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Articles Posted in Foreclosure

fight-300x180Prior blog posts have discussed the concept of surplus monies in foreclosure proceedings.  To summarize, when a foreclosed property is sold at public auction, it is possible that the highest winning bid may exceed the sum owed to the entity foreclosing on the property.  For example, an individual defaults on his mortgage, and the Referee determines that the amount due to the mortgage holder is $300,000.00.  The property is sold at a foreclosure sale, and a third party bids and pays $350,000.00 for the property.  In that situation, the foreclosing lender would be paid the first $300,000.00.  But who is legally entitled to the remaining $50,000.00?

A recent case from the New York Appellate Division, Second Department helps answer this question.  In that action, a homeowner on Staten Island failed to pay his taxes, resulting in a tax lien being filed against his property.  As is often the case, the tax lien was sold to a third party, who brought a foreclosure action to sell the property at public auction in order to satisfy the tax lien.  When the property was sold at public auction in 2000, it resulted in a surplus of $42,986.00.  That is, the winning bid at the foreclosure auction exceeded the amount of the tax lien (plus costs, penalties, and interest) by $42,986.00.

The Appellate Division had to determine which of two claimants was entitled to this surplus money.  The first claimant was the original homeowner.  The other claimant was a mortgage holder on the property, the New York City Department of Housing Preservation and Development (HPD).  HPD held a first mortgage on the property securing a fifteen year loan in the sum of $56,250.  The homeowner defaulted on the HPD mortgage in April, 1997.  HPD claimed that, as of 2017, the homeowner owed it $148,096.30 (the unpaid balance of the mortgage, plus interest), and sought to claim the surplus funds to partially satisfy this debt.

virus-300x225Unless you have been living in isolation on a deserted island, you are aware of the recent coronavirus situation.  In order to avoid contaminating large numbers of people, many businesses have closed, and many individuals are remaining at home rather than venturing outside.

This blog post will discuss the effects of coronavirus on our legal system.  The first change relates to eviction actionsOur firm is rare in that it represents both landlords and tenants in Court.  On March 15, 2020, the Chief Administrative Judge for the State of New York Unified Court System issued a Memorandum in which it was stated that effective March 16, all eviction proceedings and pending eviction orders shall be suspended statewide until further notice.

This means that landlords will be unable to commence new proceedings against defaulting tenants.  Most courts have closed due to the health crisis, including lower level Courts which generally handle evictions in New York State, such as City Courts and Town and Village Courts.  Since these Courts are closed until further notice, there are no Court Clerks or other officials which whom to file a new eviction petition.  Nor are Courts open to assign return dates for such petitions, or hold hearings for eviction matters.

foreA recent decision in a case in upstate New York discusses issues relating to the denial of an application for a foreclosure judgment.  In a foreclosure case, the plaintiff, who is usually a bank or other lending institution, must apply to the Court for a judgment.  Often, after the case has first been referred to the settlement conference part, and then, in Westchester County, assigned to the Mandatory Appearance Part, the plaintiff will move for summary judgment.

In a summary judgment action, the moving party argues to the Court that there are no issues of fact which would require a trial.  This may occur in several situations.  The first is when the defendant fails to file an Answer to the foreclosure Complaint.  If the defendant’s time to answer has expired, then the plaintiff may move for a judgment of foreclosure and sale on default.  However, the plaintiff must show to the Court that it has met the elements of proof to obtain a foreclosure judgment.

The first element is to show to the Court that they are the proper party and the holder of the mortgage and note in question.  This is usually done by having an officer of the lender submit an Affidavit in Support of the motion showing that the mortgage is being held by the plaintiff.  In support of the Affidavit, complete copies of the Mortgage and Note should be annexed as exhibits.  In addition, if the loan has been assigned to a different lender than the one listed on the Mortgage and Note, complete copies of the assignment documents should also be annexed as exhibits.

sickMost of us have been recently inundated by reports of the Coronavirus pandemic.      virus Although many of our readers do not travel to some of the afflicted locations, fear has a way of becoming contagious in its own right and can have negative business consequences.  Fundamentally, the fear is based upon not only becoming sick but also on the effect that widespread contagious illness can have upon the economy.  This post will address how our attorneys  respond to unfavorable financial times and the strategies to be rendered.

Real estate transactions  tend to be voluntary business activities.  For instance, a proposed buyer may be renting an apartment and be in the market to potentially purchase a house.  Typically, a buyer needs liquid cash assets to post a downpayment and have the cash needed to close.  If the stock market continues its losses of the past few days, a buyer may decide not to move forward because he needs to sell additional assets than previously intended in order to raise the cash needed.  An experienced attorney  would advise such a person that real estate is an investment that can be sold at a future date, hopefully at a profit.  However, continuing to rent an apartment does not provide an asset to be sold at a future date or potential tax benefits such as deducting mortgage interest and real estate taxes paid.  Now that we are about the enter the Spring market , new inventory and opportunities for buyers are available.  Perhaps if a seller is concerned that her house will not sell as readily in this economy, the price may be reduced to attract additional buyer interest.

