The step by step guide to the foreclosure process in New York.
Number 1, the bank sends an initial notice of default.
After the borrower misses’ mortgage payments, the lender will send an initial default notice
by mail notifying the borrower that he or she is behind on payments and that the borrower
has a certain amount of time to become current on payments, for example 30 days.
Number 2, the bank mails you a 90-day pre-foreclosure notice.
If you don't bring your loan current then the bank will send you a 90-day notice of
default by mail with an intent to accelerate the debt and call in the full amount of the
loan.
The notice itself will need to be on colored paper for example blue versus plain white,
that clearly separated from the other papers in the package and it will have big bold letters
stating that this is a 90-day notice.
Essentially, the lender is required to mail you this package at least 90 days before starting
a court case against you as the borrower and this package will also contain information
on how to get help.
Number 3, the bank files a Lis pendens on the property.
At this stage the foreclosure case officially starts and the lender will kick off the legal
proceedings by filing a Lis pendens on the property.
Technically, it’s on the BBL number of the property at the county clerk's office.
The Lis pendens is essentially legal lease for a document of public record that states
there is a controversy surrounding the property.
Note that this controversy doesn't have to be a mortgage or mortgage related.
There could be a Lis pendens for a mechanic's lien or some other breach of contract claim.
The bank files a summons and complaint and serves the borrower.
In this next step and concurrently with the Lis pendens filing.
The bank will also file a summons and complaint with the court against the borrower.
The summons essentially explains that the lender is filing a lawsuit against the borrower
and the complaint details the basis for the filing.
For example, the borrower hasn't paid the mortgage, lender has the right to collect
payment and attends to foreclosing the property in order to do so, etc.
Banks will typically serve the borrower with a summons and complaint in person versus by
mail due to the liberal nature of courts in New York.
Otherwise, borrowers could very easily claim in the eleventh hour that they never received
the summons and complaint by mail.
And you know what, Judges will usually buy this story in New York.
Note however that this is the only time I will come by as something that will be served
by hand versus by mail, all other notices will be sent by mail.
An answer to the complaint is due to the borrower.
An answer to the complaint is due in 20 days if the borrower was served in person or 30
days if the borrower was served by mail.
The answer should tell the borrower's side of the story and should include not only the
borrower's defense to the claims but also any claims that perhaps the borrower has against
the lender.
Mandatory settlement conference.
In New York, regardless of whether the borrower actually responds to the complaint a mandatory
settlement conference will be scheduled no matter what to get the parties together to
see if they can work something out to avoid a foreclosure.
As long as the borrower attends the settlement conference and gives the most even basic of
answers, he or she will have another 30 days.
One lawyer who specializes in foreclosures in New York told us recently that theoretically
borrowers could go back to mandatory settlement conferences 10 or 11 times if they aren't
able to make an agreement with the lender to modify the loan.
Keep in mind that during all of this time everything is stopped until a determination
can be made on whether a loan modification might be agreeable.
This could go on for a couple of years and often time the bank will simply give up and
agree to a favorable loan modification.
Remember that the courts in New York tend to be so liberal that they'd allowed borrowers
with no income to keep coming back to court to delay the process.
Why?
Well, because the extremely liberal courts in New York ultimately can simply don't want
foreclosures to happen.
The discovery process if no settlement is made.
If a settlement is made during the conference then the case if over.
If, however a settlement can't be agreed on both parties will then gather information
from each other during what's called the discovery phase or the discovery process.
During discovery the borrower's attorney will serve the bank's attorney with discovery demands
such as proof of the chain of title, payment history and so on.
Note that the courts in New York tend to put the onus on bank's attorneys to certify that
everything in the summons and complaint is true and that all original documents referenced
are in their possession.
This could be a real problem for lenders if the loan was actually originated by another
bank and has since been sold, diced up or assigned one or more times.
