ABOUT FORECLOSURE
January 18, 2011, the New Jersey Law Journal published an article, "Foreclosure Filings May Jump 20 Percent This Year", reporting that the number of U.S. homes receiving a foreclosure filing will climb about 20 percent, reaching a peak for the housing crisis.
Unemployment remains high and banks resume seizures after a slowdown. A record 2.87 million properties received notices of default, auction or repossession in 2010, a 2 percent increase from a year earlier according to RealtyTrac. Foreclosures have weighed down U.S. housing prices as the nation’s unemployment rates have remained at more than 9 percent. Banks seized more than 1 million homes in 2010. That was an increase of 14 percent from a year earlier and the most since RealtyTrac began reports in 2005.
Debt forgiveness for primary residences (up to 1 million dollars for a single homeowner; 2 million for a married couple) will continue to be in place through 2012. (See the following information at the IRS website for further details - the Mortgage Debt Relief Act.)
What is a homeowner to do when they find themselves "underwater" -- that is, owing more on their loan than their property is worth?
We work with our clients to determine what it is they most want -- what options are most viable. Sometimes the decision leads to a bankruptcy filing or foreclosure in what is described as a "strategic default" - but our goal is to try to achieve the best solution to the situation.
November 14, 2011, the New York Times published a story that is very helpful in understanding that some companies exist promising to help homeowners, but tragedy can result when the results are not as promised. "After Long Ordeal, a Homeowner Can Stay Home".
What is a foreclosure?
Foreclosure is the legal process where a court orders the sale of a home when the homeowner doesn’t pay the mortgage. Similar to many other states, New York and New Jersey homeowners are having tremendous difficulty making their mortgage payments. It is important for you to know that the lender can’t take your house automatically if you have missed mortgage payments. The lender must take you to court where you have several options to try to save your home. It is important for you to be aware that in many cases a mortgage foreclosure can be prevented. Don’t give up hope if the bank has filed for foreclosure.
You can request a mandatory settlement conference in New York, or foreclosure mediation in New Jersey if the home is your primary residence and not a second home or investment property. (More information about this process can be found in this site under Foreclosure Defense.)
What to do when you can't afford your mortgage?
[This is a helpful document provided by the New York State Banking Department -- What To Do When You Can't Afford Your Mortgage.]
- You can file for bankruptcy, pursue a loan modification, or a short sale - or allow the lender to foreclose on your property.
What about a short sale? A short sale occurs when the lender(s) agrees to the sale of the property for an amount less than the debt owed on it. (More on this subject can be found within our site under Short Sales.)
Our offices receive many phone calls from homeowners regarding their investment properties that are now underwater. They can afford to keep making the payments; however, they would rather pursue a strategic default and walk away from the property.
If your mortgage is a recourse loan, you're personally responsible for repaying the amount owed to the lender. If you don't repay the loan, or "default," the bank can sue you for the remaining amount due if the proceeds from a foreclosure sale are insufficient to fully repay the amount you owe.
In “recourse” states such as New Jersey and New York, a lender can pursue you and other assets for the full mortgage amount.
Traditionally commercial loans are non-recourse which means that the borrower can not be held personally liable, but there are exceptions and sometimes the loans contain what are called "carve-outs" which can hold the borrower liable.
Regardless of whether your mortgage is recourse or non-recourse, the foreclosure may be a taxable sale for you if it is not a primary residence. This is true even if you give the lender a deed to your home in satisfaction of the debt, which is called a deed or transfer - "in lieu of foreclosure."
More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17. See also 26USC§108(a)(1)(E) and §108(h). This is the link to the IRS' website where there is a discussion about whether the debt cancelled is or is not a taxable event.
ALWAYS SPEAK WITH YOUR TAX PROFESSIONAL OR ACCOUNTANT ABOUT TAX CONSEQUENCES.
We work with our clients to determine what it is they most want -- what options are most viable. Sometimes the decision leads to a bankruptcy filing or foreclosure in what is described as a "strategic default" - but our goal is to try to achieve the best solution to the situation.
►How are mortgages foreclosed upon in New Jersey?
In New Jersey (known as a judicial foreclosure state) the bank must file a foreclosure case with the court. Once the bank obtains a foreclosure judgment then the property will eventually be sold at a public sheriff sale. The court that has jurisdiction over a foreclosure is the Superior Court of New Jersey, Civil Division, General Equity. During the foreclosure process the bank must also file a legal form called a lis pendens. A lis pendens is a recorded document that provides to the public notice that the property is being foreclosed upon. Therefore, the homeowner can’t sell the home to avoid the foreclosure if a lis pendens is filed. The foreclosure unit of the Superior Court handles all foreclosures.
