Articles Posted in Foreclosure

210deathThe timing of death is never particularly welcome.  Some families are prepared, in that the deceased was elderly, maybe ill, and living in a nursing home.  Perhaps such a person also had the foresight to have their attorney prepare her Will and other estate documents.   Others may pass away at a relatively young age, in the prime of life, with ongoing financial and personal activities.  This post will examine the legal ramifications of passing away while a legal matter is pending.

Imagine that the deceased was a party to a contract concerning the sale of a house which has not yet closed.  The first step that the survivors would need to undertake is to review the contract and determine if it addresses the potential death of one of the parties before the closing.  In most cases, the seller is bound to the terms of the contract through her successors.  This means that the survivors cannot decide to nullify the contract and move into the house.  However, the seller is not available to conclude the transaction.  The attorney for the seller  would need to apply to the Surrogate’s Court  to apply for Letters Testamentary or Letters of Administration , which appoints the appropriate fiduciary to act for the Estate in order to complete the closing.  Should circumstances warrant, it may be prudent to apply for Preliminary Letters Testamentary or Preliminary Letters of Administration, to permit the sale to conclude if it is jeopardized by a continued delay.

If the deceased was the potential purchaser of the house, the contract is likely to allow the purchaser’s survivors to cancel the contract.  This is a logical result, as the transaction is inherently dependent upon the purchaser maintaining a job in order to pay the mortgage and other carrying costs of the house.  Forcing this transaction to conclusion is a cruel result.  In most cases, the downpayment is refundable.  However, some contracts only provide that half or none of the downpayment would be refunded.  It is advisable to have your attorney negotiate a favorable disposition for the downpayment in this instance when representing a purchaser, even if he is a young person.

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Recently, President Donald Trump nominated federal judge Neil Gorsuch to the Supreme Court of the United States.  While the U.S. Supreme Court is the highest court in the country, New York’s Supreme Court is not even the top court in New York State.

In New York, the Supreme Court is the name given to the trial court for most cases filed within the state.  Any case with an amount in controversy exceeding $25,000.00 may be filed in the Supreme Court.  Cases involving lower amounts may be heard in local courts, such as Justice Courts or City Courts.  In addition, if a case involves possession of real property, it should be filed in landlord-tenant court, which is usually part of a local court such as District Court, Town and Village Courts, Justice Court, or City Court, depending on where the property in question is located.

Appeals from the Supreme Court are heard in the Appellate Division.  Should a litigant want to appeal to the highest court in the state, which is known as the New York Court of Appeals, located in the state capital, Albany.  Any case heard by the New York Court of Appeals which involves U.S. constitutional principles may eventually be appealed to the United States Supreme Court and be heard by Judge Gorsuch (if he is confirmed by the United States Senate), as well as the other eight current Supreme Court Justices.

rescue-300x235Our firm often represents borrowers whose homes may be the subject of a foreclosure action.  While we attempt to resolve all such cases with the lending institutions, sometimes a foreclosure judgment and sale cannot be avoided, or has already occurred by the time the borrower seeks legal counsel.  In such situations, the borrower needs to be on alert for possible “scams,” or individuals seeking to take advantage of a person in distress.

Because foreclosure lawsuits and judgments are a matter of public record, it is easy for unscrupulous individuals or entities to obtain the name and address of the person whose home has been foreclosed and sold at auction.  Because most auctions result in the property being sold back to the original lending institution, some people will claim that they have purchased the property from the lender.  If the borrower is still living at the property, they will contact the borrower directly or leave a note at the property, requesting that the borrower contact them directly.

We would recommend that if a defendant receives such communications, that they contact their attorney immediately.  Using legal counsel will enable a person to avoid the high pressure tactics that these individuals may exert on the defaulting borrower, so that their desperation to reclaim the property or continue to live in it is not used to her disadvantage.

stopOur firm is occasionally consulted by a party against whom a judgment of foreclosure has been entered.  Prior blog posts have discussed the foreclosure process in detail.  Among the last actions to be taken in a foreclosure case are the issuance of a judgment of foreclosure and the actual foreclosure sale.  This post will discuss the few options available to a foreclosure defendant at this point.

The issuance of a judgment in foreclosure by the Supreme Court of the County in which the property is located usually occurs at two points in the foreclosure litigation.  The first point would be if the defendant fails to answer the initial foreclosure Summons and Complaint, and the lending institution is granted a judgment by default.  If the default was inadvertent, and the defendant has a reasonable excuse for not answering, as well as a meritorious defense, it is possible for the defendant’s attorneys to file a motion to vacate the default judgment.

