A New Yorker’s guide to fighting a foreclosure: 5 defenses that could save your home
If you receive a foreclosure notice on your New York City condo or house, whatever you do, don’t ignore it. Despite the severe tone of the papers being served, foreclosure is not inevitable—there are many tactics you and your lawyer can employ to gain leverage and negotiate a successful resolution.
“People are often afraid to open these bank communications, but putting it in the drawer doesn’t mean the notice wasn’t served,” says Bonnie Reid Berkow, founding partner of Wagner, Berkow & Brandt, who has more than 30 years of litigation experience.
If you are served with a foreclosure notice, “the clock has started,” Berkow says. You may be eligible for a loan modification. “Get a lawyer to look at the notice. Many times the initial notices are sent by a firm handling foreclosures in bulk and often the notices have mistakes that can be a defense in the foreclosure,” she says.
These mistakes can buy you time to work out a deal with the bank. Here are five successful foreclosure defenses.
The bank doesn’t have the note
When a foreclosure action is commenced, one of the most important documents is the bank note. This is the paperwork issued with the mortgage and it is associated with your promise to pay back the money that is owed.
“The most common problem banks have when they are foreclosing is being able to demonstrate that they were in possession of the original note when they commenced the action,” Berkow says.
If they were not in possession of the original note they do not have any right, called “standing,” to bring the foreclosure action.
“Showing that the dots aren’t connected is one of the ways to defeat a foreclosure,” Berkow says.
She points out that banks frequently put in standardized affidavits saying they had the note when the action was started but in some situations the note was issued by an entity, “either a bank or loan servicer that has changed and merged and gone through all kinds of permutations and bundles and if they can’t find the original note or they didn’t have it when they started proceedings, the case will be dismissed, usually without prejudice.”
Dismissing the action “without prejudice” means the bank can start a new foreclosure action if they locate the original note and have all the necessary paperwork in order.
A new action may be time-barred
If the bank wants to start a new action, there may be a problem if more than six years have passed since the bank “accelerated” the note. This means the date when the bank declared the note in default and notified the borrower that all amounts under the note were due.
Acceleration of the note can happen either when a letter is sent notifying the borrower that the note is in default and declaring the debt accelerated or, if no such letter is sent, when the foreclosure action is commenced.
Berkow represented a borrower in a case where the foreclosure action was dismissed on technical grounds but the original letter accelerating the note was sent more than six years previously. The court held that the bank could not bring a new action to foreclose because it was barred by the statute of limitations.
However, it depends on the reason an action was dismissed. If it’s down to the bank not having the original note and therefore not having “standing,” then a new action will not be time barred. If there was no “standing,” it’s as if the action was never started, there was no acceleration of the note, and the statute of limitations did not start to run.
The notice isn’t correctly prepared
Papers are not always served correctly which can result in a foreclosure being dismissed on a technicality. Before a foreclosure action is commenced, “notices have to be sent to the borrower and they have to be sent in a very specific way so if they don’t do it correctly they can’t go forward with the foreclosure,” Berkow says.
With the right representation, you may be able to demonstrate that the required notices have been incorrectly or even fraudulently served. In the past 10 years, a lot of foreclosure cases were dismissed because the banks were “robo-signing” notices. This is the practice where thousands of notices from many different banks are signed by the same individual, sometimes in different states on the same day.
“Every time there is foreclosure, your attorney should be looking at all the loan documents, checking the signatures and making sure the notices are properly signed and authorized and that they are not robo-signed.” Berkow says.
She adds, “If the action gets dismissed it can provide leverage to strike a better deal with the lender.” While the bank can fix mistakes, uncovering them can put you on a stronger footing when negotiating a settlement or loan modification.
Your bank needs to offer to modify your loan
If you’re entitled to a loan modification under the federal Home Affordable Modification Program (HAMP), a lender can’t foreclose until they offer it to you. “This reduces your principal or interest rate so your payments add up to a percentage of your gross income or less,” Berkow says.
Eligibility for loan modification is based on the size and date of the mortgage, as well as the participating lender and any proof of hardship. If a lender fails to offer a modification to an eligible borrower before filing a foreclosure action, “they are violating a consent order, which is very serious,” Berkow says. “By bringing this to the bank’s attention, it’s possible to turn things around very quickly with lenders who have not negotiated fairly with a homeowner,” she says.
If you enter into a loan modification, you have to abide by it. “You must be careful to work out a loan modification that you can realistically comply with, otherwise you will be right back at square one, being served papers again,” Berkow says.
Your attorney can help you negotiate the right loan modification for your situation.
The bank fails to pursue the foreclosure action
Recently, Berkow’s firm successfully fought a foreclosure notice on a Manhattan condo where the bank began the foreclosure and then let more than 10 years pass without completing the process. Berkow managed to get a court order to limit the amount of interest the bank could collect, thereby protecting the equity in the property.
“If they are letting interest accumulate over five to 10 years, that could add up to hundreds of thousands of dollars of interest, which significantly reduces any possible surplus that might be available at a foreclosure sale. This could be a defense in a bank foreclosure by the borrower, because if the bank sits on the case for a long time allowing excessive interest to accumulate it is harmful to the borrower,” she says.
Mediating a deal
Courts require that the lender try to settle the claims. It can take at least two or three sessions of mediation to try to resolve the foreclosure so you can keep your home,” Berkow says.
A resolution might involve stopping or undoing a foreclosure or giving the borrower time to sell the property and agree to a short sale.
If you have reached the point of mediation, make sure you attend the sessions with financial information like tax returns and proof of both your expenses or some other hardship so you can explain that in court.