Posts tagged ‘foreclosure’

Key Case on Mortgage Foreclosures Before New York’s Highest Court

Greetings People.

Our good friends at the New York Mortgage Bankers Association gave me a heads-up the other day that an extremely important case dealing with New York’s six year statute of limitations is going before New York’s Court of Appeals, which is New York’s highest court. Regardless of what the court ultimately rules, for those of you who deal with delinquent mortgage loans it underscores how clearly and unequivocally you should be entering into agreements which freeze foreclosure actions so that you can continue to negotiate with the delinquent homeowner. This is one area of the law where the lender should beware.

The facts of this case show just how convoluted foreclosure actions have become in New York State. I read both briefs- which are excellent by the way- and no one challenges the fact that the homeowner has been repeatedly delinquent on his mortgage loan payments. Nevertheless, in our efforts to provide greater protections to homeowners, delinquency is increasingly immaterial to foreclosure litigation.

Freedom Mtge. Corp. v Engel has its roots in a $225,000 mortgage that Herbert Engel entered into in 2005. The defendant did not make a payment due on March 1st 2008, and in July of that year a foreclosure action was commenced. The action hit a glitch in January 2013 when the defendant homeowner contended that he was never properly served the papers triggering this action because the summons and complaint were not sent to the proper address. Freedom Mortgage disagreed but entered into a stipulation in which the homeowner accepted service of the foreclosure papers and the foreclosure action would be discontinued “without prejudice” as both parties worked to “amicably resolve the dispute and the issues raised in it without further delay, expense or uncertainty”.

Well, things didn’t exactly work out as planned. Two years later on February 19th, 2015 Freedom Mortgage once again moved to foreclose on the property. The defendant argued that the action was time-barred; after all, the initial foreclosure was commenced in 2008. In contrast, Freedom Mortgage pointed out that it had agreed to dismiss the initial foreclosure without prejudice. But the appellate division concluded that the stipulation the parties entered into in 2013 did not constitute “an affirmative act” to deaccelerate the mortgage note i.e. insist that the entire outstanding amount of the mortgage loan be paid immediately.

Now that the case is going to the court of appeals, the court will be able to provide much needed guidance on precisely when and how lenders can enter into stipulations discontinuing foreclosure actions without putting themselves in jeopardy of losing the right to foreclose on property. This is good news not only for lenders but for borrowers as well. If Mr. Engal successfully avoids paying off his mortgage loan, his victory will actually make it more difficult for consumers facing difficulty paying off their loans to enter into modification agreements.

On that happy note, enjoy your weekend. Yours truly is headed down to God’s Country- Long Island- to celebrate my Mom’s 85 years, a good chunk of which has been spent putting up with me. Peace out!

February 7, 2020 at 9:11 am 1 comment

New York Law Makes it More Difficult to Get Title Insurance on Foreclosed Property

It has not taken long for a law providing extra protection to individuals facing foreclosure to have a devastating impact on New York’s mortgage market. If you provide mortgages in New York State, you should read this blog, and if you think I am exaggerating, reach out to colleagues in the title insurance industry. For more background on this issue, take a look at this blog.

One of the bills signed by the Governor during the final days of 2019 created a new section 1302-a of the Real Property Actions Law which reads as follows:

“Notwithstanding the provisions of subdivision (e) of rule thirty-two hundred eleven of the civil practice law and rules, any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default.”

This legislation has two major consequences. First, it raises the very real possibility that New York’s already cumbersome mortgage foreclosure process will become even more complicated and time consuming. This concern pales in comparison; however, to the reality that under this legislation, anyone buying foreclosed property subject to a default judgment or a foreclosure proceeding in which lack was not raised cannot be assured that they have clean title to the property. In other words, the previous owner could, under this law, contest the purchase of his or her home even after the sale is final in most circumstances.

As one of my colleagues pointed out, this is going to be a mess. The title insurers agree, which is why I’ve heard of two prominent title insurance companies that do business in New York which plan to either refuse to grant title insurance in the state, or grant it with an exception accounting for this new loophole. The latter option will be of little benefit for the new homeowner, let alone the mortgage holder.

This is bad news not only for lenders and borrowers, but for the communities in which these properties are located. Although the intent of the legislation was to make sure that homeowners at risk of losing their house don’t lose the right to raise this defense, the legislation has been drafted in such a way that it will actually make it more difficult to interest people in buying foreclosed property, contributing to the blight which disproportionately impacts poorer neighborhoods. In addition, theses title insurance exceptions will, in my opinion, make it impossible to sell these properties to Fannie Mae and Freddie Mac given the uncertainty of title.

