2016 Foreclosure Law Amendments and Vacant and Abandoned Property Legislation. Two Major Prongs to Legislation

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1 2016 Foreclosure Law Amendments and Vacant and Abandoned Property Legislation November 2016 Jacob Inwald Legal Services NYC Two Major Prongs to Legislation Addressing Zombie Properties: Vacant and Abandoned Properties Substantial Amendments to NY Foreclosure Law Consumer Protections: Predicate Notices and Foreclosure Settlement Conferences 2 1

2 Settlement Conference Law Amendments: Scope CPLR 3408 (a): Not just loan modifications as subjects of settlement conferences: courts can no longer take it upon themselves to screen for loan modification eligibility and deprive homeowners of conference: other loss mitigation options, such as short sales and deeds in lieu are proper subjects of settlement conferences. 3 Settlement Conference Law Amendments: Authority CPLR 3408 (c): Stronger language mandating appearance at conferences with authority to settle: whether attorney or representative, must be fully authorized to resolve the case. Authorizes court to permit both defendant or plaintiff to appear by telephone or video (formerly this was specified as possibility only for plaintiff 4 2

3 Settlement Conference Law Amendments: Information CPLR 3408 (e): Language is now mandatory ( shall replaces should ). More detailed specification of documents plaintiff must bring, including loss mitigation options; summary of status of any pending applications and specific list of outstanding items; expected date of completion of evaluation; and, if application has been denied, a denial letter or any other document explaining denial and data input fields and values used in net present value evaluation; if denied based on investor restriction, documentation of such restriction, such as pooling and servicing agreement. Defendants required to bring, if applicable, information on current income tax returns, expenses, property taxes and previously-submitted applications, proof of rental income. 5 Settlement Conference Law Amendments: Good Faith CPLR 3408(f): Good faith negotiation standard is measured by totality of circumstances, with multiple factors specified as possible indicia of failure to negotiate in good faith: Compliance with court rules and directives Compliance with mortgage servicing laws, rules, regulations, investor directives and loss mitigation standards Conduct consistent with efforts to reach a mutually agreeable resolution, avoiding unreasonable delay, appearing with authority to settle, avoiding dual tracking and providing accurate information to the court But, failure to make or accept a particular offer is not, in and of itself, sufficient to establish absence of good faith. 6 3

4 Settlement Conference Law Amendments: Good Faith (cont.) CPLR 3408 (i): Procedures for Determining Good Faith: Court may determine good faith negotiation and order remedies either on motion or sua sponte, on notice. Court of Office of Court Administration may establish procedures. Referee, judicial hearing officer or other court staff designated to oversee settlement conference process may hear and report findings of fact and conclusions of law, and may make reports and recommendations for relief to the court concerning failure to negotiate in good faith. Note: evidentiary hearing (trial) is not mandated: hear and report means referee can hear oral argument, especially if conferences have been held before that referee. 7 Settlement Conference Law Amendments: Good Faith (cont.) CPLR 3408(J): Remedies upon finding of failure to negotiate in good faith: If plaintiff: at a minimum, tolling of interest, fees, costs during any period of undue delay plus, where appropriate: compelling production of documents; civil penalty up to $25,000 to deter similar conduct; and any other relief court deems just and proper. If defendant, removal from settlement conference calendar, but in making such determination, court shall consider equitable factors, including whether defendant was represented by counsel: important recognition of disparities in resources and bargaining power. 8 4

5 Settlement Conference Law Amendments: Late Answers CPLR 3408 (l) First Settlement Conference: If D has not already answered or filed pre-answer motion to dismiss, court is required to: Explain requirement to answer complaint Explain what is required to answer complaint Advise that if answer not filed, ability to contest/assert defenses can be lost Provide information about available resources for help CPLR 3408 (m): Defendant who appears at settlement conference but who failed to answer complaint, pursuant to CPLR 320, shall be presumed to have a reasonable excuse for default and shall be permitted to serve and file an answer, without any substantive defenses deemed to have been waived within thirty days of initial appearance at the settlement conference. The default shall be deemed vacated upon service and filing of an answer. CPLR 3408 (m). Much of case law from Second Department on late answers in foreclosure cases effectively overruled. 9 Settlement Conference Law Amendments: Consumer Bill of Rights CPLR 3408(l): Consumer Bill of Rights (required by RPAPL a): to be provided to defendant at first settlement conference RPAPL a: NYS Department of Financial Services charged with publishing a Consumer Bill of Rights, in consultation with all stakeholders, which shall detail the rights and responsibilities of the plaintiff and defendant in a foreclosure proceeding. To be updated on an annual basis as appropriate 10 5

