As the Wall Street Journal recently reported, pre-foreclosure filings have accelerated since March of this year.  The New York Times reported that foreclosures have risen 7% since June to July this year.

On August 4, 2009, the New York Times, in the article, “Who’s Modifying Mortgages?” published this chart provided by information from the U.S. Treasury Department, as to which banks are extending modification programs to their borrowers. We reprint this chart as a courtesy to our readers:

Source: Treasury Department, Google Charts

As the statistics demonstrate, not all lenders are inclined to modify loans though the federal government offers many incentives for them to do so. 

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.

While a court appointed foreclosure mediator for New Jersey, Ms. Peters is available to mediate as part of the Mandatory Settlement Conferences in New York. 

Some clients have asked her to assist in the loan modification process – aid in a possible short sale – and ask for guidance throughout the process of restructuring their debt.

There are important resources available for homeowners facing the thought of 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 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 – get legal advice.  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.

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).

• New Jersey - you have the right to ask for mediation and the lender must abide by the request.

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 is the loan amount

• In New Jersey, the foreclosure process can take up to approximately 300 days.  Tenants who are renting in a foreclosed property can remain unless there is objectionable conduct which can lead to an eviction for “cause”. 
• In New York, the process can take up to approximately 280 days.  Tenants can be evicted if they are named in the foreclosure proceeding.  Rent regulated tenants are afforded more protections. 
• Since June 2009, there is legislation in the New York Senate which will amend the foreclosure laws to grant more rights to homeowners and to tenants of foreclosed owners. 
• The Governor’s Program Bill # 46 of 2009 The Governor’s Program Bill
  
  NOTE: In New York Cooperative homes, the foreclosure process falls under the guidance of the Uniform Commercial Code (the “U.C.C.”).  The foreclosure auction can be fast-tracked and scheduled within 30 to 40 days.
• Needless to say, please get legal advice to guide you through the process.
  
  _________________________
  1 August 21, 2009, “Why the ‘Wave’ of Foreclosure Listings Might Never Happen”.
  2 August 13, 2009, “Foreclosures Rise 7 Percent in July from June”. 
  
  

THE OWNER OF MY HOME IS BEING FORECLOSED ON…CAN I KEEP ON RENTING?

The New York Law Journal earlier this year (January 16, 2009) published an excellent article by Raun J. Rasmussen on the subject of foreclosures and rental tenancies. 

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.

 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.