SPECIAL RULES FOR FORECLOSURES ON HOMES by Joseph M. Licare, Esq. Bryan Cave LLP New York, New York 81
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Special Rules For Foreclosures On Homes A. 90-day Pre-Foreclosure Notice and Related Requirements 1. RPAPL 1304: 90-day notice a. Pre-foreclosure notice i. informs the borrower that: 1. he/she is at risk of losing his/her home 2. attached is a list of government approved housing counseling agencies in your area 3. loss mitigation programs may be available, including loan modification options ii. at least 90 days before a lender, an assignee, or a mortgage loan servicer commences legal action against the borrower, including mortgage foreclosure, such lender, assignee, or mortgage loan servicer shall give notice to the borrower 1. Additional notice requirements: this notice must be in at least 14- point type which shall include: YOU COULD LOSE YOUR HOME. PLEASE READ THE FOLLOWING NOTICE CAREFULLY. iii. states an amount that can be paid in order to cure the default iv. 12 months b. Additional Requirements i. Must be sent by registered or certified mail and also by first class mail to the last known address of the borrower 1. If the last known address of the borrower is not the property in foreclosure, then the notice must also be sent to the property subject of the mortgage ii. Must include a list of at least 5 local housing counseling agencies ( that serve in the region where the borrower resides ) 1. *There is currently no definition to the term region iii. iv. Must be mailed in a separate envelope from any other mailing or notice Must be a home loan 1. Definition of home loan a. (1) borrower is a natural person b. (2) debt incurred primarily for personal, family, or household purposes c. (3) loan secured by a mortgage on real estate of one to four family dwelling used or intended to be used as the borrower s primary dwelling d. (4) property located in New York c. Failure to send this notice requires dismissal of the action. Aurora Loan Servs. v. Weisblum, 85 A.D.3d 95, 106 923 N.Y.S.2d 609, 616 (2d Dep t 2011); see also Deutsche Bank Nat l Trust Co. v. Spanos, 102 A.D.3d 909, 910, 961 N.Y.S.2d 200, 202 (2d Dep t 2013); Meyerson Capital X LLC v. Kats, 33 Misc.3d 1017, 1020-21, 935 N.Y.S.2d 257, 259 (Sup. Ct. Kings Co. 2011). i. There are very few cases that address the circumstances in which a 90-day notice is excused for non-residency 83 1
1. NOT an excuse service elsewhere, even out of state. IndyMac Federal Bank, FSB v. Black, No. 2268/06, 2009 WL 211787 (Sup. Ct. Rensselaer Co. Jan. 23, 2009). 2. NOT enough proof that the mortgaged premises was not borrower s primary residence bank affidavit and affirmation of counsel in support of its position when the mortgage loan documents and loan application evidenced borrower s intention to occupy the premises as her primary residence. Credit Based Asset Servicing and Securitizations LLC v. Stokes, No. 4703/09, 2012 WL 4373411 (N.Y. City Crim. Ct. Sept. 24, 2012). ii. Accredited Home Lenders, Inc. v. Hughes, 22 Misc.3d 323, 326-27, 866 N.Y.S.2d 860, 863 (Sup. Ct. Essex Co. 2008) concluded that residency is determined from the time the loan was entered into and noted that the goal of RPAPL 1304 regarding occupancy is to remove owners of investment properties or second homes from the ambit of the statute 1. Therefore, when evaluating residency, important documents that may support an argument for excusing the 90-day notice include: a. Original loan application b. Tax returns, W-2s, Bank Statements, Earnings Statements (compelling proof of borrower s alternative residence). Butler Capital Corp. v. Canasta, 26 Misc.3d 598, 604-05, 891 N.Y.S.2d 238, 243 (Sup. Ct. Suffolk Co. 2009) i. See also HSBC Bank USA, Nat l Ass n v. McKenna, 37 Misc.3d 885, 889-900, 952 N.Y.S.2d 746, 757-58 (Sup. Ct. Kings Co. 2012) court still found the mortgaged property to be the borrower s residence, and thus, a 90-notice was necessary 2. RPAPL 1306: filing 90-day notice with Department of Financial Services a. A lender, assignee, or mortgage loan servicer must file the 90-day notice, and other certain information, with the Superintendent of the Department of Financial Services within 3 business days after (i) the mailing of the 