Wednesday, December 2, 2015

Should You File for Bankruptcy Before or After Foreclosure?

Should You File for Bankruptcy Before or After Foreclosure?

by: Kathleen Michon, J.D.

Deficiency After Foreclosure: When You Owe Money After the Foreclosure Sale

When a house is sold in foreclosure, the price at which the home is sold is often much less than the outstanding amount of the mortgage. This is especially true these days, when home prices are depressed throughout the U.S. The difference between the amount owed on the mortgage and the foreclosure sale price is called the “deficiency.” (Some states cap the amount of the deficiency to the difference between the property’s fair market value and the foreclosure sale price.)

Can the Lender Collect the Deficiency?

Whether your lender can come after you for the deficiency depends on the state you live in. Some states, including California, bar lenders from going after borrowers for a deficiency if the underlying mortgage was secured by the borrower’s principal residence. In most nonjudicial foreclosure states (states that allow lenders to pursue foreclosure without suing the borrower in court) and a few judicial foreclosure states (states that require lenders to sue borrowers in court before foreclosing), lenders have the right to recover a deficiency only if they file a separate lawsuit against the borrower. Because of the expense (and because borrowers who lose their homes in foreclosure often don’t have much in the way of income or assets), lenders frequently forego this right. (To find out what the law is in your state, see the Mortgage Deficiency Laws topic page and the article on Anti-Deficiency Laws.)

You May Owe Taxes if Your Lender Forgives the Deficiency

If your lender doesn’t pursue you for the deficiency and instead cancels the debt, in the eyes of the IRS you have just received taxable income. As far as the IRS is concerned, you once owed a certain amount of money (say, $20,000); you now no longer owe the $20,000; therefore, you’ve received a windfall of $20,000. You will have to pay income tax on that forgiven debt unless you qualify for one of two exceptions: the Mortgage Debt Relief Act of 2007 exception or the insolvency exception.
The Mortgage Debt Relief Act of 2007 is a federal law that excludes from taxable income forgiven debt that was (a) taken out to buy, build, or substantially improve the borrower’s principal residence (or to refinance a mortgage taken out to buy, build, or substantially improve the borrower’s principal residence), and (b) secured by the borrower’s principal residence. The maximum amount of forgiven debt that can be claimed under this exception is $2 million (or $1 million if you’re married but you file separately). This exclusion only applies to loans taken out during the calendar years of 2007 through 2013. (Congress is currently considering a bill which would extend that through 2015.) For more details and updates on this Act, see Nolo's article Canceled Mortgage Debt: What Happens at Tax Time?
To qualify for the insolvency exception, you must show the IRS that you were insolvent when the debt was cancelled. You were insolvent if the total of all of your liabilities was greater than the total of all of your assets
To learn more about the Mortgage Debt Relief Act of 2007 and insolvency exceptions, visit the IRS website at and search for “mortgage debt forgiveness” and “publication 4681.”

Will the Deficiency Be Discharged in Bankruptcy?

Filing for bankruptcy will eliminate some but not all of your debts. If your lender comes after you for the deficiency, and you file for bankruptcy afterwards, bankruptcy will wipe out the deficiency debt. On the other hand, if your lender forgives the deficiency before you file for bankruptcy, and you don’t qualify for any of the exceptions that would exclude the cancelled debt from your taxable income, filing for bankruptcy afterwards will most likely be of no help in eliminating your tax debt.
If you file for bankruptcy before foreclosure, your mortgage debt will be discharged. (Although the lien will remain, which means that if you default on payments, the lender can still foreclose.) Because there is no longer any mortgage debt, after the foreclosure sale there will be no deficiency and no tax liability for any cancelled deficiency debt.

Another Benefit of Filing for Bankruptcy Before Foreclosure

As soon as you file for bankruptcy, an order called an “automatic stay” is issued by the court. The automatic stay prohibits your creditors from pursuing any collection activities, including any action related to a pending foreclosure. While your bankruptcy winds its way through the court system, which could take three or four months, you have the opportunity to build up your savings by living in your home without paying any mortgage or rent.
Your lender has the right to ask the bankruptcy court to lift the automatic stay and allow them to go forward with the foreclosure. Nowadays, with the glut of foreclosed homes on the market, many lenders are foregoing this right and waiting for bankruptcy cases to conclude before continuing with foreclosures.

Click here to read the entire article

Tuesday, October 6, 2015

Vacant 'zombie' houses to get regular inspections and upkeep

STATEN ISLAND, N.Y. -- If you live near a vacant home, a lack of maintenance can lead to a "zombie" nightmare, lowering property values as it creates safety and health hazards.

