Understanding New York State's Mortgage Foreclosure Process, from missed payment through the mandatory Foreclosure Settlement Conferences
What is "Foreclosure"?
What is commonly called a "foreclosure" is a lawsuit that the mortgage holder files against a homeowner in the supreme court where the property is located, for Long Island, in Suffolk County, in Riverhead, and in Nassau County, in Mineola. The entity that is the Plaintiff may not even be the current holder or the lender you originally obtained your mortgage from or even just a mortgage servicer. Once originated, most loans were sold all over Wall Street. The Plaintiff might not even own the right to sue you! For simplicy's sake, we will call the Plaintiff and/or party you pay/paid your mortgage payments to "the lender". New York is a judicial foreclosure state, which means that the lender has to sue the borrower in order to enforce their rights under the mortgage and note. If the lender wins the lawsuit, it obtains a judgment from the court, which allows the lender to sell the property at an auction. The money received from the sale is used to repay the debt. If there is money left, that "surplus" goes to the homeowner and if the sale nets less than the amount owed, the lender can pursue the homeowner. Warning: foreclosure sales net fire sale prices, so this is an option you do not want, and it is better to have an attorney negotiate to avoid this.
Foreclosure begins when the lawsuit is filed. A homeowner is considered "in foreclosure" until a judgment is made by the court.If you do not know the exact stage of foreclosure you are in, your first step should be is going on-line. Many jurisdictions now mandate e-filing for certain cases and lately, some documents are being scanned in even though they were filed the old fashioned way, by paper. See NY State's e-courts (otherwise known as webciv), https://iapps.courts.state.ny.us/webcivil/FCASSearch and put in your name, being careful to check either "defendant" or "both" and it is quicker to check off on your County. You can search by other criteria, including the Index Number or lender's law firm but name searches usually work best. Hard copies of documents filed but not e-filed can be obtained in the County Clerk's office.
Please note that what is described here are the current laws. Some were enacted to protect only holders of sub-prime, non-traditional mortgages obtained during a certain time frame where the lenders filed in a certain time frame. Later, many of these laws were modified to cover ALL mortgages obtained during a certain time. The specifics are listed in the laws themselves, such as in NY's RPAPL Article 13 http://codes.lp.findlaw.com/nycode/RPA/13
The Mortgage and the Note
When you borrow money to buy a home, refinance a home loan, or take out a home equity line of credit such as for home repairs, you sign two contracts with the lender: the Note and the Mortgage. The Note is the agreement, or contract, that the lender is lending you money and your personal promise to pay it back. The Note includes the terms and conditions of repayment, such as the interest rate, term of the loan, and charges for late fees. The Mortgage is a separate contract that gives the lender a security interest in the property - your pledge of the home as collateral for the loan. The mortgage explains what the lender can do if terms of the note and mortgage are not met, such as going ahead with a foreclosure on the mortgage for failure to pay under the note.
Demand Letter, Breach Letter
These are usually sent roughly 32-60 days after a missed payment. It puts the borrower on notice the borrower is in default but can "cure" the default by paying $XX, usually, the missed payments, next payment due, etc., usually within 30, days. These may or may not be required by your mortgage contract. Most mortgages use the Fannie Mae / Freddie Mac uniform instrument which mandates that, as a contractual obligation of the lender, BUT, as you can logically imagine, lenders drafting their mortgages wouldn't necessarily write into your mortgage one of these requirements upon themselves otherwise. However, even if not listed in your contract, you will often receive this, as well as calls and other correspondence, attempting to get the mortgage back to performing; after all, lenders almost always come out better doing a reasonable mortgage modification than going through a foreclosure and sale, a long, expensive process.
Before filing a foreclosure against a homeowner, a lender sends an Acceleration Letter to the borrower. The letter tells the borrower that the lender is accelerating the the entire amount of the mortgage. This may be accompanied by calls attempting to settle, re-finance the mortgage, etc.
90 Day Pre-Foreclosure Filing Notice (AKA New York RPAPL subsection 1304 Notice):
Under New York State law*, here, RPAPL 1304, the lender must send the borrower a special notice at least 90 days before filing a foreclosure summons and complaint. The 90-day pre-foreclosure notice must state how much you would need to bring your mortgage current, and have specific language and must attach a list of at least 5 nonprofit housing counseling agencies in your area. These notices are court-mandated, including the language. Don't be afraid to contact these agencies listed thinking they "work for the lender"-they are the same ones you may find doing a Google search anyway and the search might not come up with all of them. For example, Touro Law School has a legal "clinic" that may not come up under searches for pro bono legal help.