Certainly, commercially leased properties  may see reduced customer traffic if consumers are afraid to be in public places and prefer to order products online or not visit restaurants where ill persons may be present.  If such conditions persist, a tenant may need a seasoned lawyer to negotiate a lease modification or lease surrender , thus assisting the tenant in not being required to continue in a lease that is not consistent with current economic conditions.  If such a modification cannot be negotiated, the tenant may be advised to “go dark” .  Should the landlord not be willing to accept these options, he may seek to bring a landlord-tenant proceeding against the tenant.

court-300x128New York State has passed several laws that protect homeowners who may be subject to a foreclosure action.  One of these laws requires that a settlement conference be held for a homeowner when his primary residence is in foreclosure, due to his failure to pay their mortgage, taxes, or other amounts due to the lender.

Prior blog posts have discussed what may occur at a foreclosure settlement conference.  We recommend engaging experienced counsel to appear at the foreclosure settlement conference.  At this conference, attempts will be made, with the Court’s assistance, to resolve this matter, often through a modification of the existing mortgage.

However, there may be cases in which the parties are unable to reach a resolution in the settlement part.  There may be several conferences held, but, for various reasons, the parties are unable to reach a resolution.  What happens at that point?  The first step is that the Court will generally release the case from the settlement part.  Under the law, when the case is in the settlement part, all litigation, including motions, are “stayed” by the Court, which means that no litigation can occur in the action until the case is released by the settlement part.  Depending on the overall circumstances of the case, the settlement part may order that the stay on litigation be extended for a period of time after the case is released, generally 30, 45, or 60 days.  This may give the party being foreclosed additional time to negotiate a resolution, or, if there is sufficient equity, to sell the property and use the proceeds to pay off any amounts due, thus ending the foreclosure suit.

evict-300x200Most eviction matters handled by our firm involve conventional landlord-tenant relationships.  Either in a residential or commercial context, a property owner rents property to a tenant, who pays rent to the landlord on a monthly basis.  Usually, there is a written lease between the parties that delineates their rights and responsibilities to each other.  When one party violates the lease, an action can be brought in the appropriate Court.  For example, if the tenant fails to pay the rent due, a non-payment proceeding can be brought.  If the lease has expired by its terms, and the tenant refuses to vacate, a holdover proceeding should be brought to evict the tenant.

However, there are two common situations in which the ordinary landlord-tenant relationship does not apply, which will be discussed in this blog post.  The first is when a property is sold at foreclosure.  The purchaser of the property at the foreclosure sale generally buys the property “as is”, which may mean that the original owners of the property still occupy the premises.  The former owners are not “tenants” in the traditional sense, as they do not have a lease with the new owner and are not paying rent to the new owner.  How do the Courts handle this situation?

New York Real Property Actions and Proceedings Law, Section 713 provides the “ground rules” for eviction where no landlord-tenant relationship exists.  Subsection 5 of this law relates to situations where the property has been sold in foreclosure, and there are still occupants at the premises.  In this situation, the new owner of the property must first serve a ten-day notice to quit on the occupant or occupants.  This is a legal notice, usually prepared by the attorneys for the new owners.  It states that the occupant must vacate within ten days, or an eviction action will be brought.  If the former owner refuses to vacate the premises after receiving the notice to quit, then counsel will commence an eviction action in the appropriate landlord-tenant court.  The Notice to Quit must also include a certified copy of the Referee’s Deed in Foreclosure to prove the new owner’s ownership.

newlaw-1-300x300A recent article reports on a new law signed by New York Governor Andrew Cuomo which is meant to assist defendants in foreclosure actions.  This article will explain the law, as well as its possible impact on both plaintiffs and defendants in foreclosure lawsuits.

The law amended Article 13 of the New York Real Property Actions and Proceeding Law to allow a defendant to raise the issue of “standing” at any time in the legal proceedings.  A non-attorney may first ask what is the issue of standing and how this change in the law benefits a party being foreclosed.  Standing is a legal defense relating to the plaintiff’s basic right to bring a foreclosure action (or any other type of action).  In order to commence a  foreclosure lawsuit, the lender (usually a bank or loan servicer) must show that it is a corporation licensed to do business in New York State, and also it is the holder of the note and mortgage which is the subject matter of the lawsuit.

