SPECIAL RULES FOR FORECLOSURES ON HOMES

by

Joseph M. Licare, Esq. Bryan Cave LLP

New York, New York

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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 noticei. informs the borrower that:

1. he/she is at risk of losing his/her home2. attached is a list of government approved housing counseling

agencies in your area3. loss mitigation programs may be available, including loan

modification optionsii. “at least 90 days before a lender, an assignee, or a mortgage loan servicer

commences legal action against the borrower, including mortgageforeclosure, such lender, assignee, or mortgage loan servicer shall givenotice 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 defaultiv. 12 months

b. Additional Requirementsi. Must be sent by registered or certified mail and also by first class mail to the

last known address of the borrower1. If the last known address of the borrower is not the property in

foreclosure, then the notice must also be sent to the property subjectof the mortgage

ii. Must include a list of at least 5 local housing counseling agencies (“that servein the region where the borrower resides”)

1. *There is currently no definition to the term “region” iii. Must be mailed in a separate envelope from any other mailing or noticeiv. Must be a “home loan”

1. Definition of “home loan”a. (1) borrower is a natural personb. (2) debt incurred primarily for personal, family, or household

purposesc. (3) loan secured by a mortgage on real estate of one to four

family dwelling…used or intended to be used as theborrower’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 alsoDeutsche 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, 935N.Y.S.2d 257, 259 (Sup. Ct. Kings Co. 2011).

i. There are very few cases that address the circumstances in which a 90-daynotice is excused for non-residency

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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

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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

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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

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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

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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)

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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 2nd 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

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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 2nd Liens)

1. Part of HAMP 2. Requires modification of 2nd lien when 1st lien is modified under HAMP and

2nd 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

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