Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in New York sign a promissory note and mortgage. These documents give homeowners contractual rights in addition to federal and state legal protections.
So, don't get caught off guard if you're about to go through a foreclosure. Learn about New York's foreclosure laws and the New York foreclosure process.
In a New York foreclosure, you'll most likely get the right to:
Once you understand the foreclosure process and your rights in New York, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in your mortgage payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.
During this time, the servicer can charge you various fees. Also, federal law says the servicer must usually let you know how to avoid foreclosure. And your mortgage contract might require the servicer to send you a breach letter.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments for your home in New York, the foreclosure will be judicial.
If the property is an owner-occupied, one-to-four-family dwelling, or a condominium unit, New York law requires the lender or servicer to send a notice to the borrower 90 days before starting the foreclosure that provides, among other things:
If the lender or servicer started the foreclosure but didn't send the 90-day notice when required by law or didn't strictly comply with notice requirements, you could have a powerful defense that might result in a dismissal of the foreclosure action.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender gives notice of the suit by serving you a summons, complaint, and information about the foreclosure process. (N.Y. Real Prop. Acts. Law § 1303, § 1320).
You generally get 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). If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, allowing it to hold a foreclosure sale.
But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. The lender might then ask the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the critical aspects of the case.
If the court grants summary judgment for the lender or you lose at trial, the judge will enter a judgment and order your home sold at auction.
For foreclosure actions involving borrower-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. The court will send a notice to the parties advising them of the time and place of the settlement conference and the documents they should bring to the meeting. (N.Y. Civil Practice Rule 3408).
Under state law, if the homeowner appears at the settlement hearing without a lawyer, the court should interpret it as a motion to proceed as "a poor person." Then, the presiding judge must determine whether the homeowner can continue through the foreclosure process unrepresented or if the court should appoint a lawyer (see Rule 3408 of the Civil Practice Law and Rules). But a proposed class action lawsuit filed on June 7, 2023, says that courts have failed to implement this rule.
A sale date is then set, published in a newspaper, and posted publicly in some cases. (N.Y. Real Prop. Acts. Law § 231).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.
In some states, including New York, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. The property becomes "Real Estate Owned" (REO) if the lender is the highest bidder.
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds (more than what's needed to pay off all liens), you're entitled to that surplus money.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.)
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.
New York law provides that the homeowner may reinstate the loan at any time before 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. (N.Y. Real Prop. Acts. Law § 1341).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you must pay the loan's full amount before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. New York law, however, doesn't provide a redemption period for foreclosed homeowners after the sale.
If you're facing a foreclosure, filing for bankruptcy might help. If a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out the options available, speak with a local bankruptcy attorney.
The borrower's total mortgage debt sometimes exceeds the foreclosure sale price in a foreclosure. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000.
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—in our example, $50,000—from the borrower.
New York generally allows deficiency 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:
To get the deficiency judgment, the lender must make a motion with the court within 90 days of the consummation of the sale. (The sale is consummated when the deed is delivered to the purchaser.) (N.Y. Real Prop. Acts. Law § 1371).
Under this law, a lender's voluntary discontinuance of an action to foreclose a mortgage doesn't stop the six-year statute of limitations period from running. So, in most cases, a lender is time-barred from foreclosing a mortgage after six years from the first date it accelerates the loan, even if the lender later dismisses the foreclosure lawsuit.
The law took effect on December 30, 2022, and applies retroactively to any pending foreclosure action filed before that date for which a final judgment and order of sale had not been enforced.
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
If you have questions about New York's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.