Our alert of July 15, 2016 reviewed that portion of the new omnibus foreclosure bill to be effective December 20, 2016 relating to the dangers of the additional and more stringent 90-day notice requirements. We now address the balance of the bill: new judgment, sale and conveyance impositions, settlement conference dictates, new maintenance obligations and its companion expedited foreclosure procedure.
Judgment and Sale
The amendment regarding the foreclosure sale [RPAPL §1351(1)] understandably seeks to accelerate the foreclosure process by requiring the sale be held within ninety days of the date of the judgment. Aside from this presupposing that it is lenders who are volitionally delay scheduling sales (a point strongly disputed, and simply not so) this fails to take into account the realities of foreclosure process. First, a judgment is not available to a foreclosing plaintiff until it is entered. Depending upon the venue, this can be weeks or months after the date of the judgment. This immediately can render the ninety day sale date requirement unachievable. With or without a delay, there are any number of quotidian circumstances which can intercept the ability to promptly set a foreclosure sale (which requires at the outset 28 days’ worth of advertising):
In sum, while speeding to a sale is welcome, and is overwhelmingly already the desire of plaintiffs, imposing a requirement to hold the sale within ninety days of the date of the judgment will create confusion and foment assaults on sales which would not have a reasonable or legitimate basis.
An addition to the conveyance provision [RPAPL §1353(1)] requires the plaintiff, if it is the successful bidder at the sale, to put the property up for sale within 180 days of execution of the deed or within ninety days of completion of construction or renovation. How it is constitutional for a law to tell property owners that they are they are bound to sell property and within a certain period, is perplexing. While application to a court for an extension for a good cause shown is available, that then imposes more litigation when a plaintiff is forced to be the bidder, does not assure a favorable result and still fails to banish the unconstitutional fiat to sell the real estate. In any event, it neglects to consider the following;
In this arduous process, the existing statute had been bereft of meaningful detail in defining good faith bargaining, delineating the types of settlements contemplated, setting forth penalties for lack of good faith and some mechanical aspects of the procedure. These are remedied in part by the legislation adopting and refining case law interpretations of the categories. The result is that the procedures are burdensome, the penalties severe; lenders and servicers will need to be familiar with the lengthy minutia.
Four particular areas, though, emerge for comment where danger or incongruities lurk.
If a lender denies a modification, the statute now requires that the document be presented explaining the reasons for the denial and the data input fields and values used in the net present evaluation. Further, if the modification was denied because of investor restriction the plaintiff must bring the documentary evidence providing the basis for such a denial, for example items such as pooling and servicing agreements. While later on the new provision codifies what the law requires, i.e., failure to make or accept an offer is not sufficient to negate good faith, as a practical matter, the need to explain a rejection of settlement is likely to lead to considerable pressure from hearing officers or judges upon plaintiffs to change their position. This is not necessarily a flaw in the drafting of the statute, but a reflection of the realities of the process.
The foreclosing plaintiff is now required to file a notice of discontinuance and vacatur of the lis pendens within ninety days after any settlement agreement or modification is fully executed. But if a settlement is in the form of a forbearance agreement, which will not be completed or fulfilled within ninety days, then a plaintiff will be unable to comply with this provision. Again, as a practical matter, many settlements take the form of such forbearance agreements and this then portends forcing plaintiffs into violation.
Although there is no good reason why a defendant in a foreclosure action should be treated any differently than any other defendant in serving a timely answer, the new standard permits a defendant who appears at a settlement conference but who did not file an answer to be presumed to have a reasonable excuse for the default. That defendant is therefore permitted to serve and file an answer, without waiving any substantive defenses within thirty days of initial appearance at the settlement conference, which answer, otherwise woefully late, vacates any default. This yet further delay imposed upon the process may be unfortunate.