90-day pre-foreclosure notice [or] (ii) the notice required by Section 9-611(f) of the New York Uniform Commercial Code (non-judicial foreclosure of a co-op share). b. Purpose: i. (1) monitor the extent of foreclosure filings ii. (2) monitor loan types that are the subject of pre-foreclosure notices iii. (3) provide available public and private foreclosure prevention and counseling services to borrowers at risk of foreclosure 3. Notice of Intent to Accelerate a. AKA: 30-day notice b. Notice informs the borrower(s) that: i. the Loan is in serious default because the required payments have not been made ii. the borrowers have a right to cure the default iii. if the default is not cured by a certain date, the Loan will be accelerated 84 2
4. National Mortgage Servicer Settlement May 2012 a. Product of extensive negotiations between federal and state regulators and the major banks b. Terms do NOT extend to mortgages serviced by FNMA and FHLMC c. In place for 3.5 years d. Banks involved: (1) Bank of America (2) Chase (3) Citibank (4) Wells Fargo (5) Ally Financial e. 14-day pre-foreclosure notice i. IN ALL STATES Servicer shall send borrowers a statement setting forth facts supporting Servicer s or holder s right to foreclose and containing the information in: 1. I.B.6 items available upon borrower request 2. I.B.10 account statement 3. I.C.2 and I.C.3 ownership statement 4. IV.B.13 loss mitigation statement f. Dual Tracking Prohibitions i. Similar rules from the CFPB ii. MEANS: moving forward with foreclosure while a loss mitigation request is pending iii. RULE: a borrower who completes an application by day 120 of delinquency, or within 30 days after a referral to foreclosure letter, is protected from any foreclosure referral or action until the application is decided iv. CAVEAT: the application MUST be complete B. Required Allegations In Foreclosure Complaint 1. Allegations / Notices with the Foreclosure Complaint a. RPAPL 1320: Special Summons Requirement in Private Residence Cases i. In an action to foreclose a mortgage on a residential property, the summons shall contain a notice in boldface in the following form: NOTICE YOU ARE IN DANGER OF LOSING YOUR HOME ii. Additional required language is specifically stated within RPAPL 1320 b. RPAPL 1302: Foreclosure of High-Cost Home Loans and Sub-prime Home Loans i. Any complaint served in a proceeding initiated pursuant to this article relating to a high-cost home loan or a subprime home loan, as such terms are defined in Sections 6-l & 6-m of the NYS Banking Law ii. Additional required language is specifically stated within RPAPL 1302 85 3
c. RPAPL 1303: Help for Homeowners in Foreclosure Notice i. Notice shall provide notice to the mortgagor with regard to information and assistance about the foreclosure process ii. Required language is specifically stated within RPAPL 1303 iii. Additional Requirements: this notice shall be: 1. delivered with the summons and complaint to commence the foreclosure action 2. in bold, 14-point type 3. printed on colored paper that is other than the color of the summons and complaint 4. title of notice shall be in bold, 20-point type 5. printed on its own page d. RPAPL 1306: A lender, assignee, or mortgage loan servicer must file the 90- day notice, and other certain information, with the Superintendent of the Department of Financial Services within 3 business days after the mailing of the 90-day pre-foreclosure notice C. Post-Complaint Filing Requirements 1. Request for Judicial Intervention (RJI), 22 N.Y.C.R.R. 202.12-a a. Applicable to residential mortgage foreclosure actions, involving a home loan secured by a mortgage on a one to four-family dwelling or condo in which the defendant is a resident of the property subject to foreclosure b. Must be filed at the time of proof of service of the summons and complaint is filed c. Shall contain the name, address, telephone number and e-mail address, if available, of the defendant in the action d. Shall request that a settlement conference be scheduled (3408 conference) e. The RJI is usually filed by the Plaintiff, but it can be filed by Plaintiff or Defendant 2. CPLR 3012-b: Certificate of Merit a. Replaced the Lippman Affirmation (OCA Rule AO/431/11) because the Lippman