Beginning this month, relief is on the way for neighbors of some of these properties that are in protracted foreclosure proceedings on Staten Island and across New York State.
Vacant residential homes with first-lien mortgages will get greater attention from 13 banks, mortgage companies and credit unions -- including Wells Fargo, Bank of America and Citi Mortgage -- that have agreed to adopt "best practices" to combat blight from properties whose loans they service.

Combined, the 13 financial institutions represent about 70 percent of the state's loan-servicing market, according to the state Department of Financial Services.

The best practices that these institutions will implement include the following:
  • The companies will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and abandonment, and then every 30 days thereafter.
  • If the property is determined to be vacant and abandoned, the bank or mortgage company will secure each unit at the property by changing the lock, replacing or boarding up windows, posting the property with contact information, and eliminating other safety hazards.
    Then, on an ongoing basis, the bank or mortgage company will monitor the property's condition to ensure it remains secure and that it complies with applicable provisions of the New York maintenance code (for example, the grass must be cut, and conditions at the property must be safe and sanitary).
  • The companies will also report properties determined to be vacant and abandoned to a state registry that will be developed by the Department of Financial Services, which will share that information with local government officials. The department will work with those local officials to address concerns about maintenance with the bank or mortgage company servicing the loan.
  • After these best practices are adopted and the registry has been created, participating companies will notify the Department of Financial Services of any new properties they have determined to be vacant and abandoned, and the agency will share this information with local officials across the state.
Under existing law, banks and mortgage companies are not required to maintain vacant and abandoned properties until they receive a judgment of foreclosure, often three years or more after filing for foreclosure, the Department of Financial Services explains. It is during this limbo period that some properties fall into disrepair.
The Department of Financial Services will accept complaints from neighbors and local officials about vacant properties, and the agency says that its Mortgage Assistance Unit will work with the applicable bank or mortgage company to resolve issues raised in any complaint.

Complaints can be submitted online at
Here is the list of financial institutions participating in the best-practices initiative:
  • Astoria Bank
  • Bank of America
  • Bethpage Federal Credit Union
  • Carrington Mortgage
  • Citi Mortgage
  • First Niagara
  • Green Tree Servicing
  • M&T Bank
  • Nationstar
  • Ocwen
  • PHH
  • Ridgewood Savings Bank
  • Wells Fargo
The full article can be found here:

Thursday, August 27, 2015

A Slack Lifeline for Drowning Homeowners

After Lucy Circe became disabled and could no longer work, she applied to Bank of America for a mortgage loan modification on her Vermont home. Over more than two years, starting in 2012, the bank repeatedly requested copies of documents that had already been provided, asked for proof that she was no longer married to a man she did not even know, and made other errors, like asking why Ms. Circe had indicated that she didn’t want to keep her property when she had actually told the bank she did.

None of it made sense. But a disturbing report on the federal government’s Home Affordable Modification Program issued on Wednesday suggests that Ms. Circe’s experience was anything but unique.

Mortgages: A Loan Modification Program’s Limited Reach Advertised in 2009 as a lifeline for as many as four million troubled borrowers, the program was one of the Obama administration’s signature efforts to help homeowners. But the report, by Christy L. Romero, the government official with authority to monitor the program, shows that six years later, just 887,001 borrowers are participating in loan modifications — deals that reduce the costs of mortgages.

It appears that the program has allowed big banks to run roughshod over borrowers again and again.

Instead of helping some four million borrowers get loan modifications, the report noted, banks participating in the program have rejected four million borrowers’ requests for help, or 72 percent of their applications, since the process began. From the outset, Treasury’s loan modification program had problems. Among them were two design flaws: making the program voluntary for the banks and letting those banks that participated run the process on their own.

The data points in the new report are grim.

CitiMortgage, a unit of Citibank, had the worst record, rejecting 87 percent of borrowers applying for a loan modification. JPMorgan Chase was almost as bad, with a denial rate of 84 percent. Bank of America turned down 80 percent, and Wells Fargo rejected 60 percent.

The banks say they have good reasons for rejecting loan modification applicants. In 38 percent of cases, the banks blamed the borrower for either not completing the paperwork or failing to make the first payment under the program.

Mark Rodgers, a Citibank spokesman, for example, said the bank was committed to keeping borrowers in their homes. The bank has approved 100,000 loan modifications under the program, he said, representing half of the applications that were complete.

Representatives of two other banks, JPMorgan Chase and Bank of America, disputed the denial rates cited in the report. Rick Simon, a spokesman for Bank of America, said that two-thirds of the applications made under the Treasury program did not qualify, but “in the end, 83 percent of more than one million customers whose HAMP applications were reviewed by Bank of America — five out of six — avoided foreclosure through either a modification or another solution.”

