Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
In real estate, a foreclosure occurs when a borrower is unable to pay his home mortgage loan. While a foreclosure can lead to the borrower losing his house, that’s not always the case. To foreclose on the borrower’s home, the lender must strictly follow state law on foreclosure proceedings. If the lender violates the law, this provides grounds for the borrower to stop the foreclosure process in New York. In New York State, courts allow the borrower to make payments after default. The borrower can supply an “Answer” to the court. He can reveal how the lender may have proceeded illegally by taking advantage of him. In this way, the courts favor borrowers. We will go into detail in the foreclosure process timeline.
The foreclosure process also favors borrowers in another way. In New York, since the process of foreclosure is time-intensive, it can take three years and up to 5 years to finalize. As such, this means the borrower can live in their contested house without making payments on the mortgage and taxes for several years. We’ve put together a complete guide to the foreclosure process in New York.
A foreclosure is a lawsuit filed by a mortgage lender or servicer against a borrower. The foreclosure happens after you miss at least one and up to three mortgage payments in your home. In New York, if a borrower fails to make payments, the lawsuit will take place in court. This can end with the borrower losing his home to the lender through a public auction.
The foreclosure is not just for mortgage payments. Foreclosing can result if you fail to pay any home equity loans or unpaid property taxes. Particularly in New York, you have a 15-day grace period if you fail to make a payment.
And the lender will not charge any late fees or start legal action. After 15 days or more, your lender will begin to charge late fees (around a 2% mark of the overdue payment.)
New York is a judicial state, which means that the lender can’t foreclose on your home without filing a lawsuit in court. In contrast, there’s also a non-judicial foreclosure state. And this means the mortgage lenders don’t need to sue the borrower and go through a court process to foreclose on your home. For example, California and Texas are non-judicial states.
What to point out is that the judicial foreclosure process is lengthier in time than a non-judicial state. The length works in your favor. It allows you to stay longer in your home.
In New York, almost always, the court is on the side of the borrower. The court will usually protect your rights as a property owner, but this can make the case lengthier. For the borrower, this is another way to prolong his stay in the contested home.
You can hire an attorney who will seek a temporary suspension during this period if you need more time to come current.
You start receiving notices from the lender within 30 days from the first missed payment notifying you to remain current.
Once you miss three to four consecutive mortgage payments, you’re considered in default. In some states, you’re considered in default if your payment is 30 days late. The lender will send you another notice stipulating that you need to pay the outstanding balance up to the present of the loan.
The default impacts your credit score. So even if you wanted to cure by, say, borrowing equity against your home, your now low credit score may make it hard or impossible to secure the loan.
A Loss mitigation option refers to the lender’s steps to work with the borrower to avoid foreclosure. Here’s how it happens.
No later than 36 days after you miss a payment, the lender will contact you to settle the matter. The lender will offer you loss mitigation options, like a loan modification, forbearance, or repayment plan. If you fail to respond or remedy the matter, the lender will reach out to you again within another 36 days.
To avoid foreclosure, no later than 45 days after missing a payment, the lender will again inform you about loss mitigation options. The lender appoints you with a servicer to possibly discuss your situation.
This appointment is also to avoid foreclosure. The lender may back off for a short window to learn if you have any financial situations working against you that prompted the missed payments. These can represent a loss of a job, a reduction in income, large expenses such as a renovation.
After 90 days and up to 120 days after you have missed three or more missed payments and have not settled on the amount you owe, like using a payment plan, then the lender will send you a notice of default or a pre-foreclosure notice informing you that you have 90 days before the lender starts foreclosure proceedings.
The Pre-foreclosure stage is the period after you fail to make payments but before a foreclosure officially begins.
The lender doesn’t want to foreclose as your home is its investment. Therefore, the lender will include in the pre-foreclosure notice information about how to remedy the default. The lender consists of a few government-approved housing counselors near where you live that provide free or low-income housing in your area.
If the borrower doesn’t have the money to pay back the missing amount and wants to keep the house, this is the time you should work with your lender to find an alternative to foreclosure. The borrower can refinance his mortgage with another lender, apply for a loan modification, and even contest foreclosure.
The borrower can sell the house using a short sale. This is when the borrower sells his property at fair market value. The borrower will not make a profit as the sale will be less than the loan itself. The lender, in turn, will have no choice but to settle the matter for less than the full balance.
If the lender starts foreclosure proceedings but failed to send you the 90-day notice required by law or failed to send you other notices, you have a rare instance of a defense strategy that could lead to a complete dismissal of the foreclosure.
