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Here is a short primer
on the steps in the foreclosure process in NewYork. Our state is a
judicial foreclosures state, meaning that the lender sues you in
court to foreclose. Usually, the suit is in the Supreme Court for the
County where the property is located, but it can sometimes be in
Federal Court too. The entire foreclosure process can typically take
6 to 12 months depending on how aggressive or lazy the lender’s
counsel is and how busy the court is.
The lender files a
summons and complaint and usually the lis pendens too. That is a
public notice in the County Clerk’s office that tells the world
that your property is tied up in litigation - any title search run by
a potential buyer will disclose the pending foreclosure which must be
cleared up before the owner can sell.
In the past, when we
have been lender’s counsel, we always filed the lis pendens with
the County Clerk at the same time that we started the suit, however,
it is possible to file it later in the action.
The homeowner/borrower
must then answer the complaint, usually in 20 days if the summons was
served personally. If no answer is served and filed on time, the
lender can file a motion for a default judgment. If there is a timely
answer, the lender will usually file a motion for summary judgment.
In most cases, the Court will consider the case summarily based on
the documents and affidavits, and without a trial, because usually
the issues involve legal questions and documentary proof. Only in the
rare case, where there are material questions of facts in dispute
will there be a trial in a foreclosure case.
Homeowners should
always answer the complaint. In some cases, they may have defenses
they are not even aware of. At the very least, even a simple answer
which just contains a general denial would ensure that the lender
can’t just slide through the case too quickly. As the plaintiff,
the lender has the burden of proof - there is no reason why the
homeowner should ever waive this by defaulting in the action. In
those cases, where we handle an answer for a client, it also ensures
that the client will know what is going on in the case because all
notices will be served on me as the defendant’s attorney of
record. Some clients who may not want to litigate, but who
still want us to monitor the case, find that a more affordable
solution is to have us file and serve a notice of appearance on
plaintiff's counsel which ensures that we will receive all subsequent
court notices, although the case will proceed uncontested. This
may make sense in situations where the client is looking to sell or
refinance the property.
If the lender is
granted a default or summary judgment, the Court will appoint a
referee to compute. It is his job to determine the amount owed and
recommend how the property should be sold, although in practice, my
experience has always been that the referee actually does nothing but
sign off on the papers prepared by lender’s counsel. Once the
referee has issued the report, the lender will file a motion to
confirm the report and for a final judgment directing the sale.
If the court issues
the judgment, it will fill in some blanks in the judgment, directing
the lender to advertise the sale (auction) in a particular county
newspaper for 4 weeks. Usually the court appoints the same referee to
conduct the sale. The sale is made by public auction to the highest
bidder. The lender has the option of bidding and can “credit
bid” by bidding up to the amount of the debt, without actually
coming out of pocket. Many lenders have REO (real estate owned)
departments just to deal with all of the real estate they own.
If a third party is
the high bidder, the property will be deeded over by the referee,
usually within 30 days. If the sale proceeds are insufficient to pay
off the loan, the lender may elect to pursue the homeowner for a
deficiency judgment.
We have seen some
foreclosures go on for years where they were contested and involved
more than the typical non-payment default (i.e., claims of fraud
against a lender may prolong an action). However, the routine case
lasts for about a year or less.
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