Safeguard Properties

Could a Full Foreclosure Recovery Come Sooner Than Anticipated?

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Industry Update
December 22, 2016

The foreclosure crisis is finally nearing an end, at least according to Bill Emmons, an Economist and Assistant VP with the St. Louis Fed in conjunction with the St. Louis Fed’s quarterly Housing Market Conditions report.

Emmons says that while some states are still taking a longer time than others to hit pre-crisis foreclosure and delinquency levels, the end is near, perhaps as soon as the first quarter of 2017. He adds that the condition of current mortgage borrowers is once again comparable to the period just before the Great Recession and the onset of the foreclosure crisis in the fourth quarter of 2007.

“However it is defined, the mortgage foreclosure crisis will go down as one of the worst periods in our nation’s financial history. For the nation as a whole, the crisis will have lasted almost a decade—about as long as the Great Depression,” says Emmons. “The conclusion that the foreclosure crisis has been a long, miserable experience for many is unavoidable. And many Americans continue to suffer lasting financial, emotional and even physical pain as a result of their experiences during this time. However, a look at the data today shows that, at least, the end is in sight.”

Emmons adds that in looking deeper at regional and state levels, some areas have experienced severe recessions and housing crises worse than the nation as a whole. In contrast, however, he notes that other metros have suffered less, resulting in a wide range of foreclosure-crisis experiences.

Further the report says that an analysis of the states that comprise the St. Louis Fed’s Eighth District (Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee) show each of the states entered their respective foreclosure crises during 2008-2009. Emmons says this is somewhat later than the nation as a whole, but by the third quarter of 2016, six of the seven District states had exited their respective crises, with Illinois expected to follow by the end of 2016.

“For most states in the Eighth District, the slightly shorter duration of their foreclosure crises, when measured against their own data trends, has been offset by higher average rates of serious mortgage distress seen even in non-crisis periods,” says Emmons.

To read the full report, click HERE.

Source: DS News

The New Foreclosure Statutes: A Review of the Perils

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Legislation Update
November 29, 2016

Unsatisfied with borrower and community protections afforded by the multiple statutory amendments of recent years, the Legislature passed a new omnibus foreclosure law (L. 2010, ch 73), effective Dec. 20, 2016. Our review of the changed 90-day notice mandates titled “New 90-Day Notice Rules: A Potential Morass for Lenders” appeared in these pages previously (NYLJ, Sept. 14, 2016, at 5 col. 6). Now addressed are the multitudinous issues created by changes addressed to judgment and sale, conveyance impositions, settlement conferences, maintenance obligations and the expedited procedure for vacant and abandoned properties.

Judgment and Sale

The amendment regarding the foreclosure sale [RPAPL §1351(1)] seeks to accelerate the foreclosure process by requiring the sale be held within 90 days of the date of the judgment. Aside from this presupposing that it is lenders who are volitionally delay scheduling sales (a point strongly disputed, and simply not so) this fails to take into account the realities of foreclosure process. First, a judgment is not available to a foreclosing plaintiff until it is entered. Depending upon the venue, this can be weeks or months after the date of the judgment. This immediately can render the 90-day sale date requirement unachievable. With or without a delay, there are any number of quotidian circumstances which can intercept the ability to promptly set a foreclosure sale (which requires at the outset 28 days’ worth of advertising).

The referee’s schedule may prohibit a rapid sale; he could be on trial, or on vacation and he might not schedule the date for months after it is preferred. Or, the referee may otherwise be unavailable for reasons such as illness or if he or she is appointed or elected a judge, or takes some other public office which precludes his service as a referee. This would require a motion to amend the judgment to appoint a different referee.

If the newspaper in which the advertisement is to be placed goes out of business; it happens, this will require a motion to amend the judgment, which consumes time. Then too, settlement discussions can postpone the setting of a sale so that a rapid sale date will tend to chill post-judgment settlement discussions. Finally, a borrower’s order to show cause or bankruptcy filing can readily stay any ability to schedule a sale.

In sum, while speeding to a sale is welcome, and is overwhelmingly the desire of plaintiffs, imposing a requirement to hold the sale within 90 days of the date of the judgment will often be unachievable, will create confusion and foment assaults on sales which would not have a reasonable or legitimate basis.

Conveyance Restraint

An addition to the conveyance provision [RPAPL §1353(1)] requires the plaintiff, if the successful bidder at the sale, to list the property for sale (or other occupancy) within 180 days of execution of the deed or within 90 days of completion of construction or renovation. How it is constitutional for a law to tell property owners that they are bound to sell property, or rent it, and within a certain period, is perplexing. While application to a court for an extension for a good cause shown is available, it still imposes more litigation, does not assure a favorable result and still fails to erase the unconstitutional fiat to sell or rent the real estate. It also neglects to consider other compelling roadblocks to either a quick sale or lease.

If the borrower or tenant is holding over, the property is typically neither salable nor rentable until an eviction has been completed. Eviction proceedings can be delayed interminably and render compliance with the 180-day requirement impossible in many instances.

If sale prices in that area have been depressed, the plaintiff may wish to refrain from selling quickly to avoid suffering an even greater loss. They should be able to wait until the market improves. While renting the property is an available alternative, that path suffers similar infirmities to the goal of a rapid sale.

Settlement Conferences

In this arduous process, the existing statute had been bereft of meaningful detail in defining good faith bargaining, delineating the types of settlements contemplated, setting forth penalties for lack of good faith and some mechanical aspects of the procedure. These are remedied in part by the legislation adopting and refining case law interpretations of the categories. The result is that the procedures are burdensome, the penalties severe; lenders and servicers will need to be familiar with the lengthy minutia.

