Legal Defenses to Foreclosure Actions in New York State

Our firm is often retained to defend, as well as prosecute, foreclosure actions in New York State. When we are representing the defendant in a commercial or residential foreclosure action, we examine many legal issues to determine whether the action can be successfully defended in Court. Often, a defendant is simply seeking a delay in the lawsuit to enable it to attempt to refinance the property and pay off the mortgage, or to negotiate with the lender during the course of the litigation for more favorable loan terms.

In several cases litigated by our firm, the lender’s attorney used a basic “foreclosure form” lawsuit for the complaint against our client. However, the basic facts as alleged in the lawsuit may not match the actual facts of the individual case. Many foreclosure specialty firms operate on a volume basis, and there is not always complete and thorough review of the contents of the pleadings. In those situations, we have been able to have the lawsuit dismissed or delayed, allowing our clients time to obtain additional funding for the property or to remain as occupants of the property.

Another important defense available to a potential foreclosure defendant involves the legal owner of the mortgage and note at issue. Many loans are sold from the original lender to a servicing company. The servicing company may also sell the loan to another company during the loan period in question. By the time there is an alleged default, the borrower may be dealing with a different company than the original lender.

There are several legal implications which arise from this situation. In order to maintain a foreclosure action in New York, the party suing must have legal standing. This means that they must be the owner of the mortgage and note in question at the time the lawsuit is brought. When a loan is transferred from one entity to another, the transferring parties should execute an assignment document, which document is then recorded with the County Clerk in the county in which the property is located. This enables third parties to ascertain who owns the mortgage on any given property.

However, given the high volume of mortgages and transfers in modern times, it is highly likely that such documents are not executed or recorded until after the lawsuit is commenced. Some Courts have ruled that when an action is brought before the assignment is recorded, that the party to whom the loan was transferred does not have legal standing to bring the action, because they were not the legal, recorded owner of the note and mortgage at the time the lawsuit was started. Not every Court has agreed with this legal interpretation, as individual facts may differ from case to case. In addition, different Judges may rule differently depending on their interpretation of the facts.

If the Court rules that the plaintiff did not have standing, it may dismiss the action in question. Of course, the plaintiff may then record the assignment in question, and then commence a new action. However, this process may be very time consuming, and will delay the ultimate resolution of the foreclosure action, which can benefit the defendant.

Plaintiffs may also attempt to “back date” an assignment in an attempt to get around the legal requirement of standing. Many courts have ruled that such back-dating does not create a retroactive transfer, and will require a new action be filed by the plaintiff after the assignment is legally recorded.

Our firm has extensive experience in representing both plaintiffs and defendants in foreclosure actions. We are cognizant of all defenses legally available to defendants, as well as the possible pitfalls of such defenses when representing a foreclosing party. If you would like to consult with us regarding a foreclosure action, please contact us at your earliest convenience.