Another point in the litigation allowing for a foreclosure judgment would be when the plaintiff moves for summary judgment and the motion is granted by the Court.  Once a final judgment is submitted to the Court and signed by the Judge, the foreclosure process is in its final stages.  The plaintiff must advertise a public foreclosure sale in a local newspaper for four weeks prior to the sale, and then conduct the sale, usually at the Supreme Court Courthouse in the county in which the property is located.

duediligenceYou have found the perfect house, cooperative or condominium apartment after a long search.  It has the ideal updated kitchenkitchen to show off your culinary skills and a beautiful bathroom that rivals a spa-like retreat.  Is there anything that should delay the signing of the contract and procession to closing?  Yes, there is.  A prudent purchaser needs to conduct the appropriate due diligence to make sure that the property and surrounding neighborhood is financially and physically sound.  Otherwise, the purchaser may acquire a property that is a long-term headache and difficult to sell when desired.

First, an inspection should be conducted by a professional engineer when buying a house.  Some condominium and cooperative purchasers also find it appropriate to conduct an inspection. For a house, such an inspection may reveal a serious condition, such as a crack in the foundation.  In this case, the buyer may want to search for another property.  An inspection may also show items that the buyer will want to monitor once she is a homeowner.  For instance, if the inspection predicts that the remaining useful life of the roof or the hot water heater is going to be five years, the homeowner may want to budget for such replacement and should not be surprised if these elements need replacement at such time.  The inspection may also list items that your attorney may wish to request for inclusion while negotiating your contract.  The seller may agree to repair the dishwasher, replace a broken smoke detector and the like prior to closing.

Inspections when purchasing a foreclosed property  serve another purpose.  Although properties offered for sale after foreclosure are generally strictly “as is”, inspection results that are unsatisfactory to the buyer may allow the buyer to cancel the contract or present the opportunity to ask the seller to remedy a particular condition or offer a price reduction.  In any case, the buyer will have knowledge as to the condition and the expectations going forward.

forehomeFrom time to time, we  are approached by a client who says that she is getting a bargain on a real estate purchase of a foreclosed property.  Such a property is being sold by the lender or its subsidiary at a price that the client believes to be well below market.  The client may wish to flip the property  or use it for his own occupancy.  It is important at this stage to hire an attorney with an expertise in this area  to protect your interests.

Like other properties, foreclosed properties are usually marketed by a real estate broker.  However, most accepted offers for foreclosed properties are without some conditions that are favorable to the buyer.  It is not unusual for the buyer to be pressured to sign the first draft of the contract immediately, provide proof of funds and a bank check for the downpayment.  Once our firm is engaged in such a transaction , we evaluate the contract and negotiate it as appropriate for this type of sale.

Buying a foreclosed property does not afford the purchaser some of the standard contract terms as in a transaction with a seller who lives in the property.  For instance, the property is sold “as is”, without representation that the appliances and major building systems are in working order.  Contracts for foreclosed properties often contain time of the essence closing dates  and may require the buyer to pay all adjustments for real estate taxes as of the time of the essence closing date, even if such date is not the actual closing date.  Also, offers are often accepted in a bidding process, without the buyer having the opportunity to go inside the house or have a formal professional inspection performed.  A buyer may not even receive keys at the closing, much less go inside prior to closing, in some of the tougher transactions.

foreclosuresignPrior blog posts have discussed a “short sale” of a property in foreclosure.  A short sale is when the house is worth less than the mortgage owed to the lending institution, and the lender agrees to accept less than the full amount owed when the transaction takes place.  However,  a situation may also arise when a house is worth more than the loan balance, or when the amount owed is small enough that the seller may decide to pay the difference in order to sell the property to a third party.  This post will discuss legal issues related to these circumstances.

Many of our firm’s intend to sell their houses or other property in foreclosure.  They have listed their properties with a real estate agent, and are confident that the selling price will exceed the amounts owed on the property’s mortgage.  In that case, the first legal recommendation is to have an attorney file an answer to the foreclosure complaint in the appropriate court, including all legal defenses .  This will allow the homeowner additional time in which to find a buyer for the property while the foreclosure process plays out in Court.  Mandatory settlement conferences for foreclosure actions may also further delay a lender’s obtaining of a judgment of foreclosure and sale, allowing more time to market and sell the property.

Once a buyer is procured, it is important that the seller’s attorney immediately prepare a Contract of Sale.  Assuming all parties then execute the contract, the buyer’s downpayment should then be deposited in the attorney’s escrow account.  The next step would be for the seller’s attorney to contact the attorneys handling the foreclosure for the lending institution.  The attorney should provide copies of the fully signed contract, together with proof of the downpayment deposit.  At this point, the attorneys for the lender may agree (although legally, they are not obligated) to put a “hold” on any foreclosure litigation, pending the closing of the sale of the property.  The reason for this is that at the closing, the lender will be paid in full.  Therefore, it is usually not cost effective for a lender to continue to pursue a judgment of foreclosure in Court once there is a signed contract and downpayment.

deficiencyPrevious blog posts have discussed foreclosures in New York State.  Many of our clients own either residential or commercial property and may not be able to make their mortgage payments.  They may become subject to a foreclosure lawsuit brought in the appropriate Supreme Court, in which the lender seeks to foreclose on its mortgage and take over ownership of the property in question.