Savvy borrower's attorneys could claim that the lender has no standing and doesn't have
the right to bring action if the bank wasn't the original lender and doesn't have the original
documentation and paperwork.
For example, the bank could be in real trouble if it fails to provide proof of the chain
of title all the way from the original promissory note to every assignment to a new lender.
Motion for summary judgment and order of reference.
After the discovery process where the lender will also collect information from the borrowers
such as pay stubs and account statements, the lender will ask the court for a judgment
without trial and for the court to appoint a referee which is usually an attorney to
decide the amount owed.
Keep in mind that a summary judgment means there's no issue of fact yet to determined
and that this is rarely the case in real life.
Regardless, banks will make this motion and then it will take another 5 to 6 months usually
to get in front of a Judge.
Note that it can take up to a year or we've even heard 2 years to get a decision on the
motion.
Motion for default judgment and order of reference.
If the borrower doesn't answer the 90-day pre-foreclosure notice and doesn't attend
the mandatory settlement conference, then the lender can ask the court for a judgment
on default and to appoint a referee.
Usually again an attorney to decide on the amount the borrower owes.
Motion to confirm referee's report and for judgment of foreclosure and sale.
If the lender wins the motion for summary judgment or the motion for default judgment.
Then the lender asks the court to confirm the referee's findings.
Note that its possible at this stage just like any other stage for the borrower to delay
proceedings.
At this stage, the borrower can simply challenge the referee's report to further prolong the
process.
Judge signs judgment of foreclosure and sale.
The Judge signs for foreclosure judgment orders of sale of the borrower’s home.
The lender and the referee then choose an auction date at the local court house i.e.
typically the county courthouses steps.
The sales must be advertised once a week for 3 weeks in a local newspaper.
That advertisement will list the property's address and list when and where the foreclosure
auction has been scheduled.
It will also include the estimated amount owed to the lender.
The foreclosure auction is finally held.
On the day of the public sale, the "upset price" will be posted outside the court room
which is kind of a reserved price for the bank.
The upset price is typically the amount owed by the borrower plus any fees, interests and
any other costs accumulated in the interim.
If the property sells for more than the upset price then that additional money is called
a surplus for which the borrower is entitled.
The former home owner will need to make a motion in court the get that surplus.
Which is essentially the borrower's home equity, less any fees, interests and expenses incurred
by the bank.
In rising markets we've seen cases where a borrower who hasn't paid their mortgage in
years ends up actually making money in a foreclosure.
Why?
Well, because home prices have risen so much.
If on the other hand the property is sold to the highest bidder and the amount is less
than the upset price then we have what you call a deficiency.
In a deficiency scenario, the bank is still owed some money and could sue for the difference.
However, the bank will only have 90 days to initiate proceedings after the foreclosure
sale.
It’s interesting to note that once a foreclosure takes place all junior liens including home
equity loans and mechanic’s liens are wipe out and no longer secured by anything.
So, this means all junior debts effectively become unsecure debts like credit card debt
and thus second lien lenders would need to also sue to recover their deficiency immediately
after the foreclosure.
A trial happens if the lender loses the motion for summary judgment.
The last possibility to explore is the scenario where a mandatory settlement conference fails
to produce an agreement and the Judge declines the lender's motion for summary judgment after
the discovery process.
In this situation a trial occurs and the lender must prove its case to the Judge.
Both sides will testify and show evidence and the Judge makes a decision.
As previously discussed, the onus is often more on the lender than the borrower in New
York liberal minded courts.
The bank will have to prove that they have everything in order such as the chain of title,
payment history, etc.
This process can easily take several months but remember, the courts are inclined to make
life difficult for lenders and to do everything possible to force big banks to settle with
home owners.
So, there you have it.
We hope you found this video helpful.
My name is Chris at Hauseit.
Hauseit is the largest assisted For Sale By Owner and Buyer Agent Commission Rebate company
in New York City, established 2014.
We can help you save up to 2% on the buy side and up to 6% on the sell side in broker commissions.
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