6 Settlement Conference Law Amendments: Motions Held in Abeyance CPLR 3408 (n): Motions shall be held in abeyance while the settlement conference process is ongoing, except for motions concerning compliance with this rule and its implementing rules. Codifies existing practice under Uniform Rule a. Good faith motions, accordingly, are contemplated while cases remain in settlement conference part. 11 Settlement Conference Law Amendments: Notices of Discontinuance CPLR 3408(g): Plaintiff must file notice of discontinuance and vacatur of lis pendens within 90 days after any settlement agreement of loan modification is executed. Formerly 150 days. CPLR 3408 (h): Remains unlawful to charge for any costs or attorneys fees for appearance at or participation in settlement conference. 12 6

7 Predicate Notice Amendments 90 Day Notices Pre-foreclosure Notices: CPLR 1304 Help for Homeowners in Foreclosure Notices: CPLR 1303 Both notices are conditions precedent which, if not strictly complied with, mandate dismissal: See Aurora Loan Servs., LLC v. Weisblum, 85 A.D. 3d 95 (2d Dep t 2011); First Nat l Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep t 2010) Day Notices Amendments RPAPL 1304: Updates to language of notice to better provide borrowers with notice of the amount required to bring loan current and to be consistent with CFPB mortgage servicing rules barring dual tracking. Clarifies that requirement applied to borrower or borrowers, whether at the property address or any other address of record. Language of notice updated to better communicate the amount required to bring loan current. Language also revised to reflect prohibitions on dual tracking: now reads if you have not taken any actions to resolve this matter within 90 days, we may commence legal action. Previously stated that if the matter is not resolved within 90 days. This is because CFPB mortgage servicing rules would prohibit moving towards foreclosure if, in response to 90 Day Notice, borrower applied for loss mitigation. 14 7

8 90-Day Notices Amendments (cont.) New notice language explaining right to remain in home, addressing vacant and abandoned issues resulting from homeowner confusion about nature of notice: Explains continued right to remain in home until receipt of court order Explains continued right to remain in home even if foreclosure action commenced Explains that homeowner legally remains owner of home and remains homeowner s responsibility until sale of property by owner or by court. Explains that the 90-Day Notice is not an eviction notice and that foreclosure case has not yet been commenced Day Notices Amendments (cont.) Amended notice language updates information about housing counseling resources to reflect current information (RPAPL 1304(1) and requires provision of a current list of at least 5 housing counseling agencies serving the county where the property is located from a listing maintained by the Department of Financial Services (and requires DFS to maintain a list, by county, of housing counseling agencies. Purpose is to provide homeowners with basic information about consequences of possible foreclosure and to connect homeowners with foreclosure prevention services and encourage foreclosure-avoiding loss mitigation efforts. 16 8

9 90-Day Notices Amendments (cont.) Clarifications about applicability of 90-Day Notice requirement: 90 day waiting period before filing foreclosure does not apply, or ceases to apply, if the borrower has filed for bankruptcy protection under federal law or if borrower no longer occupies residcence as principal dwelling (previous reference was to application for adjustment of debts or an order for relief from the payments of debts ). New amended language clarifies that this exception applies only to the 90 day waiting period, not to the obligation to serve notice: Nothing herein shall relieve the lender of the obligation to send such notice, which notice shall be a condition precedent to commencing a foreclosure proceeding. RPAPL 1304(3) Day Notices Amendments (cont.) Clarifications on when a new 90-Day Notice is required. Notice and 90-Day period need only be provided once in a 12-month period to the same borrower in connection with the same loan and same delinquency. Should a borrower cure a delinquency but re-default in the same twelve month period, the lender shall provide a new notice pursuant to this section. 18 9

10 90-Day Notices Amendments (cont.) New Language Access Requirements for 90-Day Notices RPAPL 1304(5): For any borrower known to have limited English proficiency, notice shall be in borrower s native language or a language in which borrower is proficient, so long as it is one of the 6- most common non-english languages in NY based on U.S. census data. DFS shall post the notice on its website in the 6-most common non-english languages. 19 Help for Homeowners in Foreclosure Notice Amendments RPAPL 1303 Notice Accompanying Residential Foreclosure Complaints: Amended language clarifying homeowner s rights and obligations similar to added language in RPAPL 1304 Notice, making clear to homeowners that they are not required to vacate by virtue of commencement of foreclosure action, that they have right to remain in the home until the property is sold at auction after judgment of foreclosure and sale, and cautioning that borrowers in foreclosure remain responsible for maintenance of the property and payment of property taxes whether or not they vacate the home after commencement of foreclosure action

