Our 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 counsel. Foreclosure 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.
The lender’s counsel would then contact the borrower and advise him that the loan is in default. This should be done in writing in compliance with the required New York laws. In New York, the borrower must be given 120 day’s notice if their primary residence is the property subject to foreclosure. This means that no action may be brought until the 120 notice period has expired. Failure to give this notice may result in the action being dismissed, or a motion for summary judgment being denied by the Court.
Once the notice period has expired, and if the borrower has not taken steps to remedy the default, a foreclosure action may be commenced in the appropriate Court. Another important step is for counsel to order a foreclosure search from a title company. This search will show any other parties with a lien or judgment on the property. For example, there may be a second mortgage, or home equity line on the property. Any such entities must be named and served with the foreclosure complaint. The reason for this is that the foreclosure process results in acquiring title to the property as well as extinguishment of any other liens on the property. If secondary lienholders of the property are not served with the foreclosure complaint, then their liens may survive the foreclosure process, and title to the property will transfer subject to those liens. This is not a good outcome for the first mortgage holder. After foreclosure, she wants to have title in her name, and not subject to any other liens or judgments.
After the action is commenced, the Court will order a foreclosure settlement conference. This is an opportunity for all sides to appear, and attempt to negotiate a resolution without further Court proceedings. The lender may offer a lower interest rate, or reduced payments, in an attempt to resolve the default. If the case cannot be resolved in this manner, the Court will transfer the case to the regular trial part, and the litigation will continue.
Any individuals who may hold defaulted notes and mortgages are encouraged to consult our firm to discuss the details of starting foreclosure proceedings.