But Ms. Romero, whose title is special inspector general of the Troubled Asset Relief Program, said the high rejection rates her office found pointed to problems at the banks, not with borrowers.

“We’ve always known that a lot of people were being denied for loan modifications,” Ms. Romero said. “When we started looking at these numbers — 80 percent or more at the larger servicers — it’s so telling that something is not right in these operations.”

As the report noted, Treasury has a responsibility to ensure that the banks involved in the program are not wrongfully rejecting homeowners for a modification. But that’s not happening, Ms. Romero said.

“We are constantly seeing problems with the way servicers are treating homeowners and not following the rules,” Ms. Romero said in an interview on Wednesday. “I don’t understand why there hasn’t been a stronger policing from Treasury on servicers.”

In response to the report, Mark McArdle, chief of Treasury’s Homeownership Preservation Office, said the agency had “robust compliance procedures” to test whether banks were improperly denying loan modification applicants. That process, he said, indicates that improper rejections are uncommon. In a statement, he added, “Since 2011, we have seen significant improvement in servicers’ compliance with program guidelines, including proper evaluation and denial decisions.”

Ms. Romero doesn’t buy the notion that improper rejections are rare. And neither do legal aid lawyers representing troubled borrowers. On the front lines in the foreclosure process, the lawyers say they’ve seen all manner of bad behavior from the banks on loan modifications.

“Virtually never does one get a loan-mod application properly evaluated the first time,” said Jacob Inwald, director of foreclosure prevention at Legal Services NYC, which provides legal representation to troubled borrowers. “We deal with these issues every single day. It requires constant pushback and challenging wrongful denials.”

He said he was swamped with such cases. It took him about two minutes to locate and send me court documents showing the abusive tactics seven borrowers in New York recently faced trying to get a loan modification under the Treasury program. He says these cases are just a small sample demonstrating that the banks are not complying with the rules.

It is never wise to exclude incompetence as a reason for the trouble that borrowers may be having with loan modifications. But Mr. Inwald said there could be a financial motivation as well. Delaying a borrower’s loan modification request can be profitable for a bank; extra time for the bank means more interest and fees can be charged to the borrower, increasing the amount owed on the mortgage.

In a case last year involving America’s Servicing Company, a unit of Wells Fargo, the bank improperly denied a borrower’s loan modification request four times over almost two years, adding $40,000 to the amount he owed, New York State court documents show.

At one point, the bank claimed that the borrower did not live in the home that was facing foreclosure, which was untrue. At another, it incorrectly calculated the borrower’s income and denied the loan modification.

The bank’s conduct “evinces a disregard for the settlement negotiation process that delayed and prevented any possible resolution of the action and, among other consequences, substantially increased the balance owed” by the borrower, the appellate court ruled. It barred the bank from recovering the $40,000 incurred during the protracted modification process.

Tom Goyda, a Wells Fargo spokesman, said the New York court case “does not reflect the experience of the vast majority of the Wells Fargo customers who remain in their homes today as the result of a mortgage modification.”

Ms. Circe’s efforts to modify her loan took a number of twists and turns. A year after she applied for the modification, in October 2013, Bank of America denied her application, saying “all borrowers are unemployed,” even though Ms. Circe’s Social Security disability insurance and rental income on the house were more than enough to support a modified payment.

Jessica Radbord, her lawyer at Vermont Legal Aid in Burlington, kept battling on her behalf.

Finally, in April, Bank of America agreed to modify Ms. Circe’s loan.

“It’s kind of stunning when they come back with all these strange reasons for denials,” Ms. Radbord said. “What really bothers me is, how on earth would a homeowner be able do this on their own?”

Homeowners wouldn’t be, and the government isn’t helping them much. That goes a long way toward explaining how a program intended to help four million troubled borrowers instead gave them the boot.


Thursday, July 30, 2015

Court Cites Mortgage Lenders' Failure to Act in Good Faith

Two mortgage banks will forfeit more than $100,000 of interest on loans to a Manhattan couple, a judge ruled Wednesday, as a sanction for not acting in good faith in responding to requests for a mortgage modification.
Manhattan Supreme Court Justice Peter Moulton said Bonnie and Lawrence Singer were "thwarted by unresponsive loan servicers, unprepared lawyers, boilerplate form letters, and the banks' or servicers' often-changing and repetitive demands for financial information," in their four-year quest to "climb out of default."
The Singers bought two contiguous apartments in the Washington Heights neighborhood in 2004 in two separate transactions. They combined and renovated the apartments into an 1,800-square foot unit, which New York City taxed as a single apartment.