11 Expedited Deadlines for Completion of Foreclosure Sales After Judgment RPAPL 1351, governing judgments, requires that sale take place within 90 days of judgment. RPAPL 1353, governing purchases from foreclosure sale, now specifies that if the plaintiff or affiliate is the purchaser, it must place the property back on the market for sale or other occupancy (a) within 180 days of execution of deed of sale; or (b) within 180 days of completion of construction, renovation or rehabilitation of the property, provided that such work proceeded diligently to completion, whichever comes first (but court can grant extension for good cause). 21 Vacant and Abandoned Provisions: Generally New RPAPL Provisions: Duty to Inspect, Maintain and Secure Vacant & Abandoned (V & A) properties : RPAPL 1308 Creates a registry and hotline for V & A properties: RPAPL 1310 Creates expedited foreclosure process for lenders for V & A properties: RPAPL

12 Lenders Must Track and Maintain V & A Properties: RPAPL Maintenance of V & A Property: RPAPL 1308 Which lenders must adhere to the maintenance requirement? All 1 st lien mortgage holders for 1-4 family homes Exception for small lenders (lender originates, owns, services AND maintains a portion of their mortgages and Lender has less than 3/10 th of 1% of the total loans in the state as of December 31 st,

13 Maintenance of V & A Property Servicer s Obligation to Inspect and Secure Property Within 90 days of a borrower becoming delinquent, the lender must inspect exterior of property Every days, at different times of the day after the first inspection lender must conduct additional inspections Within 7 days of determining the house is V & A, lender must post a notice with the lender s contact information on the property After 7 days from when notice is posted and evidence continues that home is V & A, lender must secure the property 25 Maintenance of V & A Property: RPAPL 1308 When a Lender Shall Determine a House is V & A: Lender has conducted 3 inspections days apart AND at different times of the day AND found evidence that home is V & A OR A court or government entity has formally determined, with notice to the borrower, that the property is V & A OR Each borrower has separately provided a sworn statement stating their intent to vacate and abandon the property When a Lender Shall Secure a V & A Property: After the notice is posted on the property for 7 days and no borrower or occupant contacts the servicer about the property and the property continues to show evidence of vacancy OR Immediately if there is emergency condition that could likely damage the property 26 13

14 Maintenance of V & A Property: RPAPL 1308 Day 1 Borrower misses payment Day 30 Borrower is delinquent Day Servicer inspects property 1st time Day Servicer inspects property 2nd time Day Servicer inspects property 3rd time Day Servicer posts notice on property Day Servicer secures property TIMELINE FOR SERVICER TO SECURE PROPERTY IF IT IS VACANT SHORTLY AFTER DELINQUENCY 27 Maintenance of V & A Property: RPAPL 1308 Indicia That Property is V & A Overgrown or dead vegetation Accumulation of newspapers and mail Past due utility notices, disconnected utilities, or utilities not in use Accumulation of trash Absence of window coverings Boarded or broken windows Property is not locked up Property has a building on it that is structurally unsafe or presents some other potential danger to people 28 14

15 Maintenance of V & A Property: RPAPL 1308 How a Servicer Must Secure a V & A Property 1. Replace only 1 door lock if there are at least 2 doors 2. Secure, replace or board up broken doors and windows 3. Secure any part of the property considered an attractive nuisance 4. Limit the discharge of harmful gases, vapors, odors, etc. to neighboring properties 5. Winterize the plumbing and heating systems 6. Provide basic utilities as appropriate to maintain condition of the home or neighboring properties 7. Remove and fix any significant safety and health concerns including code violations 8. Prevent the growth of mold, through reasonable efforts 9. Respond to government inquiries regarding the property 10. Keep the notice on the property in a location that is easily visible 29 Maintenance of V & A Property: RPAPL 1308 Servicer Must Maintain the Security of V & A Property Until One of the Following Occurs An occupant asserts their right to occupy Servicer or their agent receives threats of violence Borrower files bankruptcy A court orders the servicer to stop Servicer is prevented from gaining access by a homeowner s association or cooperative Property is sold or transferred to a new owner Servicer or investor releases the lien Mortgage note is assigned, transferred, or sold 30 15