*These laws are located in, for example, New York Real Property Law ("RPL") and Real Property Actions and Proceedings Law ("RPAPL") Article 13 [http://codes.lp.findlaw.com/nycode/RPA/13], subsection 1304, and AURORA LOAN SERVICES, LLC v WEISBLUM. Aurora is a case that makes not adhering to RPAPL 1304 fatal to the lender's case; this properly written, timed, and served 90 day-notice is a condition precedent to filing a case, thus the case must be dismissed. However, the BIG caveat is that the courts are too backed up and won't see it in the 12 inch stack of papers lenders file when they file for Summary Judgment UNLESS the borrower's attorney knows this and points it out. There are also many more rules governing lenders located in other state and in federal laws, such as the Home Equity Theft Prevention Act ("HETPA") and the Fair Dept Collection Practices Act ("FDCPA").
NEXT: THE LENDER FILES THE CASE IN COURT BY FILING: a Lis Pendens and a Summons and Complaint.
A lis pendens is a PUBLIC mark against your title and warns all comers that title to the property is in litigation, AKA "in distress", putting the world on notice that there is an action in the process that may affect title to the property. It renders the property unmarketable and the default shows up on websites like Zillow and Redfin, among others, so your neighbors can even see. IF you try to sell it, potential buyers will only pay fire-sale prices on a property in distress.
SUMMONS AND COMPLAINT
There are strict rules for what the lender must write in the Complaint, what it MUST attach, and how it serves the defendant with the Summons and Complaint, rules it must comply with afterward, including notifying the NYS Department of Banking. These are located in, for example, New York Real Property Law Article 13, including RPAPL 1303, the rules of the Courts of NYS, including from the Chief Judge, currently the Hon. Jonathan Lippman, New York's Civil Practice and Procedure Laws ("CPLR"), and in federal laws, such as HETPA and the Frank-Dodd Act. The caveat is that if the borrower doesn't know about these and point them out, the busy courts won't see, for example, how the case is fatally flawed and requires dismissal. Also see the offices of
ANSWER (caption for this and for Summons and Complaint written in red for a reason: warning)
The borrower, lest she/he/they be considered "in default" must file an Answer to the Summons and Complaint with the court within 20 days of the date of receipt if the summons and complaint were served in person, or within 30 days if they were sent by mail or delivered in another way.This is your opportunity to explain why you think there were errors and having a hardship causing you not to meet the terms of your contract, namely, you pay the lender $X monthly in exchange for them lending you money, is not "an error", legally. You must send a copy of the Answer to the lender's attorney. If you don't, you can still participate in the Mandatory Foreclosure Settlement Conferences but, should the process fail to result in an agreement, and the courts can't force the lenders to accept anything, the Borrower is considered "in default" with the court case and the lender may then start filing the documents to ultimately auction your home. Experienced attorneys will need to try to get the lender to voluntarily, or be forced to, accept a late Answer but it is far better if a timely Answer is filed and served and you plan to, in good faith, actively participate in the Foreclosure Settlement Conferences. An attorney can point out, if applicable, in your case, the common scenario: your good faith versus what the lender did pre-suit in bad faith, when you tried to modify the mortgage,
If you do not want to file an Answer with the court,but you do want to be notified of future court actions, you can file a Notice of Appearance with the supreme court in your county. This means you should receive written notice of all the future proceedings, including the auction of the house.If you file an Answer, you do not need to file a Notice of Appearance.
Affidavit of Service, Request for Judicial Intervention, Attorney Affirmation, and Mandatory Foreclosure Settlement Conferences
The lender must file an "Affidavit of Service" with the court stating how and when you were served. The rules state defendants must be served in person and if that can't be done, the plaintiff must ask the court for alternative service (e.g. "nail and mail" service-copy stuck in the door with copy mailed).At this time, the lender must file a Request for Judicial Intervention" ("RJI") . This notifies the court that it must schedule a mandatory settlement conference. If this is not done, the Borrower may notify the court so that it triggers the mandatory foreclosure settlement conferences. The court will also send you their own notice of the date/time.
More info coming or better yet, call us at (631) 848-1204
--JUST SOME OF THE MANY DEFENSES TO LENDER FORECLOSURE ACTIONS---------------
There are many claims and defenses to foreclosures, including lender abuses in NY, and protections to aid those at risk of losing their homes. Here are just some (and a consultation with an attorney can uncover more options): ***
***Note: Some lenders may demand that you waive such defenses when they agree to a loan modification (for instance, where the loan modification does not work out and the case proceeds to a foreclosure action in court). Again, this is why it is important to retain an attorney.