The 2008 recession caused the Singers' household income to drop to $106,000 a year, according to the ruling. That forced the couple—self-employed owners of an acting studio—to exhaust their savings to keep up with the mortgage, taxes and common charges totalling $5,000 per month on the three-bedroom apartment.

Bonnie Singer had not worked since August 2009 and her husband's business as a drama coach "was suffering due to the economic downturn," Moulton said in Federal National Mortgage Assoc. v. Singer, 850039/2011.

The mortgages had an outstanding principal balance of about $500,000 and carried interest rates of 6.75 percent and 7.4 percent, which Moulton said "were nearly usurious in the current market."

Despite Bonnie Singer's efforts to consolidate and modify the loans beginning in early 2009, Countrywide, the lender who held both loans at the time, said it would not extend the term or lower the interest rate. The lender said the Singers did not qualify as distressed borrowers because their monthly payment on each loan, standing alone, did not exceed 31 percent of their combined gross income.

Moulton called the bank's stance "an absurd result" symptomatic of "many of the faults that plague the current system of refinancing residential property that is in default and/or in foreclosure. "

The loans were eventually sold to Bank of America and the Federal National Mortgage Association, know as Fannie Mae. In January 2010, the Singers stopped making payments on both loans.

Fannie Mae delayed filing for foreclosure for nearly 18 months after the date of default and "did not offer the Singers a new loan modification agreement until the very end of October 2013—a whopping nine-month delay," Moulton said. "Finally, it took Fannie Mae's counsel another five months to reject the Singers' Jan. 1, 2014 counteroffer to pay $18,000 of the accrued interest."

Bank of America filed for foreclosure in July 2013. After that, the case "appears to have fallen into a black hole, despite the fact that my court attorney inquired about the status of BOA's foreclosure filing at nearly every conference," Moulton said.

Citing two prior rulings by courts in Suffolk and Kings counties, Emigrant Mortg. Co. v. Corcione, 28 Misc 3d 161 (2010), and HSBC Bank USA v. McKenna, 37 Misc 3d 885 (2012), holding that tolling of interest back to the date of a borrower's default was a proper sanction for the banks' bad faith, Mouton granted the Singer's motion to the extent of eliminating interest above 2 percent that accrued on the loans from the 2010 default.

Bonnie Singer, who represented the couple pro se for two years, said the banks had "completely ignored her" before they defaulted on the loans.

"We tried to be proactive about the situation, but no one was willing to talk to us," she said. "We were completely left to plummet into a situation where we could not help ourselves. My husband and I practically ceased to function normally, were constantly anxious and depressed by the situation."
Singer said she had offered to make payments of $2,000 a month on the loans, with a balloon payment of the outstanding balance if they should sell the unit.

Paul Kerson, who was retained by the Singers in 2013, said he had proposed balloon mortgages in this and other foreclosures he has handled because "it's a win-win for everybody."
"The banks have an infinite life," said Kerson, a founding partner at the five-lawyer firm of Leavitt & Kerson. "People have a finite life."

"At some point, the Singers and others like them will retire to Florida or die," he continued. "In either event, the apartment gets sold and the bank gets paid. People like the Singers typically have homes that are way more valuable than the mortgage balances. Until then, you fix the monthly payment at what they can afford."
Kerson said there had been five settlement conferences in the Singer case, "and BOA and Fannie Mae refused to meaningfully participate in settlement discussions at any of them."

Singer said she brought a "foot-thick stack of documents, wheeled in on rollers" to each of the conferences. "The lesson to other people in this kind of Kafkaesque nightmare is don't give up, and be able to document everything you did to negotiate in good faith."
Edward Rugino, an associate at Rosicki, Rosicki & Associates, represented Fannie Mae. He did not respond to emails requesting comment.

Nancy Burlingame, a senior associate at Frankel, Lambert, Weiss, Weisman & Gordon, represented Bank of America. She could not be reached for comment Monday.

Related Decisions:
·         Federal National Mortgage Assoc. v. Singer, 850039/2011

Firm Sanctioned for Actions in Foreclosure Case

A bank's law firm has been sanctioned for failing to mention it was negotiating a mortgage modification with a borrower while pressing a foreclosure action against the borrower in the courts.Bronx Supreme Court Justice Norma Ruiz, acting sua sponte, hit Fein, Such & Crane of Rochester with a $1,000 fine, saying the "omission of the fact that the parties were actively negotiating a loan modification during the time this [order of reference] motion was on the court's motion calendar is a material misrepresentation that constitutes frivolous conduct."