Four particular areas, though, emerge for comment where peril or incongruities lurk.

If a lender denies a modification, the statute now requires that the document be presented explaining the reasons for the denial and the data input fields and values used in the net present evaluation. Further, if the modification was denied because of investor restriction the plaintiff must bring the documentary evidence providing the basis for such a denial, for example items such as pooling and servicing agreements. While later on the new provision codifies what the law requires, i.e., failure to make or accept an offer is not sufficient to negate good faith, as a practical matter, the need to explain a rejection of settlement is likely to lead to considerable pressure from hearing officers or judges upon plaintiffs to change their position. This is not necessarily a flaw in the drafting of the statute, but a reflection of the realities of the process.

The foreclosing plaintiff is now required to file a notice of discontinuance and vacatur of the lis pendens within 90 days after any settlement agreement or modification is fully executed. But if a settlement is in the form of a forbearance agreement, which will not be completed or fulfilled within 90 days, then a plaintiff will be unable to comply with this provision. Again, as a practical matter, many settlements take the form of such forbearance agreements and this then portends forcing plaintiffs into violation.

Although there is no good reason why a defendant in a foreclosure action should be treated any differently than any other defendant in serving a timely answer, the new standard permits a defendant who appears at a settlement conference, but who did not file an answer, to be presumed to have a reasonable excuse for the default. That defendant is therefore permitted to serve and file an answer, without waiving any substantive defenses within 30 days of initial appearance at the settlement conference. That answer, otherwise woefully late, vacates any default. This yet further delay imposed upon the process may be unfortunate.

During the settlement process, the statute now specifically requires that any motion made by plaintiff (or defendant) must be held in abeyance during the settlement process. The main problem here (aside from impeding plaintiffs in disposing of a borrower’s answer) is the ill-advised prohibition against moving regarding other defendants. For example, if a junior mortgagee has interposed a defense, but has ignored a discovery request, the plaintiff should be permitted to pursue preclusion against that defendant even though the settlement process is ongoing; such other defendants are, after all, not the borrower. Inhibiting actions against other defendants tends only to further protract the foreclosure case, often substantially. Why this might be helpful is elusive.

New Maintenance Obligation

Because a mortgage holder possesses only a lien on the mortgaged premises, and therefore is not an owner, requiring such party to maintain the premises creates an unpredictable and unexpected expenditure, singularly beyond what any mortgage contract contemplates. Moreover, it imposes tort liability upon such a lender because it foists care, custody, and control into its hands. Therefore, the existing requirement that a foreclosing party assumes maintenance of the premises if vacant and abandoned, or populated by tenants, as of the judgment stage already is offensive and parlous.

The new requirement now creates a maintenance obligation at the inception of an action, actually even earlier. Applying to vacant and abandoned one-to-four family residential properties and to a first- lien mortgage holder (excluding state or federally chartered banks, savings banks, savings and loan associations or credit unions), within 90 days of the borrower’s delinquency the lender or servicer is bound to complete an exterior inspection of the property to determine occupancy, thereafter throughout the delinquency of the loan conducting an exterior inspection every 25-35 days at different times of the day—all certainly a new, expensive and unexpected burden that a mortgage would not otherwise elicit.

Where the lender or servicer then has a reasonable basis to believe that the residential property is indeed vacant and abandoned, the servicer must secure and maintain the property. Within seven days of determining such a condition, the servicer must also post a notice on an easily accessible part of the property, reasonably visible to a borrower or occupant, and continue to monitor the property to assure that the notice remains posted. This obligation to maintain continues until the property has been sold or transferred to a new owner. This later provision, however, is unclear because it is not apparent whether this means the obligation ends if the owner of the property conveys title (which would not necessarily change anything) or whether it means the moment when someone has bid at a foreclosure sale. Servicers will be confused and the provision is well worthy of clarification.

Should a foreclosing party violate the maintenance requirement, a hearing officer or the court can adjudicate violations and a civil penalty may be imposed of up to $500 per day per property for each day the violation persists. Still further, any municipality shall have a cause of action in any court against the lender or assignee of the mortgage loan servicer to recover costs incurred as a result of maintaining property which presumably the servicer was required to maintain.

A possible savings provision appears, but it too is ambiguous. The provision is that a servicer who peacefully enters a vacant and abandoned property so as to maintain it pursuant to this section “shall be immune from liability when such servicer is making reasonable efforts to comply with the statute.” Whether that means that a servicer cannot be sued for trespass (a likely interpretation) or whether this is a blanket way to avoid tort liability devolving to a foreclosing party is too vague to render an opinion.

While the new section appropriately requires that any local law inconsistent with these provisions cannot be imposed, precisely where there will be such inconsistencies will not always be so obvious—and the fact is that local government entities do have such statutes.

Finally, it remains imprecise as to the relationship between this new statute and the existing section which imposes maintenance liability as of the foreclosure judgment stage.