►How are mortgages foreclosed upon in New York?
In New York, the typical time period is about 18 months and sometimes longer for downstate (NYC).
A lender seeking to foreclose on real property begins the litigation by filing a summons and complaint with the County Clerk for the county in which the property is located. All lenders (the plaintiffs) are given up to 120 days from the filing of the summons and complaint to serve process under CPLR Sec 306-b, but in most foreclosure cases, due to the CPLR Article 68 requirements that govern the Notice of Pendency, the plaintiff effectively has 30 days to serve process or risk the lapsing of the Notice of Pendency also known as "lis pendens" (which is filed with the County Clerk at the time of the filing of the summons and complaint).
Once service is completed, the homeowner has 20 days to answer the complaint if it was personally served, and 30 days or more if substituted service was used. This is all assuming that the homeowner can be found and served. If not, the plaintiff may be required to use an alternative service of process such as publication in local newspapers.
CPLR §6501 (the provision that requires a mortgagee to file a Notice of Pendency on the building when the foreclosure is commenced) provides that
"[a] person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party."
But CPLR §6501 (the provision that requires a mortgagee to file a Notice of Pendency on the building when the foreclosure is commenced) provides that
"[a] person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party."
RPAPL §713(5) permits a new owner to commence a summary proceeding in Housing Court after service of a 10-day notice to quit where "[t]he property has been sold in foreclosure" and the deed has been "exhibited" to the party in possession. RPAPL §713(5) is commonly used by new owners post-foreclosure since no landlord-tenant relationship has been created. To commence a proceeding in Housing Court, the notice to quit must name the tenant and their apartment.
Orders of possession are executed by a New York City marshal.
What about a deficiency judgment?
New York
and New Jersey State laws permit a deficiency judgment provided that the lender submits
a motion requesting the judgment within a certain number of days. However, the borrower will receive credit for the greater of the
foreclosure sale price or the fair market value of the property.
The judge usually will be sympathetic with a borrower regarding the fair market value of the property. The relevant statutes are in Article 13 of the New York State Consolidated Laws.
Renters definitely have rights. The New Jersey Judiciary's website has information on the subject for that state.
If a landlord rents out a home or other property and that home is facing foreclosure, residential tenants may be protected by New Jersey's Anti-Eviction statute, N.J.S.A. 2A: 18-61.1 to 61.12. Legitimate residential tenants have rights to stay on the property notwithstanding a foreclosure.
The New York Law Journal (January 16, 2009) published an excellent article by Raun J. Rasmussen on the subject of foreclosures and rental tenancies in New York State.
Rent Regulated Tenants
Mr. Rasmussen reported that although most foreclosure judgments extinguish the tenancies of residents of foreclosed properties, “the courts have held that statutory tenants are afforded the protection of the Rent and Eviction Regulations whether they be Federal, State or city.” (United Institutional Servicing Corp. v. Santiago, 62 Misc2d 935, 310 NYS2d 733 (Civ. Ct. Kings County 1970). See also, Pfalz-graf v. Voso, 184 Misc. 575, 55 NYS2d 171 (Sup. Ct. Kings County 1945) (federal statutory protections survive foreclosure); DeSantis v. White Rose Associates, 578 NYS2d 363, 366 (Sup. Ct. N.Y. County 1991) (owners of co-operative apartments revert to former status as rent-stabilized tenants upon foreclosure of building); accord, Davis v. Cole, 193 Misc2d 380, 384, 747 NYS2d 722, 726 (Sup. Ct. N.Y. County 2002).)
In this regard, tenancies that are subject to rent control, rent stabilization, or federal statutory schemes, are not terminated by foreclosure and those tenants may only be evicted by the new owner pursuant to the city, state or federal regulatory rules and regulations.
Tenants With Leases
Tenants with leases with unexpired time remaining may be protected from eviction, but only in certain instances.
For example, leases that pre-date the commencement of the foreclosure will only remain intact if the tenant is not named in the foreclosure judgment.
This is true even if there is a subordination clause in the lease, since the courts have consistently held that "[d]ue process requires that one be given notice and an opportunity to be heard before one's interest in property may be adversely affected by judicial process." Nationwide Associates Inc. v. Brunne, 216 AD2d 547, 629 NYS2d 769 (2d Dept. 1995). See also, Zuk v. Budka, 2002 WL 126256 (App. Term 1st Dept. 2002) ("[a]s a necessary party, tenant was required to be joined and served in the foreclosure action; failure to do so would leave the tenant's rights 'unaffected' by the judgment."). "Accordingly, a tenant in possession pursuant to a lease which is subordinate to the mortgage, but who was not made a party to the foreclosure action, cannot be dispossessed by the purchaser at the foreclosure sale . . . ." 6820 Ridge Realty v. Goldman, 263 AD2d 22, 26, 701 NYS2d 69 (2d Dept.1999).