Wells Fargo Bank began a foreclosure against Kwaku Boffour in September 2011. When the bank initiated the action, however, no Request for Judicial Intervention was filed.

As a result, the case joined what court administrators call the "shadow inventory" of residential foreclosure cases where a summons and complaint had been filed, but no referee or judge could be assigned.

According to an Office of Court Administration report, New York City courts, beginning in 2012, identified more than 7,500 cases in such a posture.

Almost two years after the foreclosure action against Boffour was filed, it was conferenced in a court part established for the "shadow inventory"; there, the sides can discuss modifications or other loss mitigation options.

The borough's foreclosure settlement part was overseen at the time by Bronx Supreme Court Justice Robert Torres, though court-attorney referees and judicial hearing officers manage the day-to-day court appearances.

Between appearances from September 2013 to December 2013, Torres stayed all proceedings while the sides worked on the documentation and preparations needed for a modification.

Meanwhile, before the foreclosure action was filed, Boffour changed his name to Ernest Abrokwa, according to his attorney, Vincent Cuocci of Sayville, who said the name change may have complicated the matter.

In any event, Abrokwa was told to provide all outstanding documentation by Dec. 31, 2013.Ruiz said because there was "something inherently wrong with negotiating a loan modification while simultaneously trying to foreclose on the subject property, the court equitably stays all further proceeding until the settlement conferences have concluded." In addition, Ruiz said it was "an unsupportable waste of the court's time and resources" to review motions and documents and then be notified by a plaintiff about a discontinuance.

On Dec. 24, 2013—"in clear contradiction of the stay," Ruiz said—the bank moved for an order of reference, and the motion was randomly assigned to Ruiz.

The motion was also served on Abrokwa's home address instead of on Cuocci, who already had made three court appearances by the time of the motion.

When Ruiz reviewed the record in Wells Fargo Bank, N.A. v. Boffour, 381155-2011, to determine the case's status, something she did routinely before granting an order of reference, she said she learned the parties were trying to negotiate a loan modification.

An affirmation from Miranda Sharlette, an associate at Fein, Such & Crane, said Abrokwa did not live on the premises. Cuocci said his client did live on the premises.

Sharlette's affirmation did not mention the modification negotiations. "By omitting this fact, plaintiff misrepresented the actual status of this case to the court," Ruiz said.

The judge ordered a hearing to determine if the conduct was sanctionable. Cuocci said he did not attend the hearing and had submitted a letter saying his client was not seeking sanctions.

Ruiz said she asked Sharlette how it was possible for the motion to be filed under the circumstances. She said Sharlette told her it was her understanding that the matter was in the shadow inventory conferences, which she contended were different from mandatory settlement conferences.

Ruiz said the "plaintiff thought it could nevertheless circumvent the stay" imposed under administrative rules for residential foreclosure actions and settlement conferences and seek an order of reference because the stay "only applies to mandatory conferences for defendants that reside in the subject property.

"This flawed rationale ignores the fact that Justice Torres expressly stayed all proceedings in this action," she continued.

Ruiz ordered the sanction be made payable to the Lawyers' Fund for Client Protection. Sharlette could not be reached for comment.

Cuocci, who achieved a modification for Abrokwa in the summer of 2014, said he viewed the sanction as a message, set at a "nominal enough amount," to tell lenders they could not engage in negotiations and motion practice simultaneously.

"I do see this happen from time to time," he said.

Friday, May 8, 2015

Deutsche Bank National Trust Co. as Trustee Under Pooling and Servicing v. Husband, 24521/08

Defendant Husband previously moved for, and was granted, an order confirming a special referee's report, which found bad faith under CPLR 3408(f) against Deutsche Bank. The court held a hearing to address the appropriate sanctions for the bank's lack of good faith during the 3408(f) conferences. The court found, in its June 2014 decision, the actions and inactions by the bank clearly indicated an absence of good faith as was contemplated by the statute. It noted there was nearly a 10-month delay regarding the bank's addressing Husband's modification process, and the referee found such delays to be dilatory . The court concluded that after six years of efforts to obtain a loan modification for Husband, some remediation was appropriate, finding the referee determined the bank did not negotiate in good faith in the 18 appearances before her in 2012. It ruled the appropriate sanction was to reduce the interest rate to two percent on the balance that accrued after Aug. 1, 2010, the date the bank should have approved Husband's HAMP application, instead of delaying until Dec. 11, 2011, and offering a modification designed to be rejected. The bank and its loan servicer were also barred from collecting attorney fees incurred after Aug. 1, 2010.


