Dramatic Changes to Residential Foreclosure Laws

A recently signed law, parts of which are already effective and parts of which will be effective in the next few weeks, adds significant burdens upon lenders seeking to foreclose residential loans. Notice to Tenants Effective January 14, all tenants in a residential property (even those without written leases) are to be notified directly, within 10 days of service of the summons and complaint. Depending on the size of the building, this notice is to be sent by certified and regular mail or by posting the summons and complaint to all entrances and exits of the building. The notice informs the tenants that if the leases are not substantially below fair market, the tenants may remain for the term of the lease. Those without leases may remain for 90 days after the acquirer of title notifies the tenants (see below). An exception exists that limits a tenant’s right of occupancy to ninety days (for a single unit) 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. An owner of the residential real property is excluded from this section. The tenancy continues under same terms and conditions of lease as were in effect at time of entry of judgment, or transfer of ownership. The obligation to pay fair market rent, is defined as rent for a unit of residential real property of similar size, location and condition. 90 Day Notice The current 90 day notice is expanded to include all residential loans, of any amount, including condominium and co-op loans provided that it is the borrower’s principal residence. (Previously, only borrowers with “high-cost,” “subprime” and “nontraditional” home loans had to be sent this notice. A new provision requires the notice to be sent in a separate envelope from any other mailing or notice. The notice is the same as set forth in the Foreclosure Prevention and Responsible Lending Act of 2008 and must be sent to the borrower by registered or certified mail, as well as by first-class mail, to the last known address of the borrower and if different, to the residence that is subject to the mortgage. The date the notice is mailed is the date that the notice is considered to be given.) This was effective as of January 14. Leases Survive Also effective as of January 14, is a new requirement mandating notice to tenants informing them of their right to remain in the property so long as their leases are at market rates. Those without written leases can remain for 90 days after their receipt of a post-auction notice. Electronic Filing with the State As of February 13, every lender, assignee or servicer must file electronically with the NYS Superintendent of Banks, within three business days of mailing the 90 day notice. The filing must include the name, address and last known telephone number of the borrower, the amount claimed to be due, and “other information as will enable the superintendent to ascertain the type of loan at issue.” Additional information may be later requested by the superintendent to determine if the borrower may benefit from foreclosure counseling. The lender must affirmatively plead compliance with this statute in the complaint. Note, I do not believe that this filing system is currently available. So, as of February 14, one must wonder if a residential foreclosure action may be commenced. Maintaining the Property As of April 14, any lender, upon obtaining a judgment of foreclosure and sale for a residential property, must maintain the property until the deed is recorded. This applies to vacant property, property that becomes vacant after judgment, or abandoned property in which a tenant resides. The lender’s obligation includes certain minimums listed in the maintenance code, but where a tenant is in place, additional conditions are imposed. Unless an emergency, the lender must give the tenant seven days notice before entry to inspect and repair the property. The owner’s bankruptcy filing stays this section. Where a receiver is in place, this action does not apply. The law provides for the municipality, tenant and a condominium board of managers or homeowners association (if such premise is subject to rules and regulations of an association), a private right to enforce this duty in court, after seven days notice to the plaintiff. Damages can include costs incurred to maintain the property. This section does not alter existing obligations to maintain, or liabilities for failure to do so, of the mortgagor, or a receiver of rents and profits appointed in an action to foreclose a mortgage, to maintain the property. Conferences Court conferences in foreclosure actions will now be held for all loans, even traditional loans, within 60 days of filing. The parties are now charged to negotiate in good faith. The lender may not charge the borrower for the attorneys’ fees incurred in connection with the conferences. Other issues were addressed which changed definitions and limitations on charging fees for loan modification assistance, including a prohibition on mortgage brokers and loan officers from taking any up-front fees in conjunction with activities constituting the business of a distressed property consultant. This is a quick write-up and not to be relied on. Look to the statutes for the details.

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