Expedited Procedure

Because from a lender’s viewpoint imposition of property maintenance shortly after a borrower becomes delinquent is so draconian, it is welcome that the omnibus bill adds a new RPAPL §1309 and §1310 offering an accelerated process to reach a judgment of foreclosure and sale where the property is vacant or abandoned. The essence of the accelerated procedure is well intentioned; an order to show cause is made after service is complete to demonstrate the vacancy (not as certain or effortless as the statute implies) asking the court to compute the sum due without necessity of appointing a referee, and to issue the judgment of foreclosure and sale. But there are some infirmities and undue burdens in the procedure:

  • A registry of vacant or abandoned properties is created through the Department of Financial Services and the foreclosing party must within 21 business days of learning or when it should have learned that the property was vacant and abandoned, submit this information to the department—another bureaucratic millstone. Moreover, it can be an open question as to when a lender can have determined that a property was vacant. This is sometimes not so precise.
  • The application—the motion or order to show cause—cannot be made until the defendant’s time to answer shall have expired. If “the defendant’s” means the borrower it is one thing, but quite another if it means all the other defendants in the action. This is unclear and needs remediation. Then too, a defendant—particularly one who has abandoned the premises—may be very difficult to find so that the time consumed in serving such a defendant can be surprisingly lengthy, thereby diminishing the presumed rapidity of the alternative process
  • The order to show cause is required to state to the borrower that “you have the right to stay in your property until a court orders you to leave”. It can be opined that this will encourage a borrower to remain not only until a foreclosure sale is held but until an eviction order is carried out. At the very least it will appear to laypeople that they are free to stay unless there is an absolute order to depart. While this cavil is of little consequence if the property is in fact abandoned, it does become operative if a defendant answers (see infra.) or if someone re-occupies the property
  • While a notice of motion or order to show cause inherently needs to be served, the procedure here is that the court must promptly send a notice to the defendant of the plaintiff’s notice of motion or order to show cause. How quickly or accurately the court will do this (after all, where is the borrower?) might be an open question and could impede the process.
  • A property cannot be deemed vacant for, among other reasons, that an “action to quiet title” exists. While on its face this seems reasonable, an action to quiet title can take many forms; for example, a junior lender might be trying to direct recordation of a copy of a mortgage when an original was lost. This should have nothing to do with prohibiting a foreclosure on a vacant property and yet the blanket term “action to quiet title” will have such an effect regardless of the actual nature of that action.
  • Although delineation of all the proof a plaintiff must present upon the order to show cause is extensive, the court may still require the plaintiff to appear and provide testimony in support of the application. While this is hardly irrational, it is apparent that such a procedure can cause delays with hearing dates far in the future and the possible difficulty of producing witnesses.
  • While the court is directed to make a written finding as soon as practicable as to whether the plaintiff has proved its case, court delays in any number of venues within the state are well recognized. In some places, then, rendering of the judgment of foreclosure and sale will be far less swift than the procedure might have intended.
  • Even though the property may be clearly and actually abandoned, provision is made that no judgment of foreclosure and sale can be entered if the mortgagor—or any other defendant—has filed an answer, appearance, or other written objection that is not withdrawn. First, filing an appearance is not an objection. Next, this gives carte blanche to any defendant to interpose an answer and thereby torpedo the accelerated procedure.

In sum as to an abandoned or vacant property, the foreclosing party will be compelled to spend money and assume liability for a period of time greater than the statute would have predicted.

Conclusion

The new foreclosure dictates in the Empire State are extensive and merit careful attention from servicers so they can comply. There are more than a few aspects which are unclear, so that compliance, or an understanding of what the language means will be elusive. In addition, some of the perceived protections for borrowers will contribute to further delays in the foreclosure process either by outright extension, or by providing ammunition to borrowers bent on dilatory tactics. Assuredly too, pursuing a foreclosure in New York will become more expensive.

Source: New York Law Journal

State Spotlight: The Sun Sets on Nevada’s Foreclosure Mediation Program

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Legislation Update
November 9, 2016

The Foreclosure Mediation Program for Nevada is almost at an end, and with its close comes another sign of recovery for states hit hardest during the housing crisis.

In 2009, RealtyTrac reported Nevada as the nation’s highest state foreclosure rate for the third consecutive year, having more than 10 percent of housing units receiving at least one foreclosure filing.

In response to this epidemic, the State of Nevada Foreclosure Mediation Program (FMP) was created to allow at-risk homeowners the ability to meet with a lender before a foreclosure action to discuss alternatives measures.

“In the last seven years, the FMP has helped thousands of homeowners during the foreclosure crisis,” said Robin Sweet, State Court Administrator.

From its implementation to the last reported statistics in 2014, the program has completed 19,684 mediations.

Only four years after its start in 2015, the Nevada Legislature repealed the FMP placing an end date to the program on June 30, 2017. At that time, even though Nevada was still cited as one of the top states with the foreclosure rates, it still was only sitting at 1.4 percent (only roughly 4 basis points from the national pre-crisis foreclosure rate).

Now as the program reaches the end of the road, only one in every 897 housing units is associated with a foreclosure filing. The state’s decision to eliminate foreclosure programs put in place to alleviate the crisis highlights the housing recovery that has been felt across the nation.

As the end date for FMP draws near, the program will no longer accept recorded Notices of Default after November 30th and likewise will not accept any mediation enrollments after December 31st.

Source: DS News

State Spotlight: Florida?s Supreme Court Ruling is a Win for Servicers

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Legislation Update
November 11, 2016

The Florida Supreme Court recently ruled that servicers may file new foreclosure actions against borrowers who won foreclosure cases more than five years ago if the borrowers defaulted again within five years of the first case’s dismissal. The case, Lewis Brooke Bartram v. U.S Bank National Association was decided in favor of the mortgage servicers as borrowers argued a five-year statute of limitations should apply.