January 22, 2020 at 9:28 am Leave a comment

New York State Rings in the New Year With a Host of New Mandates

Welcome to the new decade, people.

While much has changed, much remains the same, which means that it is time for my annual blog highlighting some of the recent developments that will impact your credit union operations in the coming year.

NYS Issues LIBOR Preparedness Mandate

On December 23rd, New York’s Department of Financial Services Superintendent Linda Lacewell issued a homework assignment for all financial institutions regulated by the state. With the London Inter-Bank Offered Rate (LIBOR) to be phased out in 2021, DFS wants to make sure that all its regulated entities are preparing to shift away from using this rate. For credit unions, LIBOR would most commonly be used to establish baseline interest rates for floating loans. What makes New York’s guidance somewhat unique is that by February 7th, “the Department requires that each regulated institution submit a response to the Department describing the institution’s plan to address its LIBOR cessation and transition risk. The plan should describe (1) programs that would identify, measure, monitor and manage all financial and non-financial risks of transition, (2) processes for analyzing and assessing alternative rates, and the potential associated benefits and risks of such rates both for the institution and its customers and counterparties, (3) processes for communications with customers and counterparties, (4) a process and plan for operational readiness, including related accounting, tax and reporting aspects of such transition, and (5) the governance framework, including oversight by the board of directors, or the equivalent governing authority, of the regulated institutions.” I will be following up with a more detailed blog on this subject in the coming days.

New Minimum Wage

Speaking of New York State, January 1 also marks the date for further increasing New York’s minimum wage rate. I’ll leave this one to the experts. Here is a link to the Bond Schoeneck & King labor law update. I also like to remind people that because New York’s minimum wage varies by region, it also impacts the amount of money that can be restrained. Here is guidance DFS released on this issue in 2017. Remember that this impacts your credit union whether you are state or federally chartered.

New York Further Complicates Foreclosures

In the closing days of the year, the Governor signed important legislation impacting New York’s byzantine foreclosure process. One bill, S5160, provides that a plaintiff’s lack of standing in a foreclosure action is not waived if the defendant homeowner fails to raise the defense in responding to the initial foreclosure papers. This is a big deal because it means that there will be even more uncertainty and delay when foreclosing on property in New York.

This was not the only bill dealing with foreclosure that the Governor gave his blessing to. He also signed off on a bill which shortens the redemption period for the payment of taxes on vacant and abandoned property. Take a close look at this bill.

Another Important HR Bill

As you can see, the Governor was busy over the holiday season. He also signed another important HR bill designed to ensure equal pay for civil servants  in protected classes. Although this does not apply to your credit union, it  is part of a larger framework in which all NY employers should be taking  a more systemic approach to analyzing wage discrepancies within their own organizations.

January 2, 2020 at 9:24 am 1 comment

“Ugh.”

That is how a trusted colleague of mine responded to this article in the CU Times reporting that veteran Congresswoman Carolyn Maloney, who sits on the House Financial Services Committee called for a moratorium on taxi medallion foreclosures during a committee hearing dedicated to debt collection practices. In addition, none other than Rep. Alexandria Ocasio-Cortez referred to some of the taxi medallion loans as “criminal.”

These comments are the latest sign that the taxi medallion issue is not going to go away anytime soon. As policymakers discuss how best to aid drivers in financial straits, let’s hope that some basic facts are understood. Most importantly, the medallion crisis cannot be separated from the rise of Uber and Lyft. We would not be having this discussion today if these two companies did not upend the entire structure of the taxi industry and destroy the value of medallions.

In addition, many medallion loans are now being serviced directly by NCUA. NCUA has to do more to publicly explain to policymakers on both the state and federal level what steps it is taking to modify these loans. Many credit unions are working with members, but that message is not getting out to the public as effectively as it should be with NCUA in control of so many of the lending decisions.

Finally, I hope legislators think long and hard before advocating for a foreclosure moratorium. The reality is that the price of medallions has tumbled and may very well continue to do so. A moratorium would do nothing except put further downward pressure on medallion prices, and extend the time it will take to get the medallion crisis behind both drivers and lenders alike. Instead of talking about moratoriums, policymakers should look at the example of the HAMP Program and see if there are mechanisms to assist both lenders and borrowers in making financially responsible modifications. Stay tuned.

A Phase-in for CECL

In addition to a delay in its effective date, another piece of good news on the CECL front is that Chairman Hood has indicated that NCUA will be joining with banking regulators in permitting credit unions to phase in recognition of loan losses triggered by the new standards over a three-year period.

