Articles Posted in Foreclosure

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.

foreclosure-300x170A recent article in the New York Law Journal discussed the possibility of public foreclosure defense services being in jeopardy due to government funding cuts.  What does this mean for the homeowner whose home may be in danger of being foreclosed?

Homeowners who are having problems paying their existing mortgages may be in danger of having a foreclosure action brought against them.  New York State currently provides public services to assist such parties.  These agencies may provide legal advice on avoiding foreclosure, help with loan modifications and refinancing, and other financial services related to mortgages.  Generally, these services may be provided free of charge by non-profit agencies, such as Legal Services of the Hudson Valley.

However, many of these agencies are overwhelmed by the demand for their services.  As stated in the article, state budget cuts may result in these agencies being unable to provide assistance for all homeowners who may be at risk of foreclosure.  What should these homeowners do in this situation?  We would recommend hiring a private attorney with experience in defending foreclosure lawsuits.  Prior blog posts have shown the various ways in which an experienced attorney can defend a foreclosure case in litigation.  Even delaying a foreclosure action can buy a homeowner valuable time in which to negotiate a loan modification, obtain a refinance commitment, or even sell the property and pay off the mortgage, if there is sufficient equity.

paid-300x241Our firm frequently handles defenses for clients whose property is in foreclosure.  It is possible, for various reasons, that such an individual may eventually be in a position to pay off or reinstate the mortgage loan in question.  There can be many reasons for this to occur.  For example, let’s say a homeowner encounters financial difficulties, and, as a result, defaults on her mortgage.  As prior blog posts have explained, the legal process to foreclose a property may take several years.  Potentially during this period of time, the property owner may inherit a large sum of money from a relative.  She is now in a position to either pay off or reinstate the loan.

Another example may be where the homeowners are a couple who are going through a divorce.  They may be arguing about money matters and cannot agree on whether to pay their mortgage, or to sell the property and move into separate residences.  One of the spouses may have already moved out, and may refuse to pay the mortgage as a result.  While they are going through legal divorce proceedings, the property may go into foreclosure as a result of their failure to make payments.  It is possible that in resolving their divorce action, the parties agree that one of the spouses is to pay off the mortgage in full, with the other spouse receiving full title to the house as part of the settlement.

Assuming that there are now sufficient funds to pay off or reinstate the mortgage, what happens next?  The first step is to have experienced legal counsel contact the lender, or their attorneys.  Both a payoff letter and a reinstatement letter should be requested.  These are written documents which will detail the exact sum due in order to pay off the mortgage in full, or to reinstate the mortgage and resume making regular payments.  These documents will include all sums due to the lender, such as principal and interest, late fees, attorneys’ fees, and any taxes or other fees which the lender has advanced on behalf of the borrower.  Importantly, the letter will also state a date through which the payoff or reinstatement figure is effective.  After that date, the amounts may change, as additional interest or property taxes may become due.

defense-300x281Prior blog posts have discussed the legal steps required to foreclose property in New York State.  Often, our firm will encounter a foreclosure case that has been in litigation for many years.  In fact, it is entirely possible for a foreclosure matter in New York to take between five and ten years from the commencement of an action to the final sale of the property at auction.  Even after the final sale, there may be additional landlord-tenant litigation involving the owner or tenant being evicted from the foreclosed property.

This post will discuss the legal ramifications of a delay in a foreclosure procedure. Foreclosure cases can be delayed for many reasons.  Common reasons are court backlog, which may involve a Judge taking up to a year to render a decision on a motion, or simply failure of the lender or their attorneys to expeditiously file the various necessary motions in order to advance the case.  Experienced counsel for the defendant may also further delay the case’s progress by interposing legitimate defenses to the action, such as a lender’s failure to provide the correct notices to the borrower as required by law.