The court’s ruling, authored by Justice Barbra Pariente, determined that when foreclosure actions are dismissed, servicers and borrowers return to their pre-foreclosure complaint status. This allows homeowners to continue to pay back their loans in installments, rather than all at once.

The ruling also gives back servicers’ right to seek acceleration and foreclosure based on the mortgagor’s subsequent defaults saying, “Accordingly, the statute of limitations does not continue to run on the amount due under the note and mortgage.”

The decision affirms a Fifth District Court of Appeal ruling in the case and is consistent with the Florida Supreme Court’s 2004 opinion in Singleton v. Greymar Associates.

In Singleton, the court ruled successive foreclosure actions based on separate periods of default were not barred by res judicata, the principle that a case that has already been adjudicated cannot be pursued again by the same parties. The court ruled that two separate defaults are considered two different breaches of the mortgage contract and can be brought as two different actions.

Chief Justices Jorge Labarga and Justice Peggy Quince, Justice Charles Canady, and Justice James Perry agreed with the decision and Justice Ricky Polston and Justice Fred Lewis concurred in result.

Despite agreeing with the decision, Lewis stated that he was not comfortable with the expansion of Singleton to “potentially any case involving successive foreclosure actions.”

“I fear [continued expansion] will come at the cost of established Florida law and Floridians who may struggle with both the costs of owning a home and uncertain behavior by lenders,” said Lewis.

To read the full court decision, click HERE.

Source: DS News

Several Illinois Foreclosure Provisions Sunset . . . But Will They Rise Again?

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Legislation Update
November 22, 2016

Certain borrower-friendly amendments to the Illinois Mortgage Foreclosure Law (IMFL)—added at the beginning of the recent foreclosure crisis—were scheduled to sunset (i.e., automatically repeal) in 2016 or early 2017. For instance, Illinois’ statutory requirement for the mailing of a Grace Period Notice (GPN) before initiating a foreclosure suit was first enacted in April 2009. See 735 ILCS 5/15-1502.5. For those familiar with Illinois foreclosure law, the GPN is similar to a notice of default—lenders and servicers must and do send them before initiating foreclosure proceedings, but borrowers rarely, if ever, “receive” such notices based on the popularity of foreclosure defenses based on the GPN.

The statute was amended in June 2013 to include an automatic sunset effective July 1, 2016. The date came and went, but the legislature took no further action, and the GPN statute has since lapsed. The sunsetting of the GPN requirement is likely due, in part, to the decreased foreclosure volume across the industry. Lenders and servicers are, for the moment, no longer required to mail a GPN to borrowers before initiating foreclosure proceedings.

But the GPN statute was only the first of several provisions of the IMFL scheduled for either direct or implicit repeal in the near future. Section 15-1507.1 of the IMFL requires successful bidders at judicial sales to pay a fee of 0.1% of the sale price up to $300 to fund the Abandoned Residential Property Municipality Relief Fund. 735 ILCS 5/15-1507.1. This fee provision was originally scheduled to become inoperative earlier this year, but the legislature recently extended the deadline to January 1, 2017. There has been no further legislative action and the provision is scheduled to sunset on March 2, 2017.

Whereas some provisions of the IMFL have sunsetted, others have been extended. Section 15-1508(d-5) of the IMFL, which provides a mechanism for borrowers to vacate sales held in violation of HAMP guidelines, was originally only applicable to actions filed on or before December 31, 2015. 735 ILCS 5/15-1508(d-5). But on July 28, 2016—over six months after the original deadline—the legislature amended the statute with a December 31, 2016 deadline to coincide with the end of HAMP.

The Illinois legislature’s uneven treatment of various provisions of the IMFL requires lenders, servicers, and their counsel to remain cognizant of future legislative action (or inaction). While the Illinois legislature allowed the GPN requirement to sunset, there is no guarantee that other statutory provisions will be allowed to end as originally scheduled, as after-the-fact extension or renewal is always an option. These examples serve as an important reminder that even when such statutes sunset, they may certainly rise again.

Source:DS News

OPINION: Recent Efforts to Speed Up Foreclosure Proceedings in N.Y.

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Legislation Update
October 25, 2016

As a result of governmental intervention, New York boasts one of the longest foreclosure timelines in the country, taking an average of 1,061 days from the date of the filing of the foreclosure action to the sale of the property at auction, which is almost double the national average of 625 days.1Most of these foreclosure cases are not contested, and those that see battle are based on technicalities to prolong the case while the borrower lives in the home for free.

The delay effects both lender and borrower as well as the public at large. First, as a result of burdening statutes and the lengthy foreclosure timeline, a number of lenders have left the residential foreclosure market making for less places to go shopping for a loan. Second, borrowers that surrender their homes relatively quickly will not be saddled with a judgment against them so large that it makes it impossible to start over on the road to buying another home. Third, the longer the foreclosure proceeding, the less homes there will be for sale on the market for buyers who can afford them, therefore, limiting the number of sales and raising home prices unjustifiably. It is a frequent occurrence that a modification made on a loan is quickly defaulted upon—thus providing further delay unnecessarily.

The state Legislature and the state courts have taken action to expedite foreclosure proceedings. This article discusses some of these changes and how they will affect the New York foreclosure process.

Weapon #1 for Borrowers

Borrower’s attorneys have their favorite weapons to delay and prolong foreclosure proceedings. The number one weapon of choice is establishing lender proof of compliance with the 90-day pre-foreclosure notice requirement imposed by RPAPL §1304. This past Spring, the Appellate Division, Second Department put an arrow through this defense in part.