CECL requires financial institutions to recognize lifetime expected credit losses, and not just credit losses incurred as of a reporting date. In addition, it implements a lower threshold for financial institutions to recognize a potential credit loss. As a result, many institutions could experience a reduction in their retained earnings as they increase buffers to guard against potential losses.

Many banks and credit unions have expressed concern that they could face dramatic losses on paper if they are not allowed to phase in the recognition of losses caused by this new standard. Earlier this year, the OCC and FDIC finalized regulations giving banking organizations that experienced a reduction in retained earnings as a result of adopting CECL the option of phasing in its effects over a three-year period. At a presentation before NAFCU earlier this month, Chairman Hood indicated that NCUA will be proposing similar regulations for credit unions.

 

September 27, 2019 at 9:51 am Leave a comment

How Long does it Take to complete an NY Mortgage Foreclosure?

In the Big Apple 2,190 Days. Outside of N.Y.C.  you have a mere 1,740. Actually, that’s the maximum amount of time Fannie Mae and Freddie Mac expect mortgage servicers to complete straightforward  foreclosure actions once a borrower becomes delinquent. If you are servicing a loan in California you have 480 days. What is wrong with this picture?

The reason why I decided to bring this up on this disgustingly cold Northeast morning-I can taste my scotch in front of the fire already- is not only because of the Fannie\Freddie announcement but because of this decision that came out yesterday which does a pretty good job of summarizing one of the key emerging issues in mortgage litigation in New York  and across the country: How to calculate the statute of limitations when deciding if a lender has run out of time to foreclose on property?

In New York for example you have a 6 year statute of limitations to bring a foreclosure action. This seems clear enough until you start figuring out the impact that failed mortgage modifications, improperly filed notices and previously dismissed actions have on the foreclosure clock. There is even a dispute of whether a lender can bring separate actions for each late payment.

If you provide mortgages I would delve into this proverbial legal thicket not because you need to know the answers to this arcana but because you need to know what questions to ask that attorney you are working with. . Let’s hope these issues move quickly in the appellate process so that our Court of Appeals can give some clear-cut statewide guidance on how to count to six.

State-Of-The State on Tuesday

Governor Cuomo announced yesterday that he would deliver a combined State-of –the- State address Budget presentation on Tuesday. The importance of the governor’s budget proposal has only grown over the last decade as he has put more and more  of his key legislative proposals in the so-called Article VII bills  which explain how the governor is proposing to spend budget allocations.  This tactic is one of the main reasons why New York has one of the country’s most powerful executive branches.

Best Weekend of the Year  

If you are a sports fan like your faithful blogger,  then you know why this is one of the best weekends of the year. Every remaining NFL team is in a single elimination game which makes for some great drama; just ask a Bears fan. But wait,  there’s more. The  Islanders play the Rangers tomorrow. The rivalry isn’t quite as good as it used to be but having watched a fair number of these matchups at the Nassau Coliseum I can tell you there are moments when you understand how the Yugoslavian civil war got started. Besides, the Islanders beat the Rangers last night despite only getting one shot on goal in the third period.   As luck would have it, the one shot was a goal.  I don’t think I’ve ever seen that.

January 11, 2019 at 9:32 am 1 comment

Early Lessons You Need to Learn When Dealing With Vacant Property

In 2016, the legislature decided that it would be smart to make larger banks and credit unions responsible for maintaining abandoned property before the property was even foreclosed on. In return, for this absurd requirement, the legislature agreed to expedite the foreclosure process for institutions holding mortgages on abandoned property.

Yours truly has always been somewhat skeptical that the fast track reforms would work but, as the first cases under this new statute begin to hit the dockets the early returns are encouraging. In fact, I’m going to highlight a recent case that I would suggest those of you responsible for managing foreclosure activity use as a template as you manage the ridiculous number of obstacles that New York continues to put in the way when it comes to foreclosing on property that borrowers can’t afford. And remember, even if you’re a credit union that doesn’t have to comply with the property maintenance requirements, these cases demonstrate how important it is for your credit union to still follow the appropriate procedures for demonstrating that a mortgage property has been abandoned in order for your credit union to be able to take advantage of this new expedited procedure.

The most recent example I’ve seen is TEACHERS FED. CREDIT UNION v. GERGEL, 2017 NY Slip Op 51642. It’s impossible to summarize the case in less than five blogs not because the issues are so complicated, after all we are dealing with someone who decided not to pay a mortgage they owed and vacate their house, but because of the myriad of regulatory requirements with which the credit union and similarly situated lenders must comply. For example, the credit union had to document that a foreclosure settlement conference was held in which the defendant did not appear; the plaintiff could then move for an expedited foreclosure, but only after the defendant’s time to respond to the foreclosure lawsuit had expired; the credit union and court both properly served the appropriate notices and the credit union had to prove that it complied with the detailed procedures for determining that the property was in fact abandoned.

