A foreclosure is when a mortgage lender takes possession of a borrower’s property when the borrower has defaulted on the loan. The lender can then sell off the property in order to recoup their loan’s remaining balance.
Foreclosure law is the set of legal regulations that a mortgage lender must adhere to during this process. It can vary from state to state. Read on to find out more about foreclosure law in New York. And, if you reside in one of these states, reach out to us for legal assistance – the experts at our law offices know foreclosure laws inside and out.
U.S. Foreclosure Procedures
While there are overarching federal foreclosure laws, in this guide we’ll be scrutinizing state laws – specifically, New York.
New York Foreclosure Law
Before we dive into the nitty-gritty of New York’s foreclosure laws, you should keep in mind that the state Governor, Andrew Cuomo has placed a moratorium on foreclosure and eviction laws for the duration of the pandemic. This was first put into place in March of 2020, and it was extended on August 20th and again on September 20th.
Now, what are foreclosures like in New York during non-pandemic times? Well, NY foreclosures are judicial, meaning that the proceedings take place in court. The lending bank must file a lawsuit against the borrower. Some key components of New York foreclosure law include:
- The lender must send out a 90-day notice to the defaulting borrower before beginning the foreclosure.
- Upon starting the process, the lending bank must file a complaint. The borrower gets a copy of it, as well as a court summons. They will have 20 – 30 days to respond to the complaint, depending on whether they received a copy in-person or via mail.
- The borrower and the bank have a mandatory settlement conference, in which they can come to an agreement about possible loan modifications or a repayment plan. If this is unsuccessful, the case will proceed to trial (if you answered the complaint) or to a default judgment (if you didn’t answer the complaint). In the default judgment, the judge will order the sale of your home. With a trial, you and the lender will present your case, and the judge will either dismiss the foreclosure or order the sale of your home.
That’s the general process – and now, let’s take a look at more specific foreclosure laws in New York.
Second mortgage foreclosure laws. A lender can sue a borrower for missed payments on a second mortgage, even if they are up to date on the first mortgage. The first mortgage lender will have the primary claim on the house. If the home is sold, the sale’s proceeds will first go to the primary mortgage holder – and anything that’s leftover will go to the secondary mortgage holder.
Disability and foreclosure laws. In New York, homeowners who have disabilities can qualify for loan modification assistance. If your income is temporarily reduced due to short-term physical disability, forbearance might be an option. Furthermore, having a mental disability at the time of signing a mortgage loan is a commonly used foreclosure defense.
Timeshare foreclosure laws. If a business transaction occurs in New York, it has to be registered in the state – this applies even if the timeshare is located in a different state. Be sure to remain aware of timeshare rescue scams. There are some companies that claim to help delinquent borrowers unload themselves of their timeshares – but before availing of one’s services, be sure to check the Better Business Bureau for any complaints.
Stopping Foreclosure and Keeping Your Home
Even though each state handles the foreclosure process differently, the final result remains the same – you, as the borrower, will lose your rights to your home. However, all hope is not lost! You will have opportunities along the way to retain your rights.
For instance, if you have the means to do so, you can pay the full loan balance to regain your home before the foreclosure sale. Some states allow you to do so the day before the sale, while others require you to do it at least five days in advance. Other states offer a redemption period, in which you can pay off the loan during a given period after the foreclosure sale. Here are a few examples:
- Alabama: A redemption period is allowed after the sale
- California: Reinstatement is allowed if the overdue amount is paid five business days before the foreclosure sale.
- Mississippi: Reinstatement is allowed at any time before the foreclosure sale.
- New Jersey: A redemption period is allowed until the court confirms the sale. The lender may also get a deficiency judgment to end the redemption period. Reinstatement is allowed up until the date of the final foreclosure judgment.
- New York: Reinstatement is allowed any time before the final judgment (in which case, the foreclosure shall be dismissed), or any time after the judgment and before the sale (in which case, the foreclosure shall stay).
If you don’t have the means to reinstate the loan or take advantage of the redemption period, there are other ways you can keep your house. Some paths to pursue include loan modifications, forbearance, and Chapter 13 bankruptcy.
The Importance of Avoiding Default Judgment
If you don’t respond to your court summons before the deadline, a default judgment will be filed against you – with this, the judge will automatically rule a foreclosure judgment and your house will go up for sale. If you want to increase your chances of keeping your home and working out a deal with the lender, it is imperative that you stick to deadlines and answer the Complaint and Summons.
Types of Foreclosure
The two main types of foreclosure are nonjudicial and judicial. Your state’s government determines which foreclosure proceeding is used in that state. With a judicial foreclosure, the foreclosure proceedings go through a court trial. This is not required for nonjudicial foreclosures and, thus, the proceedings are much quicker.
Rights of Tenants During a Foreclosure
If you are a tenant and your landlord is facing foreclosure, the landlord must notify you within 10 days of the plaintiff’s beginning the foreclosure case. You may either learn about this by seeing a notice on your door or by receiving a copy of the complaint.
You do not necessarily have to move out. The owner will still collect rent, but you may not be evicted without receiving a court order. After a foreclosure sale, the new owner will need to provide you with 90 days’ notice before beginning a court case to evict you. If you are evicted due to a foreclosure case, it will not be public record.
Regardless of whether you are an owner or a tenant: if you are facing a foreclosure and want to know more about your rights, fill out our contact form, and receive a free consultation.