RPAPL §1304 provides that, at least 90 days before commencement of a residential mortgage foreclosure action, a lender, its assignee, or mortgage loan servicer is required to mail to the borrower the form notice provided in the statute (the “90-day notice”).2

The purpose of the 90-day notice is to provide a borrower with notice of his or her default and an opportunity during the 90-day time period to “attempt to reach a mutually agreeable resolution” with the lender.3

RPAPL §1304 sets forth detailed requirements for the 90-day notice, including the exact manner in which the notice must be mailed, however, there is no express requirement in the statute for the lender to submit an affidavit of service or an affidavit of mailing of the notice.4

In U.S. Bank v. Carey5 and Flagstar Bank v. Jambelli,6 the Appellate Division, Second Department reversed, on the law, two lower court decisions, denying the plaintiffs’ motions to have a referee appointed to compute the amount due and owing under the loan.7

In both Carey and Jambelli, the defendant borrowers did not appear or answer the complaint, and did not oppose the motion to have a referee appointed.8 Further, the plaintiffs in both actions established their entitlement to the appointment of a referee by submitting the mortgage, the unpaid note, and evidence of the borrowers’ default.9

Despite these facts, both lower courts denied the plaintiffs’ motions on the sole ground that the plaintiffs failed to establish compliance with the RPAPL §1304 90-day notice requirement, even though the borrowers failed to appear and raise the defense.10

In reversing the lower courts’ decisions, the Second Department held in each case that “failure to comply with RPAPL 1304 is not jurisdictional…Rather, it is a defense which may be raised at any time…”11

Stated otherwise, failure to comply with the 90-day notice requirement does not deprive the court of its ability to preside over the foreclosure action.12 Statutorily, failure to comply with the 90-day notice requirement is merely a defense that may be raised by a borrower to a residential foreclosure action.13

The Second Department further held that in cases where the borrower has not raised the defense of failure to comply with RPAPL §1304, “the plaintiff [is] not required to disprove that defense.”14

The holdings in Carey and Jambelli make clear that a plaintiff does not need to affirmatively demonstrate compliance with RPAPL §1304 in actions where the defense has not been raised.

Open Issue

Still remaining as an open issue is the type of proof required to demonstrate that the 90-day notice was mailed to the borrower in compliance with RPAPL §1304 in an action where the defense was raised by an appearing borrower.

A review of recent lower court decisions confirms that there is a divide among the lower courts on the type of proof required.

Some lower courts hold that an affidavit of service of the 90-day notice from the person, who physically mailed the notice, is required to establish strict compliance with RPAPL §1304,15 while other lower courts hold that an affidavit based on business records from the plaintiff confirming that the 90-day notice was mailed, together with copies of the 90-day notice containing either the tracking number for the certified mailing or certified mailing receipt, is sufficient to establish compliance with RPAPL §1304.16

As stated above, there is no express requirement in RPAPL §1304 for the lender to submit an affidavit of service of the 90-day notice.

This summer, Governor Andrew Cuomo signed into law Chapter 73 of the Laws of New York, which, inter alia, includes several technical and substantive amendments to RPAPL §1304.17

Notably, RPAPL §1304 was not amended to add a requirement for the lender to submit an affidavit of service of the 90-day notice, despite the vast case law on this issue and divide among the lower courts.18

Moreover, as is established by the holdings in Carey and Jambelli, mailing of the 90-day notice is not something which must be done in order for courts to have the ability to preside over a foreclosure action.19

Accordingly, it is wholly unreasonable to require plaintiffs to provide an affidavit of service from the person who physically mailed the 90-day notice in order to establish compliance.

In the majority of contested residential foreclosure actions prosecuted by the authors’ law firm, the borrowers had no valid defenses to the actions, had failed to make a loan payment for years, and used any means possible to prevent and delay the progression of the action, including raising the defense of failure to comply with RPAPL §1304.

Since the receipt of the notice is not a statutory requirement, a borrower does not have to allege that he did not receive the notice. He only has to allege that the notice was not properly sent. This is why defense counsel would not allege that the borrower never received the notice.

Thus, requiring an affidavit of service of the 90-day notice from the person who physically mailed the notice (i) places an unnecessary and undue burden on lenders, and (ii) accomplishes the borrowers’ goal of delaying and preventing the progression of the action that, resultantly, prolongs the time that the borrowers are able to reside at the mortgaged premises, essentially, “for free” in actions where there is no defense for their failure to pay.

Settlement Conference

The mandatory foreclosure settlement conference requirement imposed by CPLR §3408 is one of the leading causes of delay in residential foreclosure actions, taking approximately nine months to complete.20

The purpose of the settlement conference is to provide the borrower with an opportunity to negotiate with their lender in order to determine whether “the parties can reach a mutually agreeable resolution to help the defendant [borrower] avoid losing his or her home…”21

In the majority of residential foreclosure actions prosecuted by the majority of New York law firms, the borrowers have no intention of, or lack the financial ability to, settle the action.

Instead, the borrowers use the settlement conference requirement solely as a means of delaying the action by, among other tricks, (i) failing to timely submit a loan modification application and additionally requested documents, (ii) submitting misleading and/or incomplete financial information, and (iii) requesting multiple adjournments of the conference(s).

In the majority of cases where a settlement is reached, it is in the form of a loan modification application, which the borrowers frequently default under within several months, putting the plaintiff lender back to square one.