NASSAU COUNTY: Westbury Properties v. Produce Distributors, Inc.

Plaintiffs moved for summary judgment to cancel and discharge the record mortgage. Westbury Properties obtained titled to a Westbury property from Prisco, who conveyed an Oceanside property to South Shore Farmer's Market. The owners of the Westbury and Oceanside properties gave a mortgage to Produce Distributors, and the parties to the mortgage agreed there was over $1.75 million due on the subject promissory note and loan associated with the mortgage. Both sides agreed there was never a payment made under the note, mortgage or extension agreement. The court found plaintiff demonstrated the statute of limitations to commence an action for foreclosure expired, therefore, made a prima facie showing of entitlement to relief, while defendant Produce Distributors failed to raise an issue of fact as to why such relief should not be granted. It noted defendant failed to submit evidence to support a contention that discovery would alter the result—that discovery may yield fact to provide a bona fide defense to the motion. Accordingly, the motion for summary judgment was granted, and the County Clerk was ordered to cancel the mortgage and extension of record. The court dismissed any counterclaims seeking to foreclose or enforce the mortgage.


Friday, May 1, 2015

Foreclosures Approaching Time-Barred Status --

Teresa and Fred Tovar with their attorney, Ivan Young, at the Tovar home in Sound Beach, Long Island.
Years into a stressed housing market, some lenders who have filed foreclosure actions may be running out of time to get their money back.

Defense lawyers are paying increasing attention to the length of foreclosure proceedings on the theory that some cases have become time-barred by a six-year-statute of limitations.

There are no hard figures on how many of the state's approximately 92,000 pending foreclosures may be vulnerable to this tactic. But of cases that originated with the housing market collapse, at least one trial court in Long Island already has ruled that a foreclosure is time-barred, and other claims are being litigated.

Ivan Young, principal counsel at the Young Law Group in Bohemia, prevailed in December on a motion to dismiss with prejudice a foreclosure case against Fred and Theresa Tovar. The ruling in Beneficial Homeowner Service Corp. v. Tovar, 61092/2014, is being appealed.

Young is defending about 250 foreclosure cases in New York City and Long Island. He is awaiting a decision on another statute of limitations motion and has at least a dozen other cases where he is preparing timeliness motions.

Young swatted away the idea that the Tovars and others are trying to get a house for free. For one thing, there still is a lien on the Tovars' home, he noted.

"The defense of statute of limitations, that is a defense created by the state Legislature. This is the law. There is no flexibility, no ifs, ands or buts," he said.

Besides, Young added, "the banks did it to themselves by waiting too long. It's not the borrower's fault they are using defenses available to them. And if banks want to avoid these issues, then modify the loan."

He noted the Tovars "had applied for modification in the past, which never resulted in a modification being approved for them."

The statute of limitations clock for a mortgage foreclosure starts to run when the lender accelerates the mortgage balance, which in other words, declares the balance due in full.

The lender can accomplish acceleration by filing a foreclosure summons and complaint or a simple letter accelerating payment of the loan.

Even if the foreclosure action is dismissed, the acceleration survives. If has been accelerated more than six years ago, the statute of limitations has expired.

If acceleration occurs and six years pass, a subsequent partial payment or debt acknowledgment can start the clock again. Lenders also have the option of revoking an acceleration.

Peter Frank, a Kingston-based senior staff attorney in Legal Services of the Hudson Valley, said his colleagues have handled cases where timeliness was a possible issue, and there are a few current cases where the issue might dispose of the case.

"The real tragedy of the foreclosure crisis is the toll it takes on human beings. I have clients waiting since '07, '09, '11, not knowing whether or not, month to month, season to season, if they will stay in their home," said Frank. "This is the law. It's not something we conjured up in the middle of the night."

"We're paying increasing attention," to the statute-of-limitations defense, said Jacob Inwald, director of foreclosure prevention at Legal Services NYC, who says that banks are usually responsible for "time that got eaten up."

Elizabeth Lynch, supervising attorney for MFY Legal Services' foreclosure project, said it was rare to see cases where homeowners had not made some post-acceleration mortgage payments.

She said attorneys at the organization were always aware of the statute of limitation issues but had not found any cases with sufficient facts to advance the argument.

When they did see a statute of limitations problem with an aging case, Lynch said it was used as a "negotiating tactic" to press for better modification terms.

