New rules for foreclosure litigation.
Strange judicial decisions have come down and played their part in slowing down the foreclosure process or simply eviscerating the foreclosure action.
Fortunately, our appellate courts have come to the rescue. As a general rule, the courts continue to show far greater restraint against enforcing lenders' claims, but our review has shown that when lender's counsel prepares the papers meticulously in accordance with the new laws, properties do go to judgment and sale.
The Second Judicial Department, which had over 70% of New York State's foreclosures, is leading the way in making foreclosure law.
No Sale Pending Modification
In Aames Funding Corp. v. Houston, the Second Department stayed a foreclosure sale pending a determination on his application for a residential mortgage modification pursuant to the federal Home Affordable Mortgage Program (HAMP).
The loan servicer had notified the homeowner that he might be eligible for a loan modification under HAMP, and the homeowner submitted an application to the loan servicer. While the homeowner's application was pending, the lender published a notice of foreclosure sale.
The court cited Version 2.0 of the "Making Home Affordable Program Handbook," which was in effect at the time the lower court denied the homeowner's motion to stay the foreclosure sale. The Handbook stated, in pertinent part, that "a servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and until ... the borrower is evaluated for HAMP and is determined to be ineligible for the program."
Since the loan servicer was a participant in the HAMP program, it was barred from scheduling a foreclosure sale during the HAMP process.
Single Lawsuit Rule
Under Hew York's equitable relief doctrine, when a borrower defaults on mortgage payments, a lender seeking repayment of a loan may proceed either at law to recover a judgment for the mortgage debt, or may bring an action in equity to foreclose the mortgage, but not pursue both remedies at the same time.
However, that does not deprive a foreclosure plaintiff of a money judgment. In the event the foreclosure sale is insufficient to satisfy the debt, attorney's fees, and court costs and expenses, the plaintiff may move for a judgment for those sums within the context of the foreclosure action.
The plaintiff must move for such judgment within 90 days after the date of the consummation of the sale by the delivery of the referee's deed to the purchaser at the foreclosure sale.
Generally, plaintiffs move for a deficiency judgment simultaneously with moving to confirm the sale, but the deficiency judgment motion does not enjoy the same flexibility as the confirmation motion. Courts strictly enforce this 90-day period and uniformly treat it as a statute of limitations, beginning on the date that a properly executed deed is delivered, not when it is recorded. Failure to serve the notice of motion within this period serves as a complete bar to the entry of a deficiency judgment.
In Aurora Loan Services, LLC v. Lopa, the Second Department held that the equitable relief doctrine does not prevent a plaintiff in a foreclosure complaint from also requesting a deficiency judgment.
In Aurora, a lender brought suit to foreclose on a mortgage. The lender prayed for deficiency judgment against the homeowner in the event that the amount realized by the sale was less than the amount of the mortgage debt.
The court reasoned that while a lender may not simultaneously pursue both a remedy at law and a remedy in equity, a prayer for deficiency judgment within the context of an actual mortgage foreclosure complaint does not constitute a separate action for money judgment.
Looking to RPAPL [section] 1371(2), permitting a plaintiff in a foreclosure action to "make a motion in the action for leave to enter a deficiency judgment," the court allowed the prayer for deficiency judgment in the foreclosure complaint as incidental to the principal relief demanded.
When it comes to foreclosure, the courts appear far more willing to give leeway to the government than to banks.
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|Title Annotation:||Insiders Outlook|
|Author:||Bailey, Adam Leitman; Treiman, Dov|
|Publication:||Real Estate Weekly|
|Date:||May 16, 2012|
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