In a seeming attempt to address this issue, CPLR §3408 was recently amended by Chapter 73, to, inter alia, now require that the borrower bring documents to the initial conference including “information on current income tax returns, expenses, property taxes and previously submitted applications for loss mitigation; benefits information; rental agreements or proof of rental income….”22

As a result of this amendment, the plaintiff and presiding judge or referee will be able to review the documentation provided by the borrower at the initial conference to determine whether a loan modification, reinstatement, or payoff are viable settlement options.

Prior to the amendment, CPLR §3408 provided that the borrower “should” bring documentation to the initial conference, which seldom happens.23

As a result, borrowers lacking the financial means to modify were submitting loan modification applications, thereby unduly delaying the settlement conference process.

While the recent amendment will not guard against all situations causing undue delay in the settlement conference process, it should, hopefully, at least provide some relief by removing loan modification as a possible means of settlement in clear cut cases.

Further, in cases where it appears that loan modification may be a potentially viable option, and where a loan modification application was previously submitted by the borrower, the plaintiff will be able to use the previous application as a potential means to ensure that misleading or inaccurate financial information is not provided by the borrower in any newly submitted loan modification application.

Vacant Properties

As of May 19, 2016, 3,352 of the residential properties actively in the foreclosure process in New York are vacant and abandoned.24 Chapter 73 has created new laws regarding vacant and abandoned properties, and aims to “curb the threat posed to communities by these ‘zombie properties.’”25

One component of the new law provides for expedited foreclosure proceedings. When a property is deemed vacant and abandoned, RPAPL §1309 creates an expedited application by which plaintiffs will now be able to move by order to show cause directly seeking a judgment of foreclosure and sale, without first moving for an order of reference, in all counties. As the borrower in the abandoned property cases typically or almost never appears in the action, the proceeding can go directly to judgment and removes the standard and lengthy requirement of having a referee appointed to compute the amount due and owing to the lender.26 This statute should work in shaving months off the foreclosure process allowing the lender to recapture the residence and the community to have a new homeowner instead of a blighted property.

Chapter 73 adds RPAPL §1308, which extends a lenders obligation to maintain vacant and abandoned properties to the time at which the lender “has a reasonable basis to believe that the residential real property is vacant and abandoned…”27

If a lender fails to maintain the property, the lender could, inter alia, be fined up to $500 per day that the violation continues, or a lender could be sued by the Department of Financial Services and forced to take action to take care of the property.28

Conclusion

Although the newly enacted vacant home expedited foreclosure process law and the recent case law defeating one disingenuous argument from the debtor’s defenses, as well as requiring informed settlement conferences, are all positive steps toward efficient results for all, much more needs to be done to expedite foreclosure proceedings, so that lenders continue to lend, and more home buyers have the chance to find affordable homes when more properties are available for purchase.

Source: Real Estate Weekly

NYCUA’s Mellin Comments on Zombie Property Law Regulations

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Legislation Update
November 29, 2016

Superintendent Maria T. Vullo
New York State Department of Financial Services
One State Street
New York, NY 10004-1511

Dear Superintendent Vullo:

I am writing this letter on behalf of the New York Credit Union Association to comment on the Department of Financial Services’ regulations implementing portions of New York’s Zombie Property Law (Ch. 73, L2016 Part Q). As presently drafted, the regulation is inconsistent with the intent of the Legislature to exempt credit unions and banks that don’t do a large volume of first lien mortgage loans from abandoned property maintenance requirements, places the burden on institutions to prove they are exempt based on information that the DFS is in the best position to interpret, and imposes unnecessary reporting requirements. As financial institutions struggle to comply with a growing list of compliance mandates, I urge you to amend aspects of this regulation.

New Section 1308 of the Real Property Actions and Proceedings Law imposes substantial new requirements on mortgage servicers and originators. They must identify and monitor property that may be abandoned by following a legislatively proscribed 90 day timeline; they must follow strict requirements for notifying the public that property is being classified as abandoned; and ultimately, they must maintain abandoned and vacant property upon which they have not yet foreclosed. Institutions violating these provisions are subject to fines of up to $500 per day, per property.

No exemption for credit unions and banks was included in earlier versions of the zombie property legislation. (See, e.g. the “Abandoned Property Neighborhood Relief Act of 2016.”) This was particularly troubling to the Association since the property maintenance requirements are particularly challenging for many smaller institutions which don’t have the staff or resources necessary to monitor and maintain property on an ongoing basis. The median size credit union in New York has less than $19 million in assets and six staff persons. Mindful of these concerns, in the closing days of the legislative session, credit unions and community banks successfully lobbied to improve the legislation by exempting institutions that don’t engage in a high volume of mortgage lending. The resulting amendment is reflected in the proposed regulations as follows.

3 NYCRR 422.3 provides that:
(b) 1. For each calendar year, the obligations imposed by RPAPL 1308 shall not apply during
that calendar year to a mortgagee that is able to establish all of the following:

A. It is a state or federally chartered bank, savings bank, savings and loan association, or credit union;

B. It engages in all of the following activities during that calendar year: mortgage origination, mortgage ownership, mortgaging servicing, and mortgage maintenance; and

C. It had less than three-tenths of one percent of the total loans in the state which the mortgagee originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.

It is well-settled that, “[w]hen a statute is ambiguous and requires interpretation, the construction given to the statute by an administrative agency responsible for its administration should be upheld by the courts unless the agency’s interpretation is irrational, unreasonable, or inconsistent with the governing statute.” Brown v. New York State Racing and Wagering Bd., 871 N.Y.S.2d 623, 629 (App. Div. 2d Dep’t 2009); see In re Toys “R” Us v. Silva, 89 N.Y.2d 411, 418 (1996); Trump Equitable Fifth Ave. Co. v. Gliedman, 62 N.Y.2d 539, 545 (1984) (Internal citation omitted).