For those who hold leases that post-date the filing of the foreclosure action, the answer is not clear. Because mortgagors retain the right to pay off their mortgage and keep their building until the deed has been transferred to the new owner (the "right of redemption"), they are free to enter into leases with tenants during the time that the foreclosure is pending. (Until the hammer falls at the auction sale, "the borrower has full title . . .empowered to rent, or sell or mortgage anew." Bruce J. Bergman, "Redemption," New York Law Journal, Sept. 24, 2008.)
Some courts have found that, because short-term leases (those of fewer than three years) are not required to be recorded under the filing statute (Real Property Law §290), those leases are not subject to CPLR §6501 and are not extinguished by the foreclosure judgment. See, e.g.,Medford II LLC v. Scope Int'l Inc., NYLJ, Oct. 19, 2005 (Dist. Ct. Suffolk County); Bowery Savings Bank v. Giannattasio, NYLJ, May 10, 1995, p. 34, c. 3 (Sup. Ct. Suffolk County); Greenpoint Savings Bank v. DeFour, 162 Misc2d 476, 618 NYS2d 169 (Sup. Ct. Kings County 1994); Greenpoint Savings Bank v. Leselrod, NYLJ, July 31, 1991, p. 25, c. 3 (Sup. Ct. Suffolk County).
Other courts have held that lessees who have entered into leases post-commencement of the foreclosure action should get no more rights than those whose tenancies pre-dated the foreclosure. Nomura Home Equity Loan Inc. v. Vacchio, NYS2d, 2008 WL 3905638 (N.Y.Sup.), 2008 N.Y. Slip Op. 28307 (Sup. Ct. Nassau County 2008) (an occupant "who attains possession of property in foreclosure after the filing of a lis pendens does not enjoy greater rights than one who occupies before the commencement simply by reason of the after acquired possession."); King Fish LLC v. Meertins, NYLJ, Jan. 21, 1998, p. 30, c. 6 (Sup. Ct. Suffolk County) (tenancy commenced after filing of the lis pendens is extinguished by the judgment of foreclosure even if the tenant is not named); Fannie Mae v. Lourdes,NYLJ, Dec. 5, 2001, p. 23, c. 3 (Civ. Ct. Kings County).
Evictions
Evictions in Supreme Court are normally sought pursuant to Real Property Actions and Proceedings Law §221 by motion for an order of possession under the caption of the foreclosure action. RPAPL §221, a codification of the common law "writ of assistance," permits the Supreme Court to issue an order "requiring the Sheriff to put the purchaser into possession of the property."
RPAPL §221 may be used only against "a party, or his representative or successor, who is bound by the judgment" of foreclosure. "The determination whether to grant a writ of assistance lies within the discretion of the trial court, and it must give consideration to the relative equities of the particular situation . . . ." Barrett v. Barrett, 284 AD2d 423, 726 NYS2d 564 (2d Dept. 2001).
Unlike Housing Court proceedings, the owner is not required to serve the occupant a notice to vacate or quit prior to seeking an order of possession in Supreme Court.
Because the caption of the foreclosure action typically includes the mortgagee as plaintiff and the mortgagor (landlord) as defendant, tenants are often not named in the moving papers when the owner seeks an order of possession in Supreme
Court. That practice makes it likely that tenants will not appear in court to defend their position, and most likely the order of possession will not name the tenants or describe their apartments. Most often there are no tenants named and no apartments described and one order is used by the sheriff to evict all the occupants who remain in the building.
CPLR §5102 requires that the "execution . . . shall particularly describe the property and designate the party to whom the judgment or order awards its possession."
Although there are no reported decisions that interpret the requirements of CPLR §5102 in the context of a residential eviction, orders of possession that do not specify the names of the tenants or their apartments should not be permitted consistent with basic principles of due process. Based on an informal survey of tenant advocates, it does not appear that RPAPL §221 is being used frequently, if at all, in the current crisis.
New York - Housing Court Evictions
RPAPL §713(5) permits a new owner to commence a summary proceeding in Housing Court after service of a 10-day notice to quit where "[t]he property has been sold in foreclosure" and the deed has been "exhibited" to the party in possession. RPAPL §713(5) is commonly used by new owners post-foreclosure since no landlord-tenant relationship has been created. To commence a proceeding in Housing Court, the notice to quit must name the tenant and her apartment. Orders of possession are executed by a New York City marshal.
Keep in mind that the time foreclosure are now dragging through the courts is increasing. This is the link to a recent New York Times article, Push to Avert Foreclosures, published February 8, 2012 on the subject in New York State.