Mortgages in New York require the lender to send a notice or a “breach letter” informing the borrower that the loan is default. Before the lender can accelerate the loan and proceed with foreclosure, this letter gives you a chance to cure the default once again.
To avoid foreclosure, the breach letter will give you a date by which you must cure the default. “Accelerating the loan” allows the lender to demand that the borrower must repay the entire balance of the loan.
A foreclosure officially begins with the lender filing the “lis pendens” on the home. The “lis pendens” is the first step to foreclosure and means that there’s a pending lawsuit.
The document is filed with the county clerk’s office, but only after the borrower has missed three payments in a row. This lis pendens makes the judgment public. So anyone interested in your house can look it up in public records to see there’s a lis pendens.
After filing a lis pendens, your lender is obligated to send you a notice that there will be a lawsuit in court contesting the ownership of your house. The letter includes your court date and is called a “summons and complaint” notice.
The lender’s notice also serves the court and explains why the lender is filing. This will state that the borrower has failed to pay the loan. And the lender intends to foreclose on your home so that the lender can collect payments.
The court needs proof that the lender delivered the summons and complaint notice to you. You have 20 days to respond if the notice was delivered in person or 30 days if sent by mail.
If you respond on time, you must file “an Answer” to the summons and complaint. An Answer is a written response from you to the lender. In this document, you need to explain to the court why your lender does not have the right to foreclose. This is your chance to defend against foreclosure in court.
Your Answer should narrate your side, i.e., your defenses to the claim as to why you have not made payments (i.e., you lost your job) and any claims you have against the lender, such as predatory tactics that the lender may practice and which we’ll explain below. If you file an answer on time, this is the best way you can fight mortgage foreclosure.
If you don’t respond to the summons or fail to appear in court, the court may favor the lender. If this happens, foreclosure on your property will proceed.
Courts in New York are more liberal compared to other states. They will allow a borrower who just lost his job and has no income to keep returning to court even though the courts know that you purposely delay the foreclosure process.
During the summons and complaint notice, the lender must also file a request for intervention. The goal is to schedule a mandatory foreclosure settlement conference to get the lender or servicer and the borrower in the same room to work on a solution.
If the borrower attends the settlement conference and answers basic questions, he will have yet another 30 days to file his answer. If the borrower has not filed an answer, the court will grant you an additional 30 days to answer the summons and complaint.
The worst thing a borrower can do is ignore the lender. The borrower who fails to respond with Answers is doing himself a disservice. Many mortgage lenders usually accept to work with the borrower to receive as much money he can afford. A lender may modify your monthly obligations to enable you to pay over time.
But if the settlement conference is amicable and you can reach an agreement with the lender, the foreclosure will terminate via “official discontinuation” of the lis pendens. The lender has up to 150 days after the settlement conference to discontinue the foreclosure.
However, the mandatory settlement conference can extend if the borrower keeps going back to it if he cannot agree with the servicer or lender. It’s not unheard of that a borrower can go back 10 or 11 times, which works in the borrower’s favor as he will keep living in the house for an even longer period.
While we continue to emphasize that courts in New York are very liberal, the judge may still be on the lender’s side and will schedule a foreclosure sale on behalf of the lender.
The time since the first missed payment to the scheduling of the auction sale will represent at least four months after the ruling. That’s more months that a borrower can stay in the house until the auction. Then a notice of the sale is published in a newspaper once a week for at least four consecutive weeks before the auction.
The lender will not give you advance notice of the date of the auction. Legally the lender isn’t required to give any notice.
After the home is sold at auction, the highest bidder will put down 10% of the bid price and come up with the remainder due within 30 days. If the winning bidder offers more than your debt and the sale results in excess proceeds, the borrower is entitled to that extra money. Excess proceeds are money above what’s needed to pay off all the liens on the borrower’s property.
Then the title of the property is transferred to the new owner. In some states, borrowers have a redemption period after the foreclosure of the sale whereby they can buy back the home. In New York, the borrower legally can’t repurchase the house after the sale, called the “statutory right of redemption.”
After your legal right to live in the house ends, the borrower will not freely or voluntarily leave on many occasions. The borrower has even more time to remain in the house during this period despite working against the law.
Evicting the borrower from the house remains a costly and time-consuming endeavor. The only way to make the borrower leave is to offer financial compensation for moving out peacefully and voluntarily. We call this a “cash-for-keys” deal.
