New York currently has the longest foreclosure timeline in the country, averaging just less than three years. If you are a homeowner in New York facing the scary prospect of losing your home to foreclosure, read on to find out what to expect in a New York foreclosure (from missing your first payment all the way to eviction) and learn about your rights during the process.
(For more articles on foreclosure in New York, visit our New York Foreclosure Law Center.)
New York Mortgage Loans
When you take out a loan to purchase residential property in New York, you typically sign a promissory note and a mortgage. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The mortgage provides security for the loan that is evidenced by a promissory note.
Find out more in our article What’s the Difference Between a Mortgage and a Promissory Note?
To learn more about mortgage terminology, see our Glossary of Foreclosure Terms.
What Happens When You Miss a Payment
If you miss a payment, most loans include a grace period of fifteen days after which time the loan servicer will assess a late fee. (Loan servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
The late fee is generally 2% of the overdue payment of principal and interest based on the terms of the note. To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement.
Learn more about fees that the lender can charge if you’re late on mortgage payments.
What Happens When You Fall Behind in a Few Payments
If you miss a few mortgage payments, your mortgage servicer will probably send a letter or two reminding you to get caught up, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss loss mitigation options and attempt to work out an agreement (such as a loan modification, forbearance, or payment plan) so you can avoid foreclosure.
Learn the difference between a loan modification, forbearance agreement, and payment plan.
To get information about these and other options to avoid foreclosure, see our Alternatives to Foreclosure area.
Pre-Foreclosure Loss Mitigation Review Period
Under the federal Consumer Financial Protection Bureau servicing rules that went into effect January 10, 2014, the mortgage servicer must wait until you are 120 days delinquent on payments before filing the case in court to start the foreclosure. This is to give you sufficient time to explore loss mitigation opportunities. (The servicer can still send you notices informing you that you are late in payments and/or that explain what your loss mitigation options are within this pre-foreclosure period.)
Mortgage Contracts Often Require a Breach Letter
New York mortgages often contain a clause that requires the lender to send a notice, commonly called a breach letter or demand letter, informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure. (The acceleration clause in the mortgage permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults on the loan.)
The notice must specify:
- the default
- the action required to cure the default
- a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
- that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
If the property is owner-occupied, New York law requires that 90 days before starting the foreclosure the lender or servicer send a notice to the homeowner that provides, among other things:
- information about how to cure the default, and
- a list of government approved housing counseling agencies located near the homeowner.
If the matter is not resolved within 90 days from the date the notice was mailed, the lender will begin the foreclosure. (The foreclosure can start sooner if the homeowner stops living in the dwelling so that it is no longer his or her primary residence.)
This notice requirement is in effect until January 14, 2020.
New York Foreclosures
In New York, foreclosures are judicial, which means the lender (the plaintiff) must file a lawsuit in state court. (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?)
The lender initiates the foreclosure by filing a complaint with the court. The complaint is served (given) to the borrower, along with a summons that typically provides 20 days to file an answer (if the complaint and summons were served in person) or 30 days (if service was by mail or another way), as well as a "Help for Homeowners" notice advising the homeowner of his or her rights during the foreclosure process.
Work out a way to avoid foreclosure at a settlement conference. For all foreclosure actions involving owner-occupied properties, New York law requires the court to hold a mandatory settlement conference within 60 days of the filing of the proof of service with the court clerk. At the settlement conference, the lender and homeowner attempt to reach a mutually agreeable way to avoid foreclosure.
However, if you cannot come to an agreement at the settlement conference and if you do not respond to the court action within the specified amount of time, the lender can get a default judgment from the court. This means you automatically lose the case.
On the other hand, if you file an answer, the lender cannot obtain a default judgment. At this point, the lender will most likely file a motion for summary judgment. This type of motion requests that the court grant judgment in favor of the lender because there is no dispute as to the important facts of the case, the homeowner’s defense lacks merit, or does not prove wrongdoing. If summary judgment is denied, then a trial will occur.
If the lender is granted summary judgment (or you lose at trial), the court will enter a final judgment of foreclosure against you. A sale date is set and published in a newspaper once a week for four weeks (or twice a week for three weeks before the sale date).
Reinstatement Before Sale
Reinstatement is when the borrower pays the past-due amounts on the mortgage, plus all costs and fees, in order to bring a delinquent loan current.
New York law provides that the homeowner may reinstate the loan at any time prior to final judgment. The homeowner can also pay the arrearage after judgment, but before the sale, and the proceedings will be stayed (postponed). If the homeowner subsequently defaults, then the court can order enforcement of the judgment.
Learn more about reinstating a loan to avoid foreclosure.
The Foreclosure Sale
At the foreclosure sale, the property will be:
- sold to the highest third-party bidder, or
- revert to the foreclosing lender and become REO.
Most properties go to the foreclosing lender at the foreclosure sale.
Deficiency Judgments in New York
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.” In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower.
Learn about methods that creditors can use to collect judgments.
In New York, a deficiency judgment is allowed if a homeowner is personally served or appears in the lawsuit. The amount of the deficiency is the amount of the debt less the higher of:
- the fair market value, or
- the sales price.
Learn more about deficiency judgments in New York.
A redemption period is the legal right of any mortgage borrower in foreclosure to pay off the total debt, including the principal balance, plus certain additional costs and interest, in order to reclaim the property.
In New York, there is no redemption period after the sale.
Learn more about redemption periods.
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will likely:
- offer you a cash-for-keys deal (where the new owner offers you money in exchange for you agreeing to move out), or
- evict you. (The new owner must give former owner a ten-day notice to leave.)
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.