money-300x225Prior 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.

OwnershipLast week’s blog post discussed legal issues relating to a foreclosure as it applies to cooperative apartments in New York State.  To summarize, because cooperatives are considered shares in a corporation, and not real property, different legal procedures are necessary when an owner of a co-op defaults on her share loan or maintenance payments.

This blog post relates what happens when two or more co-owners of a property are unable to agree on the disposition of a jointly-owned cooperative, or “co-op” apartment.  A recent article in the New York Post describes a situation where a Manhattan woman purchased a co-op apartment on the Upper East Side with her fiancé in 2005, shortly after they got engaged.

Unfortunately, in 2007 the couple became estranged and the engagement was called off.  One of the parties occupied the apartment, and the other moved out.  The parties agreed that the woman who was actually living at the apartment would pay her ex-fiance 50% of the value of the apartment.  However, in the 11 years subsequent, she has failed to do so, continues to live at the apartment, refusing to give access to her ex-fiance.  What is the legal remedy for this situation?

building-300x225Many of our prior blog posts have discussed foreclosures of real property.  But what happens when the owner of a cooperative or “co-op” apartment cannot pay his share loan or maintenance?  Although the term “foreclosure” generally applies to the taking of real property by a lienholder, a co-op owner does not own real property, but owns shares in the cooperative corporation which have been allocated to his apartment within a larger building.

A co-op owner is issued a share certificate, which states how many shares he owns, as well as listing the name of the co-op corporation, the address, and the specific apartment number. He is also issued a proprietary lease by the co-op, which allows occupancy of a particular unit and states the terms and conditions of his share ownership.  When taking out a share loan to purchase the co-op, the buyer/owner must pledge his shares as collateral for the loan.  The actual share certificate and proprietary lease must be physically delivered to the lender (or its legal representative) at the closing, to be held as collateral until the loan is paid in full.

However, there may be situations where an owner cannot make his share loan payments, and the lender seeks take permanent possession of the collateral, which is the share certificate.  In New York, this is known as non-judicial foreclosure.  This means that an action is not brought in Supreme Court, where real property foreclosure actions are generally commenced.  Instead, the foreclosing lender must bring a proceeding outside of the Court system.  This is usually done by sending default and termination notices to the borrower.  If the borrower does not cure the default within a given amount of time, then the lender can notice a public sale of the shares pursuant to New York’s Uniform Commercial Code, Article 9.  This law sets forth the terms and conditions under which a non-judicial sale of the shares can be held.  Assuming that notice has been properly given, there may be an auction sale of the shares, in which any party can submit a bid.  The high bidder, which is usually the lender, then takes possession of the shares in question.  It should be noted that the co-op board must approve any actual occupant of the apartment, even if the apartment is owned by another party subsequent to the auction sale.

know-the-rules-300x167Our firm is called upon to both defend and prosecute mortgage foreclosure actions.  One of the first questions that should to be asked is who holds the mortgage loan, meaning the party who is entitled to bring the action.  In most cases, it is an “institutional lender,” such as a bank or a credit union.  However, there may be situations where the lender, or the note holder, is not an institutional lender.  This can occur in several ways.  Often, the institutional lender sells the mortgage and note to a third party.  This purchaser can be a company or a private individual.  The third party takes an assignment of the note and mortgage, and “steps into the shoes” of the institutional lender.  They pay a fixed amount to the original lender, and hope to make a profit by foreclosing the property and selling it for a greater sum than they paid for the loan.

There can also be situations where the loan originator is a private individual.  This can occur when a family member loans another family member funds to purchase a house or apartment, and takes back a note and mortgage, to be repaid over time.  Another possibility is that the seller of the property loans the funds to the buyer, and a purchase money mortgage is used to secure the debt of the buyer.

A person who may be in foreclosure may now ask, what’s the difference whether the holder of a mortgage and note is an institutional lender or a private individual?  Our experience has shown that the identity of the lender can make for quite a variation in the litigation and resolution of a foreclosure case.

532Now that many of our clients are participating in the Spring housing market , repair issues have developed in several transactions handled by our attorneys .  This post will address the manner in which such issues should be addressed in a contract.