As a result, the case may take years to resolve itself.  What is the effect of such a delay?  The first effect is that if the borrower is residing at the property, it allows her time to arrange for new living arrangements.  If there is insufficient equity in the property, and the borrower feels that ultimately, it will be sold at an auction, any delay will allow her to continue living at the premises while the case plays out in Court.  Even after the property is sold, the new owner must bring separate legal proceedings in order to evict any persons living at the premises.   Our attorneys may be able to negotiate with the new owner to give the former owner sufficient time to obtain a new residence and arrange for movers.  We have even successfully negotiated for the new owner to pay the prior owner’s moving expenses in order to have the property vacated.

auction-300x102
We have advised our readers of the process for bidding at a foreclosure auction sale in New York.  Perhaps you have attended the auction, participated and made the highest, winning bid.  This post will address what happens next.

Upon making the highest bid, the participant will need to make an immediate payment of ten (10%) percent of the bid price.  The auctioneer will provide a written receipt and the parties will sign the receipt.  The successful bidder should contact an experienced attorney  and provide the Notice of Sale, Terms of Sale and Receipt to his attorney.  Your attorney should review these documents to ensure compliance by the successful bidder as well as the party auctioning the property.

Typically, Terms of Sale provide for the bidder to close and receive the Referee’s Deed to the property within thirty (30) days of the auction sale.  Failure to do so may result in the loss of the deposit and the auctioning party offering the property to the next highest bidder or holding a second auction.  Therefore, the successful bidder should be prepared to pay the balance with readily available liquid funds, without the need to apply for a mortgage.  The attorney should order a title report, which will be bound in a title policy at closing, so that no other liens will encumber the property and the status of real estate tax payments is known for adjustment purposes.  Then, the successful bidder will have the benefit of title insurance.

auction-300x200Our firm receives many inquiries from parties who intend to bid at a foreclosure sale.  Foreclosure sales most often occur when a party is unable to pay a mortgage encumbering a property, and a foreclosure judgment is obtained by the lender.  What happens next?  A foreclosure sale, or auction, is scheduled by the lender.  This must be properly noticed by having all parties served with the Notice of Sale, as well as having the Notice published in a general circulation publication, which the Court will order, such as the Journal News in Westchester.

Once all notices have been given, the sale is usually held in the lobby of the Courthouse of the Supreme Court in the County in which the foreclosed property is located.  Most courthouses in New York State set aside a specific area or room in their building to hold such auctions, which are open to all members of the public.  Prior to the auction date, it is wise for potential bidders to have experienced counsel review the terms of sale.

The sale is then conducted by the Referee for the foreclosed property.  The Referee is an individual, usually an attorney, who has been appointed by the Court to conduct the auction and transfer the property after a judgment of foreclosure has been obtained by the lender, who is the plaintiff in the foreclosure lawsuit.  The Referee’s role is to prepare all documents, conduct the auction sale, and then prepare the property transfer documents and convey all funds to the lender after the auction.

auctionSeveral of our prior blog posts have dealt with defending foreclosure actions for real property.  However, in New York State, and especially in New York City, many apartments are held as shares in a cooperative corporation, also known as “coops”.  Rather than owning real property, coop owners own shares in a corporation which have been allocated to their apartment within a particular building.  As a result, legally, owners of a coop apartment do not own real property, but instead, they own shares.

This legal distinction makes a difference when an owner defaults on his share loan.  Because coops are not real property, they fall into a category called “non-judicial foreclosures.”  This means that unlike a foreclosure against real property, foreclosure actions against coop shares are not brought by commencing a lawsuit in the Supreme Court, or in any Court.  Instead, the foreclosing lender will issue a series of legal default notices, and, if the default is not cured, it will then hold a public auction of the coop shares belonging to the defaulting shareholder.

Because lenders hold the shares in escrow when they make a loan against the apartment, they have the ability to auction these shares when the shareholder defaults in his loan obligation.  The original share certificate is kept by the lender and not returned to the shareholder until the loan is paid in full.

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.