Sometimes a foreclosure is simply unavoidable, if a loan modification, a short sale or deed in lieu are not available to you. New York is a judicial foreclosure state. This means that the lender who holds your mortgage must file a lawsuit against you in court to enforce its lien against your home if you fail to make payments on the loan.
Judicial foreclosure only applies to real property like a traditional 1 to 3 family home or a condominium in New York. Cooperative apartments are technically personal property because you own a share in the company that owns the real property and that company turns around and leases your unit to you. The foreclosure process on a coop moves much quicker, and while the lender is still required to engage in loss mitigation and send you pre-foreclosure notices, you do not have the same procedural protections in court as you do for real property.
The pre-foreclosure process and foreclosure process involve a number of steps, including some or all of the following:
- 120-day waiting period. Before filing for foreclosure, the lender or loan servicer must wait until you are 120 days late in your payments. This is to allow you time to try to refinance or modify your loan, or seek other loss mitigation options.
- Acceleration letter. Depending on the terms of your mortgage agreement, your lender may be required to send you a notice, or breach letter, letting you know your loan is in default and that the lender will accelerate the entire amount due on the mortgage (i.e. you will owe it all at once) if the default is not cured or fixed. The notice typically will state that you are in default, tell you how to cure the default, give you at least 30 days to cure or fix the default and tell you that failure to cure may result in foreclosure. The process in your case may vary, depending on the terms of your mortgage. Where the mortgage contains a requirement for a notice of default, it usually sets out what the notice must contain and how it must be sent. The mortgage may require the lender to say in the notice that if the breach is not cured by the deadline given, the lender may accelerate without further notice. However, the lender is usually not required to accelerate. If the lender does accelerate, it may do so by serving a notice or by including language of acceleration in the foreclosure complaint itself.
- 90-day notice. New York requires every lender foreclosing on a residential mortgage of an owner-occupied home to send a 90-day pre-foreclosure notice prior to commencing foreclosure. This notice must give you information about curing the default and also give you a list of government-approved counseling agencies to help you. This time period runs at the same time as the 120 day loss mitigation period referenced above.
- Filing foreclosure complaint. After waiting 90 days, the lender can go to court and file a complaint against you to foreclose on your property. You will have 20-30 days to file an answer to the complaint, depending on whether the complaint was served in person or by some substituted method. You will have a second opportunity to answer the complaint within 30 days after the first settlement conference referenced below. It is very important to answer the complaint and raise defenses such as lack of standing or deceptive business practices. If you do not answer the complaint, then you have defaulted and you lose many of the defenses that you could have asserted.
- Certificate of Merit. A new law requires the lender’s attorney must file a “certificate of merit” or “Attorney Affirmation,” stating that the attorney has reviewed all the necessary documents related to the mortgage and that the plaintiff is the creditor who is entitled to enforce its rights under those documents. The attorney must attach the key documents, which are the mortgage, promissory note, any extensions or modifications and any assignments of the mortgage, unless those documents were already attached to the Summons and Complaint.
- Affidavit of Service. Within 20 days of serving the complaint on you, the lender’s attorney may be required to file an affidavit of service with the court.
- Mandatory Settlement Conference. Within 60 days after the affidavit of service is filed, the court will hold a mandatory settlement conference. This is the most important part of the foreclosure process and is described in more detail here.
- Discovery phase. If a settlement cannot be reached, litigation begins and the case goes into the discovery process where both parties can ask for documents and information from each other. If a defense lawyer is actively litigating a case, there may be discovery, but in most foreclosure cases there is no discovery. Instead, the parties will make a motion. While the case is in the mandatory settlement conference part, motions are stayed by court rule. While discovery is not stayed, lenders usually act as though it is and ignore discovery demands. To get discovery, you must (1) timely answer the complaint, (2) request a preliminary conference after the release of the case from the settlement conference part and (3) know how to press the other side to comply with the preliminary conference order. The lender will often respond by moving for summary judgment immediately.
- Motion for summary or default judgment and order of reference. If you cannot come to an agreement at the mandatory settlement conference, the lender will most likely file a motion for summary judgment to try to win the case without a trial. If you did not file an answer to the complaint, the lender may make a motion for default judgment and an order of reference. If the Court grants either of these motions, then a Court-appointed attorney will calculate what you owe the lender and any other party who has appeared in the case and has a stake in the property and a report will be sent to the lender.
- Trial. If the lender does not bring a summary judgment motion or brings such a motion and does not win, the case may proceed to trial. Trial is extremely rare in foreclosure cases because the merits of the case can usually be determined on the papers filed directly with the Court.
- Motion for Final Judgment of Foreclosure and Sale. There are two judgments in a foreclosure action. The first is the judgment on the merits of the case (or on default). If you timely answered, this happens when the lender moves for summary judgment. If you did not timely answer, the lender moves for a default judgment. It is very rare for a foreclosure case to go to trial, but if it does, this judgment is entered after the trial. When this first judgment is entered, the court appoints a referee to compute the exact amount owed. The lender then has to make a second motion to confirm the referee’s report and enter a “judgment of foreclosure and sale” (JFS). This authorizes the referee to hold the auction. The JFS isn’t usually the end of the case. The referee holds the auction and reports back to the court. There may also be post-auction motion practice.
- Reinstatement. In New York, you can try to reinstate the loan at any time before the judgment of foreclosure and sale. To reinstate the loan, you must pay all the past-due amounts, plus any late fees and costs. It is more common for the Court to delay the process to give you one last opportunity to avoid the foreclosure but you should not rely on the Court’s discretion.
- Publication of sale. If you are unable to reinstate the loan, and judgment of foreclosure and sale is entered against you, a sale date for the property will be set. The notice must be published in a newspaper chosen by the Court at least 30 days before the sale.
- Foreclosure sale. If your home goes to foreclosure sale, it will be sold to the highest bidder, who may be the lender or a third party. The foreclosure sale takes place at a public auction, usually at a county courthouse. Once payment is made, the winning bidder takes ownership of the property.
- Deficiency judgment. If you are the borrower on the note, the lender may seek a deficiency judgment against you in the event your home sells for less than is determined by the order of reference. The deficiency is the difference between the amount you owe and the price at auction if purchased by a third party or fair market value if purchased by the lender. The lender only has 90 days after the foreclosure sale to seek the deficiency judgment.
- Eviction. If you do not voluntarily leave the house after the foreclosure sale, the new owner will need to commence a lawsuit to evict you if you do not leave willingly. Some will offer you cash in exchange for you giving up the keys and moving out. The new owner can either bring a summary eviction proceeding in Housing Court or ask the Supreme Court justice who presided over the foreclosure case to issue an order authorizing eviction.
Legal Editors: Thomas Tilona and K. Scott Kohanowski, City Bar Justice Center Foreclosure Prevention Project, December, 2017
Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.