Besides, she said homeowners "want the security of paying a mortgage ...Most want to make payments and get on with their lives."
A 'More Prominent' Problem

Bruce Bergman, a partner at Berkman, Henoch, Peterson, Peddy & Fenchel in Garden City, and a New York Law Journal columnist who has primarily represented lenders in foreclosure litigation, said the law had been clear, at least since a 1994 Appellate Division, Second Department, ruling, Fed. Nat'l Mtge. Ass'n v. Mebane, 208 AD2d 892, which said acceleration does not go away with a dismissed case.

"The problem, however, was not as prominent because five- and six-year durations of foreclosures were unusual so that the dismissal of the action after all those years, which would have allowed the statute of limitations to meanwhile expire, was seldom encountered," said Bergman, author of "Bergman on New York Mortgage Foreclosures."

But according to him, the current circumstances—"the volume of foreclosures, vociferous borrower defense and borrower friendly legislation—means that foreclosures are taking longer and many more cases will approach consuming four, five and six years, making far more prominent a problem of case dismissal coinciding with expiration of the statute of limitations."

Roberta Kotkin, general counsel and chief operating officer for the New York Bankers Association, said the statute of limitations was a "standard defense" and was something banks faced in many foreclosures. Still, the defense "seems to be getting more play," she said.

Kotkin said the association's concern was that now New York courts have become inundated with cases and foreclosures had "become a very long, difficult process for everybody."

In the Tovar case, the mortgage was accelerated Oct. 4, 2007, through the filing of a summons and complaint.

In September 2008, a judgment of foreclosure and sale was granted.

Theresa Tovar filed a Chapter 13 bankruptcy petition in 2009. It was dismissed months later and the automatic bankruptcy stay was terminated.

In January 2010, the defendants moved to dismiss the case because of improper service. The application was granted in May 2010.

Almost two years later, the bank moved to discontinue the 2007 action. It filed the second foreclosure action in February 2014.

In court papers, Young said the lender ran past the six-year deadline by more than four months.
The lender countered that Young's "simple arithmetic" was wrong as to when the clock started, stopped and resumed.

Though Young argued otherwise, the bank said it did revoke its decision to accelerate. Moreover, the service issues that scuttled the first action had to be factored into the current case, the bank said.
"No service of process in the prior action means no acceleration in this matter until the filing of the instant foreclosure case, which means no bar to this action by the statute of limitations," said the lender.
Then-Acting Suffolk County Supreme Court Justice Stephen Behar said the Tovars had sufficiently showed the action was time-barred and had to be dismissed.

Behar noted that the Second Department repeatedly said that "without an affirmative and unambiguous act by a lender to revoke a prior acceleration, the acceleration remains undisturbed and the limitations statute still runs."

Young, who is handling the appeal, noted that Behar's decision did not remove the lender's approximately $388,000 lien on the property.

Young said the Tovars would have to ask a judge to extinguish the lien through a quiet title proceeding under to the Real Property Actions and Proceedings Law.

He said he was discussing with the Tovars whether he would represent them in that matter as well.
Caliber Home Loans, the servicer on the mortgage, declined to comment on the litigation.

Robert Brown, an attorney with about 100 active foreclosure defense cases, said "there's no reason in the world banks shouldn't be able to bring an action in six years."

Though Brown said he was still waiting for the statute of limitations issue to ripen in a number of cases, that time would come—and not just for his cases, but for other defense cases too.

"There's going to be a giant wave of them," he said.

However, an attorney who represents mortgage servicers in foreclosure matters who declined to be identified, said he doubted that.

He acknowledged that cases presenting possible statute of limitations issues were "definitely out there, no doubt about it. But if it's 500, I would say it's a lot."

The attorney added that "while defense attorneys are now looking for them, so are the servicers," who would be revoking the acceleration.

Related Decisions:

Tardy Foreclosure Answer Should Be Accepted, Panel Says

Saying it was best to decide cases on the merits, a divided Manhattan appellate court ruled that a judge should have compelled a bank to accept a homeowner's late answer in a foreclosure action.
The 3-2 majority of the Appellate Division, First Department, panel said the "relatively short delay" that was mostly connected to ongoing settlement conferences did not harm the bank.
Moreover, with "serious issues" regarding the ownership of the mortgage and note, the unsigned majority in HSBC USA v. Lugo, 13454, said Tuesday "these issues are best resolved on the merits, as opposed to on default."
The majority modified a lower court ruling to grant the borrower's bid to compel acceptance of the untimely answer. The panel otherwise affirmed the lower court, which denied a motion to dismiss the case.
The majority consisted of Justices Dianne RenwickJudith Gische and Darcel Clark.
Justice Peter Tom, however, said the outcome resulted "in the exception swallowing the rule. If reaching the merits is the paramount goal, a court need never consider the statutory prerequisites for the grant of relief from a default—namely, a reasonable excuse and the demonstration of the merits of the defense."
Tom added that the majority was inaccurate in saying the delay was linked to settlement talks. And "even on appeal, defendant supplies no excuse for the delay in answering," he said.
He was joined in the dissent by Justice Leland DeGrasse.
The case was argued Oct. 16.
The matter arose from a 2006 Bronx mortgage between New Century Corporation and Betty Lugo, which was worth $271,360.
New Century purportedly assigned the mortgage to HSBC Bank. The mortgage was serviced by Bank of America.
The foreclosure was filed in 2009, with Lugo having a default balance of almost $269,000.
Although there is a 30-day clock to submit an answer or motion to the opposing side once service is complete, Lugo's brief said her counsel tried unsuccessfully to ask for extensions with the bank's counsel at Steven J. Baum P.C.
Lugo served an answer in February 2010, approximately five months after getting the summons and complaint, but the Baum firm rejected the answer as improperly served.
In any event, the bank acknowledged that from September 2009 to June 2011, it put the foreclosure matter on hold while the sides tried to negotiate a settlement, including a possible short sale.
In the aftermath of Hurricane Irene, the case was further put on hold from September 2011 to November 2011.
Almost two years after the answer's rejection, Lugo attempted to dismiss the case, or at least force the bank to accept her untimely answer.
In July 2012, Bronx Supreme Court Justice Kenneth Thompson, Jr. denied Lugo's bid and she appealed.
The majority said Thompson correctly denied dismissal. Among other things, Lugo waived her right to argue the complaint was abandoned because she did not complain when the bank treated her answer as a notice of appearance and she made document requests to the bank.
Still, "in light of the strong public policy of this state to dispose of cases on their merits, the motion court improvidently exercised its discretion in denying defendant's motion to compel acceptance of her untimely answer," the majority said.
The circumstances of the case showed Lugo's delay was not willful, the majority found. She also had an "arguably meritorious affirmative defense" pertaining to standing, the panel said, noting the absence of a note and mortgage in the record and an undated assignment.
Yet Tom said it was the "rare appellate case" where the majority's reasoning was applied to a motion to compel acceptance of an answer. He said Lugo, who did not use the premises as a principal residence, benefitted to the bank's detriment.
Considering the loss of interest on the debt and the property's carrying costs, Tom said, "it also cannot be said that plaintiff will not continue to sustain prejudice as a result of further delay in recovering the property."
Robert Brill and Anita Jaskot of the Law Offices of Robert M. Brill in Manhattan represented Lugo on appeal.
In an interview, Brill said the majority concluded it was "incumbent on the courts to permit that which our system does best: to allow facts to be turned into evidence, presented to the court either for final judgment or trial."
Geraldine Cheverko, then with Eckert Seamans Cherin & Mellott in White Plains, represented the plaintiffs.

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Citibank (South Dakota) N.A. v. Improta – Richmond County Judge Philip Straniere Continues to Look Out for the Little Guy.

Citibank (South Dakota) N.A. v. Improta – Richmond County Judge Philip Straniere Continues to Look Out for the Little Guy.

In similarity with his past decisions protecting the rights of consumers and homeowners, Judge Philip Straniere issued a decision and order dismissing Plaintiff-bank’s case against an alleged credit card debtor, due to the Bank’s failure to submit admissible proof to the Court of the alleged monies owed.
Judge Straniere also again raised the important question: “…[A]t what point does an interest rate set in another state in excess of New York’s usury law of 16 percent [3 NYCRR 4.1] become unenforceable as in violation of New York’s public policy.”

From NYLJ,  April 7, 2015

“Citibank sued Improta claiming she failed to make payments on a credit card agreement. The court found the action timely as both South Dakota and New York's statute of limitations for contracts acts was six years. It noted, however, that but for a small amount of activity in October 2008, Citibank would not be able to establish that Improta was bound by the agreement as it could not prove mailing of the July 2008 agreement to Improta. Yet, same was rendered moot by billing statements which indicated Improta knew about and acknowledged the debt by negotiating a payment plan for a period of time. Also, under South Dakota law, use of the card, even without receipt of an agreement, apparently created a contract. However, the court noted the monthly statements submitted by Citibank were incomplete, and based on same, the court ruled they were inadmissible. Further, Citibank's failure to establish what the Prime Rate was each month, and provide a "fact sheet" was a failure of proof, and as Citibank included such calculations in the amount it claimed was due, it could not prove its damages. Thus, while Improta had a credit card agreement and owed Citibank money, Citibank failed to prove its prima facie case. The court granted Improta judgment, dismissing Citibank's claim.

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