It’s hard to believe that this is an improvement over New York’s existing system but in a state where it is not uncommon for foreclosures to take an excess of four years, the fact that the credit union was able to file this lawsuit on October 3, 2016 and receive the go ahead to sell the property is a marked improvement.

Does this mean that New York doesn’t have to reform its foreclosure process? Absolutely not. For one thing, the improvements made by the legislature just apply to vacant and abandoned property. For another, even this properly applied application of the statute demonstrates how many moving pieces have to align before even a simple foreclosure can go forward. Judges have to be available to hear the cases, similar if not downright duplicative notices have to be sent and when we see the next upsurge in foreclosures, the system will once again be overwhelmed.

The simple truth is that the existing foreclosure system has provided delinquent homeowners with so many procedural protections that there is no longer an appropriate balance between the understandable desire to make sure that someone truly should lose their house and the need to keep property values stable by making foreclosures a feasible option.

Here are some additional recent cases you may want to take a look at:U.S. Bank Tr., N.A. v. Rodriguez, No. 605405/2017, 2017 BL 432109 (N.Y. County Ct. Dec. 01, 2017); JPMorgan Chase Bank, N.A. v. Martin, No. 14017/2011, 2017 BL 406184 (Sup. Ct. Oct. 26, 2017)

December 12, 2017 at 9:23 am Leave a comment

Are You Sure You Really Own That Mortgage?

To foreclose on property in New York State, a lender must prove that it took physical possession of the mortgage note prior to the foreclosure, or that a valid assignment of the note to the foreclosing party has been made. This is easier said than done. Today’s blog includes citations to relevant case law in this area because for those of you who deal with mortgages, servicing and assignments, this is an area worthy of close scrutiny. So grab another cup of coffee to stay awake, and let’s get started.

First, let’s remember some basics. In order to foreclose on property, the lender or its assignee must possess both the mortgage and the note. The general rule is that once a promissory note is properly assigned, the mortgage transfers with it. Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 280, 926 N.Y.S.2d 532 (2011).

Which brings me to the inspiration for today’s blog, the case of US Bank Trust, NA v. Morales, 54 Misc. 3d 1217(A) (N.Y. Sup. Ct. 2017), which was published in yesterday’s New York Law Journal. In 2006, the homeowners purchased a house in Monroe, NY for $403,000. They took out a 30 year mortgage, which was recorded in Orange County. The original lender, Home Funds Direct, named MERS as its nominee. MERS subsequently assigned the note to US Bank Trust. This assignment was also recorded in Orange County, NY. The homeowners defaulted in June of 2013; a foreclosure was commenced in April of 2016. The homeowners argued that the bank did not have the right to foreclose on the property, because it had not sufficiently demonstrated that it was the holder of both the note and the mortgage. It is widely understood that such standing can be established with either a written assignment of the note or the physical delivery of the note to the foreclosing party prior to the commencement of a foreclosure action, but New York courts continue to grapple with what documentation establishes that such a transfer has been executed.

In this case, US Bank Trust attached an affidavit of an employee of Caliber Home Loans; the affidavit explained that Caliber was servicing the loan on behalf of US Trust and was also acting as its attorney in fact. The servicer employee complied with NYS Regulations by personally reviewing the original note and the assignment of the mortgage. The plot thickens however, because he also explained that Wells Fargo was holding the original note as custodian. This fact was fatal to the bank’s foreclosure action. Even though the servicing agent explained that the original note could be obtained from Wells Fargo, it did not have physical possession of the note prior to commencing the foreclosure. Because Wells Fargo, not Caliber, was in physical possession of the note, the evidence failed to establish that the foreclosing party had standing to bring the foreclosure.

But wait. The plaintiffs argued that note was assigned to them from MERS to US Bank. The court’s response demonstrates just how fact-sensitive these inquiries have become. The note in this case identified Home Funds Direct as the lender and the note holder. According to the court, there was no endorsement to MERS on the note—which would give MERS the authority to assign—nor any information on the allonge indicating that MERS received an assignment of the note. This meant that MERS’ assignment of the note to US Bank Trust was invalid.

As if this isn’t complicated enough, the case law I have referenced in this blog relates specifically to New York’s Second Department. The key point is that the case law in this area remains fluid and highly fact-sensitive. As it stands right now, the better you document mortgage transfers and servicing rights, the better off you will be. This is one area where detailed procedures and an eye on case law is absolutely crucial.

 

March 9, 2017 at 9:58 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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