What to Do; What to Expect
Effective Dec. 20th, 2016
You just lost your job. Your mortgage payment has increased because the interest rate has risen. Property taxes have gone up. Events like these can make you realize that you can no longer afford your current mortgage payment. What should you do if you want to keep your home? How long do you have before you might have to move?
How long do you have?
You will not be “evicted” next week, next month, or, perhaps, even next year. If you stop paying your mortgage payment, your home will be “foreclosed on” – it will “go into foreclosure.” This means that the bank will take steps, through a long court process, to eventually sell your home and pay off the debt that you owe. Foreclosures in New York take longer than in any other state in the country. On average, they take 1-2 years, or longer. So, even if you simply stop making payments, and do nothing else to try to keep your home, you can generally live in the home for over a year before you will be forced to move. And you will be notified in advance of the date by which you must move out.
What should you do first?
Regardless of whether you want to keep the home, it is best to contact your bank and let them know that you cannot afford your mortgage payment. You can ask them for a lower payment, either on a temporary or permanent basis. A temporarily lowered payment is usually part of a “forbearance.” A permanently lowered payment is a “loan modification.” Your bank may have information on its website about different options that are available. Additionally, www.makinghomeaffordable.gov is a United States government resource that may be helpful. However, it is often difficult to work with the bank toward a solution on your own. So it is best to get the assistance of a housing counselor. Housing counselors are the experts in figuring out what you can afford and how to pursue different options with the bank. Foreclosure housing counseling is currently free but that may change as funding is used up. Try to work with local counselors who are familiar with the local banks and housing market. Please be aware of scams soliciting homeowners in foreclosure with offers to help save the home. You may receive letters in the mail or view ads online offering help with foreclosure. Not all of these solicitations are legitimate. The New York Attorney General has set up a website where you can find HUD certified free housing counseling agencies in your area, and report scams: agscamhelp.com. You can also contact Legal Aid to get contact information for the local housing counselors in your county.
If you cannot resolve the situation with the bank, what will happen next, and how should you respond?
After you have missed some payments, you should receive a “90-day pre-foreclosure notice.” New York law requires the lender to send you this warning letter. It basically says that if you do not take action to figure out a solution with the bank in the next 90 days, a foreclosure court case will be filed. You will know when the court case has been filed because you will be “served” with the court papers (called a Summons and Complaint). The court papers will be handed to you or someone who lives with you, mailed to you, or attached to your front door. Once you receive these papers, be sure to respond with an Answer. Depending on how you were served, you will have either 20 or 30 days after service to respond with an Answer. You should promptly get the assistance of an attorney in preparing the Answer. The Legal Aid Society of Northeastern New York may be able to assist you in preparing an Answer. If you fail to answer the complaint within the 20 or 30 day time period after service, but you appear at the first settlement conference, under the new legislation effective December 20th, 2016, you will have an additional 30 days to serve an Answer to the Summons and Complaint.
After you are served with the Summons and Complaint, what will the court process involve?
The court will schedule a “settlement conference” that you should attend. In fact, there will likely be 4-6, or more, settlement conferences for you to attend. A settlement conference is a relatively informal meeting with a representative of the bank. A judge or someone else appointed by the court will supervise the meeting. The purpose of the meeting is to figure out a way for you to keep the home, if at all possible.
At the first settlement conference you are required to bring relevant financial information such as information on current income, tax returns, expenses, property taxes, proof of rental income and previously submitted loan modification applications. The court will advise you of legal aid and housing counseling resources. The court will also notify you that you can serve and file an Answer to the Summons and Complaint within 30 days of your initial appearance at the settlement conference. This option is only available to a homeowner who actually appears at the settlement conference, so be sure to make arrangements and appear. During the settlement conferences the court should make sure that the bank reviews your situation for any available option, like a forbearance, loan modification, or non-retention options such as short sale or deed in lieu of foreclosure. Both you and the bank have a duty to negotiate in good faith, therefore you should follow up with requested documents and be truthful in your representations in court and in any submissions to the bank. While you are attending settlement conferences, the bank’s legal request to foreclose on your home and eventually have it sold is “stayed.” In other words, everything else is on hold while you work with the housing counselor and the court to try to keep your home.
What if you come to the conclusion that you cannot afford to keep your home?
You can list your home for sale. If you can sell the house for more than you owe the bank, the foreclosure will end, and you can keep any profit that you made on the sale. If, realistically, you can only sell the home for less than you owe the bank, the bank will have to approve this—it is called a “short sale.” If, after the home has been listed for sale for a few months, you receive no offers to buy it, you can request that the bank allow a “deed in lieu of foreclosure.” This means that you simply deed the home to the bank and move out voluntarily. Whether you are approved for a short sale or deed in lieu of foreclosure, the bank will likely waive its right to pursue you for any money you may still owe. This is called waiving its right to the deficiency. If the bank waives its right to the deficiency, you should consult a tax professional about the tax consequences this may have. The amount forgiven may be considered taxable income to you. If the bank does not waive the deficiency, they will have to ask the court for a deficiency judgment. If the Court says yes, you should consult with a bankruptcy attorney to see about filing to get rid of the deficiency judgment.
What if you simply allow the foreclosure to go through?
After obtaining court approval, the bank may have an auction scheduled in a few months. You will be notified of this. Please be aware that even in the undesirable event of such auction scheduled, you still have a right of redemption. This means that, as a debtor whose property has been foreclosed, you have the right to reclaim the property, if you come up with the funds sufficient to satisfy the debt. You may continue your efforts to obtain a modification or settle with the lender up until the auction begins. You may pay off the entire amount owed before the auction, or participate in the auction yourself. After the home sells at the auction, you will be legally responsible for the deficiency (the difference between the selling price and what was owed). The new owner will have to file a court case for eviction if you do not move voluntarily.
To see if you are eligible for free legal services, contact your local Legal Aid Office.