New York Real Estate Lawyers Blog

Recently, the New York State law firm of Steven J. Baum P.C. agreed to pay $4 million in fines and penalties after admitting that it failed to verify the accuracy of court documents filed by their firm in foreclosure matters.

According to the article, many have criticized the settlement as being too lenient. Baum’s office was the major law firm in New York State in representing banks and other institutional lenders in foreclosure actions. They filed more than 4,000 foreclosure cases in Westchester, Rockland, and Putnam Counties since 1999 and more than 100,000 cases statewide between 2007 and 2010. Clearly, the sheer volume of cases filed by a single law firm should have raised a red flag with the Courts or the clients at issue over that firm’s ability to properly handle such a large number of foreclosure cases, which require a large amount of detail-oriented paperwork, and, in the case of residential foreclosures, many Court appearances.

This author’s own experiences with the Baum Law Firm were that their attorneys were almost impossible to reach by telephone, making it difficult to resolve matters without the need for unnecessary Court appearances. When in Court, Baum’s office often sent attorneys who lacked authority to resolve matters on behalf of the bank clients, which further delayed cases.

Borrowers have both applauded and also sharply criticized the recent mortgage settlement reached by the attorneys general of all fifty states with our country’s five major loan servicers. In response to alleged mortgage abuses engaged in by lenders, an agreement was reached to reduce the principal balance of some mortgages or to grant interest rate reductions.

Bank of America in particular has agreed to reduce the principal balances for approximately two hundred thousand homeowners by as much as $100,000.00. The typical homeowner who will benefit has a mortgage with a principal balance that is more than the home is currently worth, the so-called “underwater” mortgage. Further, homeowners with mortgages held by the major lenders such as Bank of America, JP Morgan Chase, Citibank, Wells Fargo and Ally are also covered by the agreement.

Other homeowners who believe that they were more prudent by remaining current on their mortgage payments or not borrowing against virtually all of the equity in their home, resent that other homeowners are benefitting from their missteps. The mortgage settlement is also controversial because it does not apply to mortgages with lenders besides the major five lenders, to loans insured by the Federal Housing Administration, or those loans owned by Fannie Mae or Freddie Mac. If a loan was sold to one of these entities, it may not be eligible for modification, even though the borrower had no choice or involvement in the loan sale process. Many borrowers have rightfully asked: What about me?

A recent article in the New York Times discusses efforts on the part of the New York State Court system to resolve foreclosure cases through settlement conferences. As discussed in a prior blog post, these settlement conferences are mandatory for residential foreclosure cases in New York State.

Despite the best intentions of the legislature and the Court system, it has proven difficult for the system to work as well in practice as it is meant to in theory. Having represented both mortgage holders and creditors at these conferences, I will discuss the situations which are most likely to arise during these meetings.

After a residential foreclosure case is filed with the Court, the Court must schedule a mandatory settlement conference within sixty days. At this conference, both the plaintiff (usually an institutional lender) and the defendant (the person who owns the property being foreclosed) are required to attend. It is highly recommended that the defendants appear in person together with their attorneys and that the lender has an attorney attend who has decision-making authority.

When a person or company pledges real property they own as security for a loan or debt, it is known as a mortgage. A mortgage loan generally consists of a Note, a document in which the borrower promises to pay a sum of money to the lender (usually a bank, but sometimes a private individual), and a Mortgage, a document in which the borrower pledges their ownership interest in real property as security for the mortgage.

Unfortunately, there are times when the borrower is unable to meet its legal obligations under the Note and Mortgage. When this happens, the lender has two options. The first is to bring a lawsuit on the Note alone, and, if successful, obtain a money judgment against the borrower which can be enforced for collection. The second is to bring a foreclosure proceeding against the borrower, in which the Court is asked to foreclose the real property in question. The two options are mutually exclusive; that is, the lender must choose one of the two options, and not both.

This blog entry will discuss the procedure when a foreclosure action is brought by the lender. In a foreclosure action in New York State, the end result of the proceeding is that the property being secured by the Mortgage and Note is sold at public auction to the highest bidder. If the lender is the highest bidder, it takes title to the property in question and may then obtain a money judgment against the debtor for the difference between their successful bid and the amount due on the Note, plus costs and expenses. If a third party is the highest bidder, the amount of the successful bid, up to the amount due, is paid to the lender. The third party then takes title to the property.