During the settlement process, statute now specifically requires that any motion made by plaintiff (or defendant) must be held in abeyance during the settlement process. The main problem here (aside from impeding plaintiffs in disposing of a borrower’s answer) is the ill-advised prohibition against moving regarding other defendants. For example, if a junior mortgagee has interposed a defense, but has ignored a discovery request, the plaintiff should be permitted to pursue preclusion against that defendant even though the settlement process is ongoing; such other defendants are, after all, not the borrower. Inhibiting actions against other defendants tends only to further protract the foreclosure case, often substantially.
New Maintenance Obligation
Because a mortgage holder possesses only a lien on the mortgaged premises, and therefore is not an owner, requiring such party to maintain the premises creates an unpredictable and unexpected expenditure, beyond what any mortgage contract contemplates. Moreover, it imposes tort liability upon such a lender because it foists care, custody, and control into its hands. Therefore, the existing requirement that a foreclosing party assumes maintenance of the premises if vacant and abandoned, or populated by tenants, as of the judgment stage already is offensive and parlous.
The new requirement now creates a maintenance obligation at the inception of an action. Applying to vacant and abandoned one-to-four family residential properties and to a first lien mortgage holder (excluding state or federally chartered banks, savings banks, savings and loan associations or credit unions), within ninety days of the borrower’s delinquency the lender or servicer is bound to complete an exterior inspection of the property to determine occupancy, thereafter throughout the delinquency of the loan conducting an exterior inspection every 25-35 days at different times of the day – all certainly a new, expensive and unexpected burden that a mortgage would not otherwise elicit.
Where the lender or servicer then has a reasonable basis to believe that the residential property is indeed vacant and abandoned, the servicer must secure and maintain the property. Within seven days of determining such a condition, the servicer must also post a notice on an easily accessible part of the property, reasonably visible to a borrower or occupant, and continue to monitor the property to assure that the notice remains posted. This obligation to maintain continues until the property has been sold or transferred to a new owner. This later provision, however, is unclear because it is not apparent whether this means the obligation ends if the owner of the property conveys title (which would not necessarily change anything) or whether it means the moment when someone has bid at a foreclosure sale. The provision is well worthy of clarification.
Should a foreclosing party violate the maintenance requirement, a hearing officer or the court can adjudicate violations and a civil penalty may be imposed of up to $500.00 per day per property for each day the violation persists. Still further, any municipality shall have a cause of action in any court against the lender or assignee of the mortgage loan servicer to recover costs incurred as a result of maintaining property which presumably the servicer was required to maintain. Assaults against lenders from many sources can be expected.
A possible savings provision appears, but it too is ambiguous. The provision is that a servicer who peacefully enters a vacant and abandoned property so as to maintain it pursuant to this section “shall be immune from liability when such servicer is making reasonable efforts to comply with the statute.” Whether that means that a servicer cannot be sued for trespass (a likely interpretation) or whether this is a blanket way to avoid tort liability devolving to a foreclosing party is too vague to render an opinion. Even were it the latter, the heart of a negligence suit is the very reasonableness of the steps taken. So this is hardly insulation for the lender or servicer forced to maintain the premises.
While the new section appropriately requires that any local law inconsistent with these provisions cannot be imposed, precisely where there will be such inconsistencies will not always be so obvious – and the fact is that local government entities do have such statutes.
Finally on this subject, it remains imprecise as to the relationship between this new statute and the existing section which imposes maintenance liability as of the foreclosure judgment stage. Clarification here too would be appropriate; indeed, it is needed.
Expedited Procedure for Vacant and Abandoned Property
Because from a lender’s viewpoint imposition of property maintenance shortly after a borrower becomes delinquent is so draconian, it is welcome that the omnibus bill adds a new RPAPL §1309 and §1310 offering an accelerated process to reach a judgment of foreclosure and sale where the property is vacant or abandoned. The essence of the accelerated procedure is good; an order to show cause is made after service is complete to demonstrate the vacancy (not as certain or effortless as the statute implies) asking the court to compute the sum due without necessity of appointing a referee, and to issue the judgment of foreclosure and sale. But there are some infirmities or undue burdens in the procedure.
In sum, as to an abandoned or vacant property, the foreclosing party will be compelled to spend money and assume liability for a period of time likely far greater than the statute would have predicted.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.