Steps In The Foreclosure Process

Here is a short primer on the steps in the foreclosure process in NewYork. Our state is a judicial foreclosures state, meaning that the lender sues you in court to foreclose. Usually, the suit is in the Supreme Court for the County where the property is located, but it can sometimes be in Federal Court too. The entire foreclosure process can typically take 6 to 12 months depending on how aggressive or lazy the lender’s counsel is and how busy the court is.

The lender files a summons and complaint and usually the lis pendens too. That is a public notice in the County Clerk’s office that tells the world that your property is tied up in litigation – any title search run by a potential buyer will disclose the pending foreclosure which must be cleared up before the owner can sell.

In the past, when I was lender’s counsel, I always made it my practice to file the lis pendens with the County Clerk at the same time that I started the suit, however, it is possible to file it later in the action.

The homeowner/borrower must then answer the complaint, usually in 20 days if the summons was served personally. If no answer is served and filed on time, the lender can file a motion for a default judgment. If there is a timely answer, the lender will usually file a motion for summary judgment. In most cases, the Court will consider the case summarily based on the documents and affidavits, and without a trial, because usually the issues involve legal questions and documentary proof. Only in the rare case, where there are material questions of facts in dispute will there be a trial in a foreclosure case.

Homeowners should always answer the complaint. In some cases, they may have defenses they are not even aware of. At the very least, even a simple answer which just contains a general denial would ensure that the lender can’t just slide through the case too quickly. As the plaintiff, the lender has the burden of proof – there is no reason why the homeowner should ever waive this by defaulting in the action. In those cases, where I handle an answer for a client, it also ensures that the client will know what is going on in the case because all notices will be served on me as the defendant’s attorney of record.

If the lender is granted a default or summary judgment, the Court will appoint a referee to compute. It is his job to determine the amount owed and recommend how the property should be sold, although in practice, my experience has always been that the referee actually does nothing but sign off on the papers prepared by lender’s counsel. Once the referee has issued the report, the lender will file a motion to confirm the report and for a final judgment directing the sale.

If the court issues the judgment, it will fill in some blanks in the judgment, directing the lender to advertise the sale (auction) in a particular county newspaper for 4 weeks. Usually the court appoints the same referee to conduct the sale. The sale is made by public auction to the highest bidder. The lender has the option of bidding and can “credit bid” by bidding up to the amount of the debt, without actually coming out of pocket. Many lenders have REO (real estate owned) departments just to deal with all of the real estate they own.

If a third party is the high bidder, the property will be deeded over by the referee, usually within 30 days. If the sale proceeds are insufficient to pay off the loan, the lender may elect to pursue the homeowner for a deficiency judgment.

I have seen some foreclosures go on for years where they were contested and involved more than the typical non-payment default (i.e., claims of fraud against a lender may prolong an action). However, the routine case lasts for about a year or less.