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ABOUT FORECLOSURES

April 9, 2010, the Wall Street Journal published "Foreclosures Hit Rich and Famous", indicating that multi-million dollar properties are collapsing into the foreclosure arena -- an event that this office has been aware of and has worked with over the past year - especially in Manhattan.  The article states, "The rich and famous now have something in common with hundreds of thousands of middle and lower-class Americans: The bank is about to take their homes." 

We always would rather see a home owner attempt a short sale before a foreclosure. Short sales are not for the 'faint of heart' but after hard work they often are the best solution.

What is a homeowner to do when they find themselves "underwater", that is owing more on their loan than their property is worth?

Many of our clients are persons simply trying to keep themselves intact and not lose their homes.  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, but our goal is to try to achieve the best solution to the situation.

What to do when you can't afford your mortgage?  This is a helpful document provided by New York State's Banking Department.

►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 file for bankruptcy, pursue a loan modification, or participate in the foreclosure mediation program in New Jersey or ask for a Settlement Conference in New York.

►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.

The time period is between ten and twelve months. An important link for information and resources is available from the New Jersey Judicary website.  This link is for bankrupcy debtors and others in New Jersey offering assistance to homeowners in foreclosure. Provided by the NJ Judiciary, this link gives answers to many foreclosure questions. 

►How are mortgages foreclosed upon in New York?

In New York, the typical time period is about 18 months and sometimes longer for downstate. Upstate is a faster process.

A lender seeking to forclose 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.

This link is an important resource for New Yorkers facing foreclosure; and this is a valuable resource link that details the "path" of a New York foreclosure with a glossary of definitions.

• If the homeowner does not answer the papers served, the plaintiff (bank/servicer) will file a request for judicial intervention. It is very important - DO NOT IGNORE THE PAPERS!

There are important resources available generally for homeowners facing foreclosure:

• The “Making Home Affordable” program assists homeowners with mortgages up to $729,750. 
• Housing Urban Development’s (“HUD”) website offers information for anyone facing foreclosure. 

In New York State and New Jersey, the procedure of foreclosure (except in rare circumstances) is called “Judicial Foreclosure”. 

Here's how the foreclosure process typically unfolds:
 

You are behind in your mortgage payments. A mortgage holder can begin foreclosure procedures if you miss just one payment, but usually the process begins in three months. 

The lender sends a notice of intent to begin foreclosure. The notice informs you that the proceedings can be avoided if you make up the missed payments, plus costs and interest.  There are other notices that are required by State law.  Do not ignore!  This link is to the current NYS law regarding notice:  NYS Real Property Actions and Proceedings Law

The lender files a lawsuit.
If you don't pay the amount owing on the missed payments, the lender will go to court and file a lawsuit.

The lender gives you notice of the lawsuit. The lender does this by delivering a Summons and Complaint to you (called "service").

You have a chance to respond. The Summons and Complaint will give you a period of time within which you must respond.  If you choose to contest or argue the lawsuit an answer usually must be filed between 15 and 30 days.  Whether or not you file a response is a choice.  Either way, your lender will have the burden of proving to the judge that the foreclosure is justified under the terms of the mortgage.

If you don't respond, the chances are excellent that the foreclosure will go through. The court will issue a default judgment that authorizes the lender to sell your home.

If you respond, you'll have the opportunity to tell a judge just why you think you have a legal right to keep your house and that foreclosure is not warranted. The better your defenses, the longer the process will drag out in court. Even if you win, however, it may be a temporary victory if the lender can fix or “cure” whatever problem caused it to lose.

Remember that:

• In New Jersey - you have the right to ask for mediation if the property is your primary residence and the lender must abide by the request.
• And in New York you have the right for a settlement conference within 60 days of receiving your papers.

The lender sends a notice of intent to sell. Once the judge issues a judgment, the lender typically will send you a ten-day notice of intent to sell the property. At this point, in many states you can avoid the foreclosure sale if somehow you can "redeem" the mortgage (pay it off in full, as well as the foreclosure costs and attorney's fees).

The auction is held. If no one outside of the lender buys your home at the auction, ownership goes to the lender who will most likely bid their “upset price” or what the loan amount equals.
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THE OWNER OF MY HOME IS BEING FORECLOSED ON…CAN I KEEP ON RENTING?

Renters definitely have rights. The New Jersey Judiciary website has information on the subject.

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." Bergman, Bruce J., "Redemption," New York Law Journal, Sept. 24, 2008.)

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."

 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.