• In general, there are all kinds of protections (governed by Federal and/or NY State law) against unscrupulous lending practices, outright theft, unconventional mortgage rates; for example, Adjustable Rate Mortgages that MIT mathematicians couldn't even calculate, and so many more. There are also rules on special large fonts, warnings for borrowers of certain rights, even specially colored paper in notices…too many to mention here but here are some, and we use whatever we have to to defend our clients zealously:
• Lender (Plaintiff) must have standing and capacity to sue-must own both the note and the mortgage at the time of inception of the action; there are a number of defenses based on lack of standing, some discussed above, we use routinely for clients
• Real Property Law (EG: RPAPL § 1304) http://law.justia.com/lawsearch?query=Real%20Property%20&dataset=state-codes&state=new-york&year=2006
• NY Civil Practice Law and Rules (CPLR) §3408 http://law.fordham.edu/assets/CDE/CPLR_3408_and_annotations.pdf
• Deceptive Practices Act (General Business Law §349)
• Banking Law §6 et. seq. http://codes.lp.findlaw.com/nycode/BNK and NY State Department of Financial Serviceshttp://www.dfs.ny.gov/
• Conspiracy to Defraud
• Aiding and Abetting Fraud
• Unconscionability (legal term for “just too one-sided, no reasonable alternatives…)
• Breach of Contract
• Inability to Contract
• NYS Human Rights Law (Executive Law, Article 15, § 298-a): www.dhr.ny.gov/
• Defenses based on the mathematics and costs, such as prepayment penalties, ultra-short teaser rates, etc. (are in many laws)
• Criminal Residential Mortgage Fraud (range from a Class A Misdemeanor to a Class B felony, and are included in the Penal Law, Banking Law and Criminal Procedure Law)
• Mortgage broker is supposed to act in the best interests of the borrower and may be held legally accountable (as can others involved in the transaction for various other reasons-e.g. r/e broker)
• Home Equity Theft Protection Act-requires lenders to warn borrowers very noticeably (specially colored paper) (RPAPL §1303)
• Violating HAMP guidelines, including moving to auction the home when there is an active loan modification pending
• Failure to place borrower into Mortgage Modification "track" with special rules going way back for sub-prime/non-traditional/high-cost loans in effect even before the Mandatory Settlement Conferences "track" was mandated for all foreclosure actions
• Failure to diligently proceed (in layperson's terms) by filing for a default judgment [CPLR 3215(c)] within one year of the default
• Violating the terms of the Trust (a majority of mortgages are securitized, and a Trustee oversees the pools of securities)/ultra vires acts of the Trustees
• Various failures to file the proper paperwork with the Complaint and/or to file them with the County on-time (many variables here, as well as arguments on standing when Note and Mortgage have different parties on them, have an interest., "Does the Note Follow the Mortgage", .and so much more)
FEDERAL DEFENSES AVAILABLE TO FORECLOSURE OR OTHER LENDER ACTIONS
These are just some of the federal defenses to mortgagee (lender, bank, etc.) abuses one can use in court and/or programs one can use to help modify a home loan
• Mathematical errors on HUD statement and TILA statement (received when mortgage taken out)-do the # of payments add up, is the APR calculated correctly, points improperly calculated and many more.
• Truth in Lending Act (“TILA”) 15 U.S.C. §1601, et. seq., 12 C.F.R. §226, et. seq. (Regulation Z)
• Real Estate Settlement Procedure Act (“RESPA), 12 U.S.C. § 2601 et. seq. 24 C.F.R. § 3500 et. seq., http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
• Equal Credit Opportunity Act (ECOA) 15 U.S.C. § 1691
• Federal Civil Rights Act, 42 U.S.C. § 1981, 1982
• Fair Housing Act (FHA), 42 U.S.C. § 3604, 3605
• Borrowers with loans that are insured by the United States Department of Housing and Urban Development (otherwise known as HUD or FHA-Insured loans) have additional loan workout options. To tell if you have an FHA loan, look on your mortgage stub, closing papers, check on-line, and/or or call HUD.
• Homeownership and Equity Protection Act (“HOEAPA”), 15 U.S.C . § 1639-like FHA-insured loans, offer special protections to borrowers
• The Homeowner Affordability and Stability Plan (announced by White House 2/25/09)-gives incentives to lenders to work with borrowers, even those who first fall behind, and even incentives to borrowers to stay current on their mortgages