Most buyers will have a professional engineer inspect the premises prior to signing a contract.  Inspections serve several purposes.  They may illuminate a condition so severe that the buyer decides not to proceed.  An example may be a cracked foundation requiring costly repairs.  Inspections also show conditions that a seller may be willing to address, given the circumstances of the transaction, such as electrical repairs needed for immediate safety concerns.  Also, inspections show conditions that are for the buyer’s information as a potential homeowner, including ongoing maintenance issues such as clearing the gutters on a seasonal basis.  Conditions in this category should not be raised with the seller.  In any event, rest assured that the inspector will find conditions requiring repairs because most homes that are inspected are not newly built and not in perfect condition.

Let’s consider those conditions that should be addressed.  Buyers need to be aware that our current local real estate market is afflicted with low inventory.  This means that many sellers are weighing multiple offers that vary as to terms such as price and whether the buyer needs to obtain a mortgage.  Offers also vary as to whether a particular buyer appears to be pleasant and will easily close the transaction.  With this in mind, a buyer may lose the deal if she asks the seller to repair a large number of items, many of which are relatively simple such as unclogging the hall tub drain.  Unfortunately many first time purchasers  are anxious, desire a house with no issues, and are unfamiliar with the area, so they may not know who to call to repair the tub.  These people are better served by hiring their own plumber after the closing for a few hundred dollars, rather than making it an issue with the seller who may have other options.

lowSome of our clients have recently inquired as to whether their cooperative board may have been declined their proposed sale because the proposed purchase price is too low.  As we have indicated in previous posts , cooperative boards can decline a purchase for any or no reason so long as such reason does not discriminate against protected classes.  Once a seller hears that their well-qualified purchaser has been declined, sometimes they suspect that it is because they accepted a price that was too low.  Should a cooperative board be willing to disclose this possibility, there are steps that the seller can take to keep the deal alive.

Let’s explore the rationale for a cooperative board declining a sale because the price is too low.  The board is likely concerned that a sale price significantly lower than others in the building may adversely affect valuations of other apartments, so that all units for sale in the future may be potentially valued at a lower price as a result.  The board, as a fiduciary for all shareholders, wishes to maintain elevated apartment prices for the benefit of all shareholders.  As such, declining a purchase because the price is too low is perfectly legal.

However, the seller may be willing to accept what appears to be a low price for the following reasons.  Perhaps he is in financial distress, owes maintenance arrears and cannot cover the past due charges without selling the unit.  In this case, it is better for the cooperative as a whole if this person sells so that a financially secure buyer owns the unit instead and is current in her maintenance payments.  Also, the shareholder may be getting divorced or has been relocated in his job, making it necessary to sell.

landlord-tenant-disputes-300x194A recent article in the New York Times discusses a large-scale study of evictions in the United States.  More than 83 million records were studied, and the impact on the our society as a whole was further examined.  Our law firm is a rarity in that we represent both landlords as well as tenants in eviction matters (of course, not in the same case!).  Most private law firms specialize in representing only landlords.  As a result, their clients tend to be owners of large properties, or corporations who own many buildings.  They do their work in bulk, often bringing many cases at once, and seeking to resolve them during court appearances en masse with the tenants who appear.

Tenants seeking proper legal representation may have fewer options.  They will have to seek out private law firms, such as ours, which represents both landlords and tenants.  As the New York Times article discusses, many tenants do not have the means to obtain legal representation in eviction cases.  They are faced with the prospect of a Court appearance where the landlord is often represented by experienced counsel who knows all the aspects of the legal system.

As a result of this imbalance, many Courts attempt to assist the tenants during their appearances.  Of course, legally, Judges must be neutral in their application of justice.  They may advise unrepresented tenants to obtain legal counsel and allow the appearance to be adjourned in order for the tenant to retain an attorney.  They may also ask the tenants whether they understand the legal proceedings, and review with the parties the details of any settlement agreement entered into between themselves and counsel for the landlord.  Our experience has been that the Judges, especially those in Westchester County, have on the whole been fair and impartial to both sides in these cases.