Foreclosure Defenses: New York's Produce the Note Law
New York's new foreclosure law aims to make the process more fair for homeowners and to reduce the delay in processing foreclosures.
If you are facing foreclosure in New York, a new law helps ensure that the foreclosing party has the correct documents in place, and that the foreclosure doesn't remain in limbo for years. The new law requires that the foreclosing party “produce the note” to prove that it owns the loan at the beginning of the foreclosure. Additionally, the law takes steps to reduce the extremely long amount of time that it takes to foreclose in New York as well as the backlog of foreclosure cases in the courts.
Read on to learn more about the new law and how it could affect you if you are a New York homeowner facing foreclosure.
(For more articles on foreclosure in New York, including programs to help homeowners avoid foreclosure, visit our New York Foreclosure Law Center.)
New York Foreclosure Process
In New York, foreclosures are judicial, which means the lender (the plaintiff) must file a lawsuit in state court. The lender initiates the foreclosure by filing a complaint with the court. The complaint is served (given) to the borrower, along with a summons.
To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?
Learn more about New York Foreclosure Laws and Procedures.
New York Law: Banks Must Produce the Note
On July 31, 2013, New York’s governor Andrew M. Cuomo signed a new foreclosure bill into law that requires banks to produce the note at the beginning of the foreclosure.
Promissory Notes and Mortgages
When you took out your loan, you signed both a mortgage and a promissory note. The promissory note is what establishes your liability to pay your mortgage loan. The mortgage creates a lien on the property. The holder of the note is the only party that has the right to enforce the debt by foreclosing on the property. (Learn more about promissory notes.)
If the foreclosing party does not hold the note, it does not have standing to foreclose. (Learn more in our article Produce the Note Defense in Foreclosure.)
Why the New Law Was Needed
Following the 2008 financial collapse, law firms and loan servicers signed off on foreclosures without thoroughly reviewing the documentation. The new law is designed to reduce fraudulent filings and deter robosigning by requiring creditors to "produce the note" at the beginning of the action. This ensures that the lender has legal standing to file the foreclosure action.
(To learn more about robosigning, see Nolo's article False Affidavits in Foreclosures: What the Robo-Signing Mess Means for Homeowners.)
New Foreclosure Requirements
The new law (S.4530-A/A.5582-A) requires that at the start of every new foreclosure action on owner-occupied residential property, the foreclosure attorney must file copies of the following documents with the court:
- the note (or the attorney must file a lost note affidavit if the document has been lost or destroyed)
- the mortgage
- any modification agreements, and
- all assignments. (Learn more about assignments.)
New York Law: Reducing Foreclosure Timelines
New York has one of the longest foreclosure timelines in the country, with the average foreclosure taking around three years. One reason for this is that, in many cases, after filing the foreclosure action, the attorney held off on filing a mandatory affirmation (where the attorney certifies, among other things, that the plaintiff is the creditor entitled to enforce the rights under the loan documents), which prevented the case from moving forward.
Procedure Prior to August 30, 2013
Under the previous rules, the plaintiff's attorney was supposed to file a Request for Judicial Intervention (RJI) and an attorney affirmation along with the proof of service after the complaint was served to the homeowner. This step moved the case to a judge who would then schedule the mandatory settlement conference. (Learn more about New York Foreclosure Settlement Conferences.)
However, attorneys sometimes dragged their feet when it came to filing the RJI or attorney affirmation. As a result, thousands of cases stalled (in what is referred to as a “shadow docket”) and never got to the mandatory court-supervised mediation stage. These lengthy delays deprived homeowners of timely access to settlement conferences and made it much more difficult for homeowners to eventually obtain an affordable modification to avoid foreclosure because interest and fees continued to accrue while the case sat in limbo. (Learn about loan modifications and other options to avoid foreclosure in our Alternatives to Foreclosure area.)
Procedure On or After August 30, 2013
To remedy this problem, the new law requires that the foreclosure plaintiff's attorney file a "certificate of merit" immediately at the beginning of the foreclosure, rather than an affirmation later in the process. Since the certificate of merit must be filed along with the complaint, this enables cases to move on to the settlement conference process within 60 days of the filing of the affidavit of service (which now must be filed within 20 days of service under the new law).
The failure of plaintiffs’ attorneys to file the RJI and attorney affirmation was one of biggest causes for the large backlog of foreclosures in New York. This new law should speed up New York’s foreclosure timeline because the plaintiff’s attorney must complete the necessary due diligence prior to filing a foreclosure action rather than filing a complaint and then letting the case linger while completing the due diligence needed to file an affirmation.
Effective Date of the New Law
The law applies to foreclosure actions started on or after August 30, 2013.
For More Information
To learn more about S.4530-A/A.5582-A and read the text of the new law, go to http://assembly.state.ny.us and click on “Bill Search & Legislative Information” on the left-hand side of the page and enter “S.4530-A” or “A.5582-A” in the search box.
The law will be codified in a new Section 3012-b to the New York Civil Practice Law and Rules.
To learn more about foreclosure in general, ways to defend against foreclosure, and programs to help struggling homeowners avoid foreclosure, visit our Foreclosure Law Center.