The cash-for-keys deal is when the bank will offer you money. The bank may give you a few hundred dollars and up to thousands of dollars in exchange for you to vacate the home by a set deadline.
But this is contingent on the borrower vacating the house in good condition. If you feel slighted, scorned, you may end up damaging the house on purpose. If you don’t wreck the house and clean and spruce it up and haven’t vandalized appliances or light fixtures, to name a few, you may receive the money. But before that, you have to agree to do a home inspection of the house.
The sale price of the foreclosed property will usually be lower than the total debt owed by the borrow. This is called a “deficiency.” In most cases, the borrower must pay the remaining funds owed in the deficiency. Once again, the extremely liberal courts in New York will allow for a deficiency judgment whereby the house’s value is estimated again to lower the amount of debt owed to the lender possibly.
If the deficiency judgment doesn’t occur, the borrower must pay the funds owed in the deficiency. To make sure you pay, your mortgage lender will often garnish your wages, among other methods.
Before trial, the lender’s motion for summary judgment takes place, which is when the lender asks the court to side with him to throw out a trial. For the court to decide in favor of the lender must show in court that both the lender and the borrower have agreed to the facts that relate to the foreclosure.
If you can’t come up with a compromise with your lender at the settlement conference, the case will go to court. But before the lender asks the court to rule in their favor, the lender will want to speed up the foreclosure if there’s a lack of defense on the borrower’s part. Another cause is a lack of proof that the lender has engaged in unlawful lending practices that fostered the default.
When the court approves this summary judgment, you’ll lose the case. If the court doesn’t approve it, your case goes to trial. If you lose the trial, the borrower must be ready for foreclosure proceedings.
To file an answer to the motion for summary judgment, you must include documentation that supports your defense. If the borrower doesn’t file an answer, then the lender will win by default. During the motion for summary judgment, the court reviews the lender’s motion and your response to see if you have any legal rights for the foreclosure to proceed. To make a decision, the court usually decides to hold a hearing.
Your response should include “defenses,” which are explanations about why the foreclosure should not proceed. You should also make a “counterclaim,” which is your formal complaint against your bank, arguing that your bank’s actions may have violated any laws.
If the court finds that you don’t have legal defenses, the court will decide on the summary judgment in favor of the lender. This is bad news for the borrower because now the lender has the legal right to foreclose on your house. But if the borrower does have legal defenses to foreclosure, the court will take your side and deny the summary judgment to the lender.
The defenses were usually the uncovering of predatory lending when you agreed to the mortgage loan terms. Predatory lending is when a lender engages in deceiving practices with the borrower.
The lender often targets the vulnerable and uneducated, i.e., those who don’t know how a mortgage works. The lender also targets the elderly and minorities. They target people who have difficulty securing a mortgage until a lender comes along and gives them unfair lending terms.
Here are a few more examples of predatory lending.
In New York, predatory lending can represent your defense if the lender is revealed to have engaged in such unlawful practices. Once this is called into question, a judge will throw out your foreclosing proceedings, and void your mortgage note. The lender will have no right to collect any charges about the loan. Also and you may collect any payments made on the house.
In New York, the proceedings can take 3 to 5 years on average when the foreclosure is contested. Again, if the borrower fails to answer and his response goes unchallenged, then the foreclosure process will accelerate and can take as little as 6 or 7 months. This is considered very fast for New York in relation to other states.
If the foreclosure process takes longer than 6 years, one bright note for the borrower is that he can keep the house for free. That’s because a contested foreclosure is very costly for a lender. The lender has to cover the monthly mortgage payment and other fees during all the years that the borrower failed to make any payment.
If you foreclosed on your home, your credit score would go down very low, sometimes 100 points or more. The foreclosure will remain on your credit report for seven years. But even before the foreclosure, your missed payments will hurt your credit score as well.
We told you that New York law and its court are on your side. It’s more emphatic now due to the coronavirus. In 2020, Governor Cuomo signed the COVID-19 Emergency Eviction and Foreclosure Prevention Act. This law prevents residential evictions, foreclosure proceedings, credit discrimination, and negative credit reporting related to the COVID-19.
The Act also places a moratorium on residential foreclosure proceedings. This is for homeowners who can no longer pay their mortgage loans due to the pandemic. However, homeowners have to prove they are experiencing hardship. They need to sign and deliver to their mortgage lender a hardship declaration form.
Also, there was a $20 million allocation to fund the Homeowner Protection Program (HOPP). This fund helps borrowers in New York avoid foreclosure proceedings.