In Part Q of Chapter 73 of the Laws of 2016, the Legislature set forth various mortgage foreclosure reforms and imposed new obligations on financial institutions with respect to vacant and abandoned residential real property. This legislation contains two contradictory clauses within the same provision regarding an exemption for certain financial institutions. Specifically, section one provides as follows:

For each calendar year this section shall not apply to state or federally chartered banks, savings banks, savings and loan associations, or credit unions which: (1) originate, own, service and maintain their mortgages or a portion thereof; and (2) have less than three-tenths of one percent of the total loans in the state which they either originate, own, service, or maintain for the calendar year ending December thirty-first of the calendar year ending two years prior to the current calendar year.

This provision is ambiguous on its face. In the first instance, it states that the exemption applies to institutions that originate, own, service, and (conjunctive) maintain at least some of their mortgages. At the same time, it states that, to be exempt, an entity must also originate, own, service, or (disjunctive) maintain less than the threshold number of loans. As written, it would seem that virtually zero financial institutions would fall within the exemption.

This problem can be easily addressed by amending 422.3(B) as follows;

“B. It engages in {all} any of the following activities during that calendar year: mortgage origination, mortgage ownership, mortgaging servicing, and mortgage maintenance…”

The burden should not be placed on financial institutions to prove they are exempt

A second problem with the regulation is that it places the burden on individual financial institutions to prove they are exempt. As the government body responsible for implementing and interpreting this legislation, the DFS is in a much better position than individual credit unions to determine who must comply with the regulation. Most importantly, the regulation provides that the DFS provides by November 15th a “Total Number of Residential Real Property Mortgages Originated in the State During the Calendar Year Ending Two Years Prior To the Current Calendar Year” as determined by the Superintendent. However, this is not all the information financial institutions will need to know in order to prove their exempt status. The statue stipulates that institutions which originate more than three-tenths of one percent of the total loans in the state in which they originate, own, service, or maintain for the calendar year ending December 31st of the calendar year ending two years prior must comply with the statute. Without further clarification in the final regulations, credit unions will have to individually categorize loans that they originate, service and maintain to determine they qualify for the exemption.

At the very least, the final regulation has to provide a detailed explanation as to how financial institutions are to calculate the number of applicable loans. If this is not done, the DFS will be faced with a flood of exemption requests from financial institutions on how best to interpret the regulation.

If the DFS is unwilling to make this change, it should consider postponing the date by which it must be complied with. There are substantial operational issues with which nonexempt credit unions must comply. Coupled with the continued confusion over how the statute should be interpreted, a delay in implementing this regulation makes sense for both the DFS and impacted institutions, particularly since the Department was unable to provide the necessary information by November 15.

A third issue that needs to be addressed in the final regulation deals with preemption. New Real Property Actions and Proceedings Law 1308(13) preempts local Zombie Property requirements. It provides that “No local law, ordinance, or resolution shall impose a duty to maintain vacant and abandoned property… in a manner inconsistent with the provisions of this section.” Given the number of local laws, the regulation should be incorporated into the final draft of the regulations so that there is no doubt that mortgagees must only comply with one set of requirements. This will in no way diminish the authority of localities to police their vacant property. The legislation gives localities the authority to independently enforce the 1308 requirements.

Finally, the reporting requirements are duplicative. Both the statue and regulation require mortgagees to report abandoned property to the Department of Financial Services. There is no requirement to report on abandoned property on a quarterly basis. There are more than enough oversight mechanisms to ensure compliance with this law, ranging from steep fines and municipal oversight to the incentive to treat property as abandoned for foreclosure purposes.

I appreciate the fact that the DFS has been willing to listen to the concerns of the Association as it finalizes this regulation and hope to continue to have an ongoing dialogue about this issue as compliance issues arise. The Association recognizes that abandoned property is a top legislative priority and that zombie property has to be dealt with more effectively than it has been over the last several years. The suggestions that I have made will ensure that those institutions in the best position to deal with abandoned property are responsible for doing so without having the unintended consequence of making it even more difficult for smaller institutions to provide mortgage loans to their members.

Sincerely,

William J. Mellin
President/CEO
New York Credit Union Association

Soure: NYCUA

Foreclosure Mortgage Fraud Bill Introduced in Illinois

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Legislation Update
November 2, 2016

Synopsis As Introduced
Amends the Counties Code. Provides that in counties with a population of more than 3,000,000, if a mortgagee is the purchaser of any property on which it holds a mortgage at a judicial sale, the mortgagee, and any real estate professional listing the property on behalf of the mortgagee after the judicial sale, shall register with the county’s property fraud alert system. Further provides that the property fraud alert system shall notify all registered property owners and registered real estate professionals not later than 15 days after a document is recorded with the county recorder that relates to a registered property. Amends the Mortgage Foreclosure Article of the Code of Civil Procedure making conforming changes. Amends the Mortgage Act. Provides that a mortgagee shall publish a telephone number, email address, or both where a real estate professional may contact the mortgagee to verify the mortgagee’s ownership interest in property. Further provides that a mortgagee shall respond by phone or e-mail no later than the next business day after the inquiry to verify ownership of the property.

