, unless a party specifically requests judicial intervention. After a lien is filed against a defaulting condominium owner, all proceedings, including the foreclosure proceeding and the oversight of the auction process, require the intervention of a Judge and take place in a Court.

Cooperative clients should understand what is accomplished once the Proprietary Lease is terminated. In order for the cooperative or another party to obtain legal ownership of the cooperative, the legal auction procedure is then commenced. A Notice of Auction is placed in a newspaper of general circulation and delivered to the unit owner in a legally compliant manner. At the auction, the Terms of Sale and a Memorandum of Sale as prepared by our firm are presented and read aloud by the auctioneer. The successful bidder will obtain the transfer of the apartment in the time frame provided by the Terms of Sale.

While the auction process allows for the obtaining of legal ownership, a Landlord-Tenant procedure is then required to obtain physical ownership of the unit. This proceeding is even required if the unit owner does not leave the unit during the default response procedure. Once the auction notice is advertised in the newspaper, it is not uncommon for our attorneys to entertain telephone calls where a person states incredulously that they can get the apartment for “only $18,000.00” (the amount that may be owed for maintenance). We will remind the caller that there are no warranties as to the status of occupancy or unit condition. The “successful” auction bidder may merely be buying what may be a protracted landlord-tenant case.

March 27, 2012

Foreclosure Actions and Professional Responsibility

By Weiss & Weiss

Recently, the New York State law firm of Steven J. Baum P.C. agreed to pay $4 million in fines and penalties after admitting that it failed to verify the accuracy of court documents filed by their firm in foreclosure matters.

According to the article, many have criticized the settlement as being too lenient. Baum’s office was the major law firm in New York State in representing banks and other institutional lenders in foreclosure actions. They filed more than 4,000 foreclosure cases in Westchester, Rockland, and Putnam Counties since 1999 and more than 100,000 cases statewide between 2007 and 2010. Clearly, the sheer volume of cases filed by a single law firm should have raised a red flag with the Courts or the clients at issue over that firm’s ability to properly handle such a large number of foreclosure cases, which require a large amount of detail-oriented paperwork, and, in the case of residential foreclosures, many Court appearances.

This author’s own experiences with the Baum Law Firm were that their attorneys were almost impossible to reach by telephone, making it difficult to resolve matters without the need for unnecessary Court appearances. When in Court, Baum’s office often sent attorneys who lacked authority to resolve matters on behalf of the bank clients, which further delayed cases.

March 19, 2012

Borrowers Ask: Will My Lender Modify My Mortgage?

By Weiss & Weiss

Borrowers have both applauded and also sharply criticized the recent mortgage settlement reached by the attorneys general of all fifty states with our country’s five major loan servicers. In response to alleged mortgage abuses engaged in by lenders, an agreement was reached to reduce the principal balance of some mortgages or to grant interest rate reductions.

Bank of America in particular has agreed to reduce the principal balances for approximately two hundred thousand homeowners by as much as $100,000.00. The typical homeowner who will benefit has a mortgage with a principal balance that is more than the home is currently worth, the so-called “underwater” mortgage. Further, homeowners with mortgages held by the major lenders such as Bank of America, JP Morgan Chase, Citibank, Wells Fargo and Ally are also covered by the agreement.

Other homeowners who believe that they were more prudent by remaining current on their mortgage payments or not borrowing against virtually all of the equity in their home, resent that other homeowners are benefitting from their missteps. The mortgage settlement is also controversial because it does not apply to mortgages with lenders besides the major five lenders, to loans insured by the Federal Housing Administration, or those loans owned by Fannie Mae or Freddie Mac. If a loan was sold to one of these entities, it may not be eligible for modification, even though the borrower had no choice or involvement in the loan sale process. Many borrowers have rightfully asked: What about me?

March 1, 2012

Foreclosure Settlement Conferences in New York State

By Weiss & Weiss

A recent article in the New York Times discusses efforts on the part of the New York State Court system to resolve foreclosure cases through settlement conferences. As discussed in a prior blog post, these settlement conferences are mandatory for residential foreclosure cases in New York State.

Despite the best intentions of the legislature and the Court system, it has proven difficult for the system to work as well in practice as it is meant to in theory. Having represented both mortgage holders and creditors at these conferences, I will discuss the situations which are most likely to arise during these meetings.

After a residential foreclosure case is filed with the Court, the Court must schedule a mandatory settlement conference within sixty days. At this conference, both the plaintiff (usually an institutional lender) and the defendant (the person who owns the property being foreclosed) are required to attend. It is highly recommended that the defendants appear in person together with their attorneys and that the lender has an attorney attend who has decision-making authority.

February 2, 2012

Comparing Residential Foreclosure to Commercial Foreclosure in New York State

By Weiss & Weiss

When a person or company pledges real property they own as security for a loan or debt, it is known as a mortgage. A mortgage loan generally consists of a Note, a document in which the borrower promises to pay a sum of money to the lender (usually a bank, but sometimes a private individual), and a Mortgage, a document in which the borrower pledges their ownership interest in real property as security for the mortgage.

Unfortunately, there are times when the borrower is unable to meet its legal obligations under the Note and Mortgage. When this happens, the lender has two options. The first is to bring a lawsuit on the Note alone, and, if successful, obtain a money judgment against the borrower which can be enforced for collection. The second is to bring a foreclosure proceeding against the borrower, in which the Court is asked to foreclose the real property in question. The two options are mutually exclusive; that is, the lender must choose one of the two options, and not both.

This blog entry will discuss the procedure when a foreclosure action is brought by the lender. In a foreclosure action in New York State, the end result of the proceeding is that the property being secured by the Mortgage and Note is sold at public auction to the highest bidder. If the lender is the highest bidder, it takes title to the property in question and may then obtain a money judgment against the debtor for the difference between their successful bid and the amount due on the Note, plus costs and expenses. If a third party is the highest bidder, the amount of the successful bid, up to the amount due, is paid to the lender. The third party then takes title to the property.