Affirmation only required the foreclosing plaintiff to state that the plaintiff had standing to foreclose b. Began August 30, 2013 the documents required to commence a foreclosure action now include a certificate of merit in addition to the summons and complaint c. Required in all foreclosure actions, affecting owner-occupied residential property d. Designed: to address the problem of the concerning shadow docket e. Goal: ensure that borrowers are able to reach the settlement conference quickly, thereby allowing them to meet with the lender and the court to explore options to avoid foreclosure, such as a loan modification f. Requirements: i. (1) Identify the representatives of the plaintiff with whom the attorney has consulted regarding the mortgage under foreclosure ii. (2) state that there is a reasonable basis for the commencement of the action and that the plaintiff is entitled to enforce the mortgage, security agreement and note 86 4
iii. (3) provide copies of the mortgage, security agreement and note, assignment(s) of mortgage, modification agreements, consolidation agreements, or other instruments of indebtedness g. IMPORTANT CAVEAT: failure to comply with this provision may be cause for dismissal of the complaint without prejudice 3. RPAPL 1307: Duty to Maintain Foreclosed Property a. Plaintiff maintenance obligation i. Until: 1. Ownership has been transferred, and 2. Deed is recorded b. Applies to residential real property where a plaintiff who obtains a judgment of foreclosure and sale, that is: i. (1) vacant, or ii. (2) becomes vacant after a judgment of foreclosure and sale, or iii. (3) abandoned by the mortgagor but still occupied by a tenant c. Intent: to help municipalities where foreclosures are high and blight is rampant, and to protect tenants who have been left high and dry by their landlords D. Notices to Tenants 1. RPAPL 1303: a. Requires: Plaintiff in an action to foreclose a mortgage on a one to four-family dwelling to serve the statutory Home for Homeowners in Foreclosure notice on tenants b. Requirements: i. Shall be delivered within 10 days of service of the summons and complaint ii. Shall be in bold, 14-point type iii. Shall be printed on colored paper that is other than the color of the summons and complaint iv. The title of the notice shall be in bold, 20-point type v. Shall be on its own page vi. Buildings with fewer than 5 dwelling units, the Notice: 1. (1) shall be delivered to the tenant, by certified mail, return receipt requested AND 2. (2) by first-class mail to the tenant s address at the property if the identity of the tenant is known to the plaintiff AND 3. (3) by first-class mail to occupant if the identity of the tenant is not known to the plaintiff vii. Buildings with 5 or more dwelling units, a legible copy of the Notice shall be posted on the outside of each entrance and exit of the building 2. RPAPL 1305: Rights of Tenants to Remain in Foreclosed Property a. Applies: a successor-in-interest: who acquires title to residential real estate as a result of a judgment of foreclosure and sale, or other disposition during a 87 5
foreclosure proceeding must send written notice to all tenants informing them of their rights, as well as the name and address of the new owner b. ONLY protects tenants who are still paying their rent (eviction can occur at any time if the tenant does not pay rent pursuant to the lease) c. Designed: i. gives tenants who reside in a foreclosed property the right to remain in occupancy on the same terms and conditions that were in effect at the time of entry of the judgment of foreclosure and sale for 90 days from the date they receive the 1305 notice from a successor-in-interest in the property [OR] until the end of the lease (whichever is greater) d. Exception for Single Unit: an exception exists that limits a tenant s right to occupancy to 90 days if the successor-in-interest who acquires title intends to occupy a single unit as his or her primary residence AND if the unit is not subject to a federal or state statutory system of subsidy or other federal or state statutory scheme e. Definition of tenant: anyone who pays market rent; the former homeowner is not a tenant f. Written or oral lease agreements g. This section does not supersede