16 Maintenance of V & A Property: RPAPL 1308 Enforcement NY DFS Superintendent can sue the servicer in court after giving 7 days of notice to the servicer of the violations Local municipalities can sue the servicer after giving the servicer 7 days of notice AND giving NY DFS 10 days of notice Penalties Up to $500 for each day and each property that a violation persists Servicer is immune from liability if they peacefully enter a property and is making reasonable efforts to comply with the statute 31 Maintenance of V & A Property: RPAPL 1308 Conflicting Local Ordinances and Laws Local municipalities cannot impose a requirement to maintain properties that is inconsistent with the state law on lenders that the state law applies 32 16

17 New Statewide Registry and Hotline for V & A Properties: RPAPL Statewide Registry: RPAPL 1310 Who Must Submit to the Vacancy Registry? Any servicer who services a loan in NY which is secured by a residential property Includes owner-occupied and investorowned residential properties 34 17

18 Statewide Registry: RPAPL 1310 NY Department of Financial Services will maintain an electronic database Lenders must submit information within 21 days of learning the house is V & A If information changes, lenders must update DFS no later than 30 days after the change Public officials may request information in the database related to their locality 35 Statewide Registry: RPAPL 1310 Lenders must give at least the following information to DFS about the V & A Property 1. Name, address and contact information for the lender or the party responsible for maintaining the property, AND 2. Date when foreclosure was filed on property (if applicable), AND 3. Last known address and contact information of the mortgagor (the borrower) 36 18

19 Statewide Registry: RPAPL 1310 Conflicting Local Ordinances and Laws Local municipalities cannot require lenders who must submit to the statewide registry to also submit to a local registry that is inconsistent with the state law Local municipalities cannot impose penalties or fees related to a local registry 37 Statewide Registry: RPAPL 1310 DFS will create a toll-free hotline for neighbors and community residents to report a V & A property or any concerns about a V & A property

20 Expedited Foreclosure Process for V & A Properties: RPAPL Expedited: Foreclosure Process: RPAPL 1309 Lender has the right to apply for an expedited foreclosure process if they can prove to the court the home is V & A Must wait to submit the application until after the borrower s time to file an answer has expired Must give notice to the borrower of the application Must make an application to the court by motion or order to show cause 40 20

21 Expedited Foreclosure Process: RPAPL 1309 Lender can make an application when - A settlement conference is NOT scheduled the right to answer expires days after service of foreclosure A settlement conference is scheduled the right to answer expires after the first settlement conference is held assuming no homeowner appears 41 Expedited Foreclosure Process: RPAPL 1309 Notices to be Given to Borrowers Lenders must serve a copy of application to borrower even if the borrower has not answered the complaint or appeared in the case The Lender s application must state: The lender is applying for expedited foreclosure process because the lender found the home V & A; The borrower has a right to respond to the application to avoid the expedited process by submitting something in writing or appearing in court on the dates provided; AND The borrower has the right to stay in their home until eviction by the court Court must send a notice to borrower informing them that the lender is applying for a V&A expedited foreclosure 42 21

22 Expedited Foreclosure Process: RPAPL 1309 Must make an application to the court by motion or order to show cause Application must include the following: The last known address of the homeowner; The notice for the homeowner; An affidavit from lender supporting the claim the house is V & A; Proof supporting the claim the house is V & A; The amount owed on the note and mortgage with documents supporting the amount claimed; AND A request that the court confirm the amount owed on the mortgage and note without a referee. 43 Expedited Foreclosure Process: RPAPL 1309 After the court sends a notice to homeowner about the application, the court may decide a home is V & A and eligible for the faster process IF The lender proves it to the court, A government entity has decided the home is V & A, OR All borrowers and owners have provided sworn statements that the house is V & A If the court decides the home is V & A The court will provide a written decision as soon as practicable including the evidence relied upon to determine the house is V & A 44 22

23 Faster Foreclosure Process: RPAPL 1309 Protection for Borrowers Lenders are prohibited from trying to intimidate, coerce, or try to convince a person lawfully living in the property to leave the property Protections for Lenders Lenders are immune from liability if they make a mistake when deciding a property is V & A if they make reasonable efforts to comply with the law 45 23