Failure to meet these requirements may result in the lawsuit being dismissed due to a lack of standing.  Because many loans are transferred between different lenders and loan servicers on a frequent basis, it is entirely possible that the party bringing the foreclosure action may not have “standing” as the loan may have been sold to another entity prior to the case being filed.  In that case, the plaintiff may lack standing, and the action may be dismissed.

theftA recent New York Times article discusses why black homeowners in Brooklyn are being victimized by fraud in the transfer of the ownership of their properties without their consent.  Of course, deed theft is not limited to any particular part of New York, or any color.  Homeowners of all races should beware of predatory individuals and companies who may seek to defraud them when they may be in financial distress.  This blog post will discuss this issues a homeowner must be aware of in such situations.

The most common scenario is when a homeowner is facing foreclosure.  A foreclosure may occur when a mortgage is unpaid, or when property taxes are not paid. In such cases, the homeowner is entitled to at least ninety day’s notice prior to a foreclosure action being filed with the Court and an action is commenced in the Supreme Court located in the county in which the property is located.

The commencement of a foreclosure lawsuit give the potential predator an opportunity to pounce.  Because such lawsuits are public records, any individual or company can look up in the Courthouse or on e-courts and see the location of properties which are in foreclosure, and the name of the individual homeowner in each foreclosure case.  After the information is harvested, the company may then contact the homeowner with a “rescue scheme,” in which they claim they will “save the property” from foreclosure.  They may advance a small sum of money, with the promise of more advances, if the homeowner will execute certain documents.  The documents, rather than being innocuous, may allow the schemer to transfer the property from the homeowner to the “rescue company.”  After the property has been transferred, the company may then quickly “flip” it to an unwitting buyer, while the original homeowner has been deceived into signing away their property.

flipMany of our readers are familiar with television programs where people purchase properties in terrible condition, conduct renovations and then sell at a handsome price at the end of the show.  While some New Yorkers may be inspired by these programs, reality often differs from the outcome as depicted on television.  This post will examine some of the pitfalls in “flip” transactions and methods to alleviate some of the legal issues that arise.

Traditionally, a flip transaction takes place as follows.  A purchaser locates a property that is a “good deal”.  Perhaps it is purchased at foreclosure auction , without the opportunity to view the interior of the property or to determine whether tenants occupy the property.  The property is a “good deal” because it is priced below other properties in the area, and is perceived by the purchaser as being in a prosperous area in which their ultimate purchaser will want to live.  Once the property is purchased, the owner will renovate the property and market it for sale.  The flipping purchaser does not intend to use the property for his own occupancy and therefore needs to sell the property as quickly as reasonable.

As most flippers ultimately realize, there is no such thing as a “good deal”.  These transactions are often too good to be true, as these properties are acquired “warts and all”.  Often the flip properties are acquired from foreclosing lenders whose attorneys present contracts that are allegedly nonnegotiable, “need” to be signed immediately and contain unduly harsh closing deadlines that could result in the loss of the downpayment or other penalties.  Flippers should not cave to pressure to sign such contracts without attorney review.  An experienced attorney will inform flippers that they are most likely purchasing the property subject to existing property violations, past due real estate taxes, unpaid water bills, another mortgage that may not have been removed by the foreclosure proceeding, occupants that may need to be evicted and the like.  It may be prudent to order a title search prior to signing such a contract and to resist pressure from the seller to use the title company that it recommends.

church-300x224A recent New York Supreme Court decision relates to the intersection of two major practice areas of our firm, foreclosure and Religious Corporation law.  The case involved a mortgage loan taken out by Grace Christian Church, located in Brooklyn, New York.  According to the Court, the Church mortgaged its property to the plaintiff, John T. Walsh Enterprises, LLC, in exchange for a loan of $350,000.00.  When it failed to make payments under the terms of the note, the plaintiff brought a foreclosure action against the Church property.

This case is an excellent example of the interaction between these two areas of law. The reason for this is that, under New York’s Religious Corporation Law, a religious corporation cannot sell, mortgage, or lease its property for a term exceeding five years without the consent of the New York Attorney General.  Prior blog posts have discussed the legal procedures necessary for a religious institution to obtain such consent.  Recent changes in the law have made it possible to obtain such permission directly from the office of the Attorney General, without the necessity of a Court proceeding. However, if the Attorney General’s Office does not give initial consent, the religious institution then has the option of bringing an action in Supreme Court to obtain such consent.  Such action must be served upon the Attorney General’s Office, and, if the Court subsequently approves the transaction, whether it be a sale, lease, or mortgage, then the religious institution may proceed with its real estate transaction.

In the Grace Christian Church case, although the Church’s Board of Directors approved the loan transaction, they did not seek approval of the New York Attorney General, as the law requires.  In addition, the loan terms were significantly altered at the loan closing, without the consent of the Church’s Board of Directors.  A title search performed by an experienced title company would have shown that the property was owned by a religious corporation, and would have required such consent by both the Board of Directors as well as the Attorney General as a condition of closing the loan.

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