However, our firm is often asked what happens after the lender takes ownership of the property from the borrower.  This is usually done after a public foreclosure sale of the property before a court-appointed Referee.  The Referee will then prepare a Referee’s Deed, in which ownership of the property is transferred from the borrower to the entity which was the successful high bidder at the foreclosure sale.  The Referee’s Deed is then recorded with the County Clerk’s Office in the county in which the property is located.

Does the foreclosure action end at that point?  Generally the answer is yes, but not always.  The lender, which can be either an institution such as a bank or credit union, or an individual, may seek a deficiency judgment against the borrower after the foreclosure sale is finished. Whether this happens is dependent on the successful bidder at the foreclosure sale.  Before the public auction, the lender will make public the amount which the borrower owes on the property.  This amount will include all principal and interest on the loan being foreclosed, the costs of the foreclosure, including attorney’s and referee’s fees and court costs, as well as any other expenses that the lender incurred in foreclosing the property.  Let’s assume that this amount is $500,000.00.  Any third-party bidder (anyone who is not the lender) for the property must bid at least this amount for the property.  In the example given, the bidding would have to start at $500,000.00.  Assuming someone believes the property is worth at least this amount, the highest bid which exceeds $500,000.00 would pay this amount to the Referee and become the owner of the property.  The first $500,000.00 of the successful bid would be paid to the lender, with any remaining sums going to any creditors of the borrower who have appeared in the foreclosure action, and any surplus after that paid to the borrower.  In such a case, there would be no deficiency judgment.

march10It is not unusual for some of our clients to be presented with the following scenario.  An owner of a single family house or apartment falls behind on his mortgage and his lender commences a foreclosure proceeding while a sale is pending.  In an apartment scenario, the cooperative board pursues a maintenance default matter while a cooperative unit owner is actively attempting to sell the unit.  These are not situations where a short sale is sought.  Rather, significant equity exists.  The anticipated sales proceeds will allow for the full payment of the balance of the mortgage loan or maintenance arrears due to the cooperative.

Another common component of these situations is that the lender or cooperative board is aggressively pursuing their claim, jeopardizing the owner’s ownership of the asset.  For instance, if the lender forecloses on the mortgage, the homeowner will lose title to the property and have nothing to sell.  If the cooperative default goes to its final conclusion, an auction of the unit (and eviction of the occupant) , the unit owner will likewise lose her ownership interest.  These results should be avoided when the closing proceeds are more than sufficient to pay any outstanding amounts due.  The goal of the attorney representing the homeowner is to encourage the lender or the cooperative board to delay its proceeding pending the sale of the property , at which time the lender or the cooperative will be paid in full for the monies owed.  When a homeowner falls behind in payments due, he may claim to a creditor that he is trying to sell the home in an effort to stall proceedings.  While it may be true that the homeowner is trying to sell the home, the following suggestions may make such a claim more credible to the creditor and convince them to delay the proceedings.

First, it is helpful to have a skilled attorney  present this information to the creditor.  Second, for sale by owner scenerios  should not be used.  Having a licensed real estate agent involved who has an active listing that can be shown to the creditor is convincing evidence that the home is actively for sale.  Third, if there is a signed contract of sale with downpayment monies on deposit and also a loan commitment letter from the purchaser to deliver to the lender or cooperative’s attorney, such documents will show that the means to pay the past due balance will be imminently available.  A new loan may be sought by the homeowner as another means to resolve the default.  If these strategies are not effective, our attorneys may file an Order to Show Cause with the applicable Court, seeking a temporary restraining order curtailing the creditor’s right to pursue the activity until the sale occurs.

mortmodOur firm is often called on to assist homeowners whose properties may be in foreclosure.  This can occur when a person falls behind in their mortgage payments to a bank or other lending institution.  Because of the high volume of such foreclosures in New York State over the past several years, additional safeguards have been added to the judicial process to protect people from losing their primary residence in a foreclosure case.

Prior blog posts have explained how New York State requires a mandatory settlement conference in most residential foreclosure matters.  The main exceptions are cases involving a reverse mortgage, or situations in which the homeowner does not reside at the property being foreclosed, such as a second home or vacation house.  Our attorneys will attend settlement conferences in Court to attempt to resolve outstanding foreclosures.  Court referees, who meet with the parties in an attempt to resolve these cases, encourage lending institutions to offer mortgage modifications.  The first step in the process is that the borrower must provide complete financial information to the lender (or, in most cases, their attorneys).  This information usually consists of a standard Request for Mortgage Modification Form (RMA), copies of state and federal tax returns for the last several years, a hardship letter from the borrower explaining why they fell behind on their mortgage, proof of income, bank statements, and other financial records as the lender may request.

Once this information is provided, the lending institution will consider whether a modification is possible.  Based on the borrower’s income and assets, as well as the value of the property in question, as well as the mortgage amount, the lender may offer a trial modification.  The trial modification may reduce the interest rate on the original mortgage, and may also shift the past due payments to the end of the loan term, allowing a delinquent borrower to resume payments and have the property removed from the foreclosure process.  In certain instances, the lender may even reduce the actual amount of principal owed on the mortgage.