Articles Posted in Foreclosure

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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.

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.

forecloseOur firm is often retained to defend property owners whose home is in foreclosure.  Most often, the entity bringing the foreclosure proceeding is a major lending institution, such as a national bank or credit union.  However, there are two sides to every story.  Some of our clients are individuals who have loaned money and taken back a note and mortgage on another’s real property.  The borrower has defaulted on his payments, and the lender does not know what to do.  This blog post will discuss how an individual lender can proceed with their own foreclosure action.

Our recommendation is to hire experienced counselForeclosure is a very complicated and detailed procedure under New York law.  If the action is not brought correctly, it may be dismissed by the Court.  Moreover, even if no opposition to the action is received, it may later be overturned, or a title company may refuse to insure the title of the property after the foreclosure process is complete, because of possible procedural irregularities in the foreclosure proceeding.

The first step in commencing a foreclosure proceeding would be for counsel to thoroughly review the note and mortgage documents.  These are the documents signed by the borrower, and are important to ascertain the legal requirements for a specific foreclosure.  For example, the note may call for monthly payments in a certain amount on certain dates.  If these payments are not received, it would constitute a default under the note.

reverse-300x206Prior blog posts have discussed the legal ramifications of reverse mortgages, which are becoming more common, and, with this, have become the subject of more court actions, including foreclosure cases.  Reverse mortgages allow a person to borrow against the equity in their home, and are limited to those homeowners older than age 62.  The sums borrowed against a person’s primary residence are usually not legally required to be repaid until after the borrower’s death.

Of course, no one lives forever, and, eventually, all things must pass.  At that point, the legal heirs of the borrower will often receive collection notices from the reverse mortgage lender, demanding repayment of the loan.  This post will discuss the legal options available to the heirs when a reverse mortgage has become due as a result of the borrower’s death.

The first recommendation is that the heirs retain experienced legal counsel to represent their interests.  Counsel should examine the documents underpinning the reverse mortgage, and check to ensure that the borrower actually took out the loan, and understood the ramifications of the transaction.  Unscrupulous lenders may take advantage of our senior citizens, some of whom may not be in top shape physically or mentally.  If a surviving heir suspects this to be the case, the reverse mortgage may be challenged in Court, depending on the overall circumstances of the transaction.

lock-300x300In the course of an ordinary real estate transaction, our firm orders a title report on the property being sold.  Contained in the title report is a judgment and lien search, which shows any outstanding judgments against the seller and liens against the property.  Why is this important?  In New York State, a money judgment, when filed in the Supreme Court of a county in which a debtor owns real property, become a lien on property for a period of ten (10) years.  Furthermore, a judgment creditor may file a motion at the end of the ten year period to extend the lien for an additional ten years.  After twenty years, the judgment is no longer a lien on the property.

Therefore, when a seller of real property has a recorded judgment less than ten years old, it becomes an issue which must be cleared prior to closing.  The reason for this is that the contract most likely provides that the property will be conveyed free of judgments and liens, and, in addition, a mortgage lender will not approve a loan to close without resolution of an outstanding judgment or lien.  If the judgment remains as a lien on the property, the new owner may find himself subject to a foreclosure proceeding against his newly-purchased property, even though the judgment was not incurred by him.

Since most standard Contracts of Sale in New York contain a clause that the property must be conveyed free of all outstanding liens and judgments, it is the seller’s responsibility to ensure that there are no judgments against the property.  Failure to do so would give the potential buyer grounds to have the contract cancelled and receive a refund of their downpayment.  Obviously a seller does not want that to happen.  What does a seller do when there are outstanding judgments of record?

divorce-300x199Financial troubles can be the cause of much stress for married couples.  Often, these stresses lead to a couple separating, and ultimately, divorcing.  In such situations, there will always almost be issues regarding the marital residence, be it a house or an apartment.  Due to the financial issues, the property may already be in foreclosure.  This blog post will explore the legal issues relating to married couples who own property which may be in foreclosure, and the issues that arise if a divorce proceeding occurs.

The first assumption is that the property in question is owned by both parties.  The legal term for such ownership is tenants by the entirety.  This means that the property is jointly owned by a married couple, and if either party passes away, their ownership share automatically passes to the surviving spouse.  It should be noted that tenants by the entirety only applies to married couples.  Once a divorce is finalized, the ownership interest changes to tenants in common, which means that the interest does not automatically transfer upon death to the survivor, but remains as part of the estate of the deceased.

Of course, when the parties are divorcing, the ownership of the martial residence is usually a major issue.  If the property is in foreclosure, or is likely to become the subject of a foreclosure case in the near future, such issues must be addressed as part of the divorce proceedings.  There are several possibilities in this situation.  First, if there is equity in the property, and neither party wants to remain in the marital residence, the property may be sold, with the couple sharing the proceeds as per their divorce agreement.  In the course of such a sale, any outstanding mortgage would be paid off, and any foreclosure proceedings would be discontinued as a result of such a sale.  This is probably the easiest solution, although not always possible.