Source: Illinois General Assembly (HB 6619 information)

City Commissioners Ready to Move Forward on Land Bank Without County

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Land Bank Update
November 19, 2016

After Glynn County Commissioners placed a land bank authority proposal from the city of Brunswick on the shelf, deferring the proposal last week for more discussion after the holidays, Brunswick City Manager, Jim Drumm said Friday that Brunswick city commissioners are ready to move forward without the county.

“We’re ready to structure it (the land bank) and do it within the city limits,” Drumm said on Friday. “We still would have to ask the county to approve it, but would not need financial support from them. We were hoping to work with them because our boundaries are so close and they are part of the mechanism to forgive taxes on properties. We believe if we set up the model, the county would hopefully come on board.”

The land bank idea was proposed as a joint effort between the city and county to deal with dilapidated and vacant properties in Brunswick that officials say not only pose a public safety problem, but are also eyesores that can affect property values. Redeveloping dilapidated properties to sell them could potentially increase the tax base for both the city and county, officials have said.

Land banks allow authorities to recoup delinquent back taxes by imposing a lien on a property without the owner’s consent. Following state foreclosure laws, the properties are then sold at a public auction with any unsold parcels deeded to the local land bank. The land bank could also partner with a group or nonprofit to see those parcels sold to new owners or redeveloped.

As he has before, Glynn County Commissioner Strickland still questions where the seed money would come from and has concerns about an annual budget.

“There was no mention of a budget,” Strickland said. “Jim (Drumm) would be executive director of the land bank along with his other duties. If it grows, he will have to hire someone. Where would that funding come from? What we want to do, possibly after the first of the year, is to have a full work session possibly with the city and county commissioners after the holidays.”

Those questions remained even after discussion of the plan between city officials and county commissioners during a county work session this past week.

Drumm said Friday that the city and county would contribute seed money if necessary, but that seed money may not be necessary if both sides provide in-kind services to clear deeds of back taxes.

Strickland questioned during the joint meeting whether Brunswick has enough dilapidated and vacant structures to warrant a land bank.

“We actually have an inventory of a number of properties. I think that it’s been part of our problem, that really for the longest time, we’ve had these homes come up and it’s not the code enforcement side,” Drumm said during the meeting. “I want to clarify that it’s not our goal to just drop the city’s or the county’s code enforcement problems on this agency that we create.”

Drumm added that once action is taken on some of the houses, some of them become vacant lots once the house is torn down.

“As you drive through parts of Brunswick, you will find that there are blocks, almost a whole block, where the houses have come down, so you think the problem has gone away, but it really hasn’t,” Drumm said. “There are people that need affordable housing, so as we watch blocks disappear, very soon we’re the city of Detroit. If you’ve every driven through the outer suburbs of Detroit, their are blocks where there are no houses on them at all.”

The concept, Drumm said during the meeting, is to add structures back onto the tax rolls to create viable neighborhoods.

Brunswick City Planner John Hunter reiterated at the meeting that there are 138 buildings on the city’s dilapidated properties list.

“Those are active cases where we’ve contacted someway within the last two or three years,” Hunter said. “Out of those, we’ve got about 45 that have outstanding tax deeds, which means they’ve gone and presented it on the court house steps for auction and most of those were never purchased by anybody. So that means they’ve got at least three years of unpaid taxes on them and there is no one to claim it, and no activity with them whatsoever except more back taxes adding up.”

Drumm said the idea is not just about filling vacant houses.

“Maybe that block can be transformed into multi-family, or maybe that block could be changed to commercial,” Drumm said during the meeting. “So I think it’s really having a group that meets monthly, quarterly, or whatever it is, that is warranted to try to determine that there is a better purpose to put some of these properties together than just say lets replace them house by house.”

He also explained that he has seen success with land banks and that’s why it’s being recommended as a tool that other counties have used successfully.

Staffing for the land bank could start with a small group of city and county staffers, thereby creating no new bureaucracy. County and city officials could be appointed to serve on the land bank’s board, Drumm added during the meeting.

Source: GoldenIsles.news

Chicago Vacant Property Registration Ordinance Approved

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Updated 12/1/16: Locke Lord LLP released an article titled Locke Lord QuickStudy: City of Chicago Imposes New Burdens on Mortgagees and Servicers Through Expanded Vacant Building Ordinance.

Link to article

Legislation Update
November 6, 2016

SUBSTITUTE ORDINANCE

WHEREAS, The City of Chicago is a home rule unit of government pursuant to the 1970 Illinois Constitution, Article VII, Section 6(a); and

WHEREAS, Pursuant to its home rule power, the City of Chicago may exercise any power and perfomi any function relating to its govemment and affairs, including the power to
regulate for the protection of the public health, safety, morals, and welfare; and

WHEREAS, Chicago has responded to the foreclosure crisis by requiring mortgagees to register, secure and maintain certain vacant residential buildings which have not been registered
by an owner; and

WHEREAS, Numerous cities across the country have responded to the foreclosure crisis by implementing abandoned property registration programs; and

WHEREAS, Properties in default can quickly become vacant and abandoned, which negatively affects the quality of life in Chicago’s neighborhoods; and

WHEREAS, It is difficult to identify and contact mortgagees of properties in default; and

WHEREAS, The City of Chicago intends to improve the efficiency and effectiveness of its ordinance requiring mortgagees to register, secure and maintain certain buildings; NOW, THEREFORE,

BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF CHICAGO:

SECTION 1. The above recitals are expressly incorporated herein and made part hereof as though fully set forth herein.

Source: City of Chicago (ordinance information)