Prior blog posts have dealt with various aspects of foreclosed properties in New York State. This post discusses the possibility of a deficiency judgment being entered against the borrower. This can occur when the value of the property is less than the amount owed by the individual who signed the note and mortgage which is the subject of the foreclosure.
However, what happens when the opposite occurs? Properties, especially those in Westchester County, may increase in value over time. There may be certain situations when the value of the property is greater than the amount owed by the borrower. When such a property is the subject of a foreclosure, there may be a funds surplus after the foreclosure is completed. For example, a borrower purchases a single family house for $200,000.00, and takes out a mortgage for $150,000.00. After making payments for many years, he loses his job and is unable to pay his mortgage. The current balance on the mortgage is now $100,000.00, but the house has appreciated in value and is now worth $400,000.00. How does this affect the foreclosure process?
As attorneys representing borrowers in the foreclosure process, the first possibility is that the borrower can simply sell the house for its current fair market value, and then use the proceeds from the sale to pay the mortgage in full. However, there may be some situations in which this is not possible. Some borrowers wait too long in the foreclosure process before engaging experienced counsel, and it may be too late to sell the property, as the lender has already obtained a judgment of foreclosure and scheduled a public auction of the property. Another possibility is that the original borrower may have passed away, and her heirs may have failed to engage estate counsel to represent their rights in a foreclosure proceeding before the auction is scheduled.