FORECLOSURE DEFENSE GUIDE
WHAT IS FORECLOSURE?
Foreclosure is a lawsuit in the Supreme Court of the State of New York in the county where your property is located. It begins when your lender files a document in the County Clerk’s office called a lis pendens which is Latin for notice of pending action. An action means a lawsuit. The lender will also file a summons and a complaint and have a process server deliver the summons to you. If it is personally delivered to you, you would then have 20 days to respond. Failing to respond can have very serious consequences and could result in the loss of your property.
HOW LONG DOES IT TAKE?
The good news for the New York homeowner is that in this state foreclosure takes a very long time. New York is a judicial foreclosure state which means that the lender must go through the court process to foreclose. This process can take anywhere from 1 to 4 years from the time that the lender first files and serves the summons and complaint until the end when the lender tries to sell the property at a public auction.
WHAT ARE THE STEPS?
Foreclosure has many steps that are similar to a regular lawsuit but also has some unique steps as well. It begins with the pleadings, which includes the summons and complaint and the defendant’s answer. The answer can include defenses and counterclaims. If the homeowner asserts counterclaims, then the lender will need to reply to them. If the homeowner does not answer the summons on time, the lender will seek a default judgment and the appointment of a referee to compute the amount due. If the homeowner does answer than the lender will try to file a motion for summary judgment to strike the answer and any defenses and prove to the court that it is entitled to judgment as a matter of law because there are no material facts in dispute. However, New York has instituted a process that prevents the lender from moving for summary judgment initially and now requires most foreclosures to have a mandatory foreclosure settlement conference at the courthouse with a referee or judge where the parties try to modify or work out the loan default. If the modification or workout is not approved then the case is released from the foreclosure settlement part and the lender can proceed with its motion. If the referee is appointed to compute, he will make a report of the amount due based on affidavits from the lender’s officers and other documents. The lender must then make a motion to approve or confirm this report and for a final judgment of foreclosure and sale. If that is granted, the court will appoint a referee to conduct an auction and the lender must first advertise the sale for four weeks in a local newspaper. This is called publication. After that point, the sale would be held. Foreclosure auctions are typically held just inside the courthouse or on the steps outside.
CAN I STOP THE FORECLOSURE?
Yes, foreclosure can be stopped. There are several solutions including filing bankruptcy, typically under Chapter 13, doing a loan modification, reinstatement, or forbearance agreement, or litigating against the lender and defeating it in court. If you wish to surrender your property it may be possible to do a deed in lieu of foreclosure and avoid owing any other money on the loan. One other option is a short sale, which is when the homeowner tries to find a buyer and gets an offer below what is due on the loan. If the owner sells “short” of the balance due, the lender must approve the sale. In my opinion, short sales are a waste of time and are usually unsuccessful.
I RECEIVED A SUMMONS. WHAT SHOULD I DO NOW?
The first thing you must do is contact an experienced foreclosure attorney. Although foreclosure can take several years to complete, time is not on your side now. You must respond to the summons usually within 20 days or you will forfeit your rights. The risk is that the court could enter a default judgment against you and once that occurs the case can proceed much quicker to sale. If you schedule a consultation with an experienced attorney, you will be guided through the different alternatives and review which one might be the best for you under your particular circumstances.
I AM RECEIVING A LOT OF MAIL ABOUT PEOPLE TRYING TO HELP ME. WHO SHOULD I SPEAK WITH?
Many homeowners receive a lot of direct-mail because they are now in the public records as a result of the filing of the lis pendens. These letters might be from investors, brokers, and attorneys. Homeowners should be very cautious when speaking with investors or brokers. They are often only interested in trying to buy or sell your property at a very low price and flip it, meaning to sell it at a profit. New York has passed a law called the Home Equity Theft Act which is designed to prevent investors from tricking homeowners into giving up ownership of their home under the pretense that they might get it back again later with a repurchase agreement. There are many unregulated people in the foreclosure industry looking to make a profit. Some of them engage in foreclosure rescue scams which appear to help homeowners but actually hurt them. Others are out-of-state consultants (frequently unemployed mortgage brokers) who are not permitted to engage in the practice of law in New York but do so anyway. This is a misdemeanor crime in New York State. Out-of-state consultants and even out-of-state attorneys will not be able to appear on behalf of of a homeowner in a New York court in front of the judge and many homeowners are often tricked into sending them money and then do not get the help they need. It is always better to find someone who is qualified and experienced and who you can trust. A local foreclosure attorney is subject to the ethical requirements of the New York State bar which are called the Rules of Professional Conduct. It is always safer and wiser to have a local attorney assist you.
SHOULD I FILE BANKRUPTCY?
This is a complex question which depends upon your financial circumstances. You would need to consult with an experienced bankruptcy attorney who will review your assets and liabilities and your budget (your income and expenses) and who can then explain the different chapters that are available and find the one that best fits you. Generally, homeowners might consider filing Chapter 13 which allows them to make a five-year repayment plan to catch up on mortgage arrears while continuing to pay the regular monthly mortgage payments. For many people, the problem is that they cannot afford to make the regular payments without a loan modification which would give them a lower interest rate and lower monthly payments.
AVOIDING BANKRUPTCY SALESMEN
There are some attorneys who only do bankruptcy. While they are good people with good intentions, if they do not litigate in the State Supreme Court, then a homeowner who consults with this type of attorney is limiting their options. It is analogous to when you seek advice from a surgeon. If you ask a surgeon whether you need surgery, the surgeon may say yes or no but will very likely not be able to help you treat your medical condition in any other way. There is a built-in incentive for the surgeon to say that you need the surgery because that is how the surgeon makes a living. It is similar with bankruptcy attorneys who only do bankruptcy law because they cannot help a homeowner any other way. The homeowner is better off with an attorney that can review all of their options including foreclosure litigation, loan modification and bankruptcy. There are often many defenses to foreclosure that homeowners are not even aware of. Bankruptcy should only be a last resort and never the first choice.
I DIDN’T ANSWER THE SUMMONS. WHAT CAN I DO NOW?
It may be possible to file an order to show cause to vacate the default. This requires the assistance of a litigator to review the legal grounds and determine if you have a basis to make this motion.