any other rights tenants have 4. RPAPL 1307: Duty to Maintain Foreclosed Property a. Plaintiff maintenance obligation i. Until: 1. Ownership has been transferred, and 2. Deed is recorded b. Applies to residential real property where a plaintiff who obtains a judgment of foreclosure and sale, that is: i. (1) vacant, or ii. (2) becomes vacant after a judgment of foreclosure and sale, or iii. (3) abandoned by the mortgagor but still occupied by a tenant c. Intent: to help municipalities where foreclosures are high and blight is rampant, and to protect tenants who have been left high and dry by their landlords E. Mandatory Settlement Conference for Foreclosure on Homes 1. CPLR 3408: Mandatory Settlement Conferences In Residential Foreclosure Action a. In any residential action involving a home loan as defined in RPAPL 1304, in which defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference within 60 days after the date when proof of service upon such defendant is filed with the county clerk b. Designed: mandatory conferences are held for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to, determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution (loan modification if possible) 88 6
c. Both plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible d. Exhibits: i. Court Worksheet ii. General Loan Modification Checklist iii. Court Foreclosure Conference Notice iv. Request for Judicial Intervention v. Court Orders 1. Dismissal Orders (CPLR 3215 & 3216) 2. Notice To Resume Prosecution of Action Mortgage Loan Workouts/Modifications of Homeowner Loans A. Overview Of Major Modification Programs i. Home Affordable Modification Program (HAMP) 1. Goal: to reach a monthly payment of principal, interest, taxes and insurance (PITI) that is 31% of the borrower s monthly gross income 2. Follows a waterfall analysis to get to the 31% target payment a. Reduce interest rate to as low as 2% b. Extend term of years to 40 years c. Forbear principal (to non-interest bearing balloon payment at maturity) 3. Modification is not required dependent on positive NPV test, meaning that a modification is more profitable to the mortgagee than continued foreclosure ii. HAMP Tier 2 1. Modification program for: a. Homeowners who did not qualify for or defaulted on a HAMP Tier 1 trial or permanent modification b. Investment properties (meaning: properties occupied by tenants or mortgagor s 2 nd home) c. Homeowners whose loan payments (PITI) are less than 31% of monthly gross income iii. FHA Loans 1. Most modification / forbearance programs are based on monthly net income 2. Programs a. Forbearance (Formal and Informal) b. FHA Loan Modification c. Partial Claim d. FHA HAMP 89 7
iv. Department of Justice Program 1. Significant difference from many other programs: Principal Forgiveness / Reduction 2. Goal: to reach a monthly payment of principal, interest, taxes and insurance (PITI) that is 31% of the borrower s monthly gross income 3. Waterfall Analysis: a. (1) Capitalize delinquent interest and late fees b. (2) Forgive principal to achieve 25% DTI, not requiring LTV below 100% c. (3) After step #2, if DTI is greater than 31%, reduce interest down to 2% to achieve 31% DTI, calculating interest steps as in HAMP d. (4) After step #3, if DTI is greater than 31%, forbear principal to achieve 31% DTI e. (5) Limit forbearance and forgiveness to not result in less than 70% LTV f. (6) NPV must be positive i. Key factors to NPV: value of property and gross income of borrower v. 2MP (for 2 nd Liens) 1. Part of HAMP 2. Requires modification of 2 nd lien when 1 st lien is modified under HAMP and 2 nd lienholder participates in 2MP vi. Home Affordable Unemployment Program (UP) 1. Temporary forbearance program vii. Traditional Modification Programs 1. FNMA and FHLMC Standard Loan Modifications (prior to HAMP) 2. Lender / Servicer in-house modification programs B. Related Issues: i. Negotiations in Good Faith; Findings of Bad Faith 1. Interpretation of CPLR 3408 ii. Investor Guidelines (ex: Hudson City) iii. Private Investors iv. Trusts 1. FNMA 2. FHLMC 3. REMIC v. Courts / Investment Properties 1. Some Court s inclusion of investment properties into the 3408 conference process 90 8
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