submitted by F. Alex Fehrman, Esq.
With COVID-19 still impacting our community, and likely to have a long-term impact on many people as we move forward, it is likely that multiple people are or will soon be facing mortgage foreclosure as a result of a newly found financial hardship. As courts continue to reopen and process these cases, here is an outline on how the foreclosure process works, and a guide for anyone who may need help with their mortgage foreclosure issue.
Starting the Issue: The Default
Many people think that just by missing one mortgage payment their loan is in default and they are at imminent risk of the bank or lender sticking a “For Sale” sign on their front yard. This is far from true. While some lenders may call the loan due after one missed payment, this is very rare and only the beginning of the process. You can still save your home, and there will be opportunities to get help along this process, which you will find in our guide below. What is more common is that your next bill after your first missed payment will be for two months’ worth of payments (the month you missed and the current month) along with a late fee. If you can pay this larger amount then that will catch you up on your mortgage and the next payment will be the usual amount. However, if you miss between three to four months of payments, the lender will likely consider your loan in default and will not accept anything less than the full amount needed to bring the loan current. Any payments for less than that full amount will be returned. If you do not bring the loan current (the fancy legal name for this is “reinstating” the loan) then the lender will move to the next step.
The Notices: When You Should Not Panic
After you default on your loan the lender will send you a notice that the loan is in default and you have 90 days to “cure” the default or they will commence foreclosure proceedings. This is not the start of the foreclosure. Rather, it is your lender telling you that you need to pay them the back owed balance or they will start the foreclosure. If you can pay what is owed then that will end the foreclosure before it begins. If you cannot, then do not panic. Instead, use this time to proactively save money and speak to a Housing Counselor. More information on that can be found below.
The Filing: When the Foreclosure Actually Starts
A foreclosure is, at its core, a lawsuit. Your lender is alleging that you did not meet your obligation to pay your mortgage and is suing you for the right to auction the house to collect what is owed on the mortgage. Expect to receive a large stack of legal papers, including a Complaint, which is the start of the foreclosure. You can tell you’ve received these because on one of the first few pages will be the word “Summons” in bolded capital letters. This summons will tell you that you have 20 days to answer the complaint or you will be subject to a judgment. In New York State you can extend your time to submit an answer, and you should always consult with an attorney before responding to the complaint.
Settlement Conference: The Borrower’s Most Critical Step
Sometime after you receive the complaint, you will receive a letter from the court informing you that there is a “Settlement Conference” scheduled for your case. Since March, new settlement conferences have been on hold due to the COVID-19 situation and only people who had an attorney before March are having conferences on their case scheduled. Be aware that courts in Western New York are looking to start scheduling initial conferences again, so it is crucial that you keep an eye out for notification stating when your first conference is scheduled. This letter will also tell you how to access the court virtually so you do not need to put yourself at a COVID-19 risk. Currently it is looking like courts will start scheduling them in late October or in November, but this could change. The Settlement Conference is an opportunity for you as the borrower to try to work with the bank to come to a solution that lets you remain in your home. Most often this is through a loan modification where the terms of the loan are adjusted to let you make regular monthly payments again. Settlement Conferences are in front of a court referee, not a judge, and are intended to be a less formal process than a hearing so you and the lender can try to come to an agreement. The referee is there to make sure everyone is acting in good faith.
Why is the Settlement Conference the borrower’s most crucial step? It is because the Settlement Conference process does three simple but extremely important things to help you as the borrower. First, and most importantly, it puts the foreclosure on hold for as long as you are in the Settlement Conference part, according to New York State Law. Be aware though that you can only qualify for this long term protection in the Settlement Conference part if you live in the mortgaged property and you want to keep it. This gives you time to work out a potential loan modification or other solution. Second, it gives you an extra 30 days to answer the foreclosure complaint, as long as you appear at the first conference. Even if you did not put in an answer within the time demanded in the Summons, you can get some extra time just by showing up to the conference. Third, the initial Settlement Conference will give you an opportunity to connect with a Legal Service Provider who may be able to have an attorney represent you in the foreclosure without any cost to you. These three things make the Settlement Conference so extremely important.
Release From Conference and Beyond:
If it is determined that you do not qualify for the Settlement Conference part (either because you do not live in the house or want to keep it) or after several conferences a settlement cannot be reached, the court referee will “release” you from the Settlement Conference part and allow the foreclosure to continue. Typically, it takes 5-6 months from that point for your house to be put on auction, but could take longer given COVID-19 concerns. The lender will need to file two motions, one asking for the court to appoint someone to calculate what is owed, and one for a judgment allowing them to sell the property. If you put in an answer, you will litigate that during this time. You can still work with the lender to try for a settlement, but the lender can continue with the foreclosure, so time is of the essence.
Resolution: The Final Stage
At this point you have either successfully come to a settlement with the lender, in which case they will move to withdraw the action from the court system, or the house is sold. You can live in your house until it is sold, but keep in mind that once your house has been sold to someone at auction they can proceed to evict you if you are still there.
That’s the foreclosure process as it stands now. “All right, I understand that. But what can I do to save my home?” I can hear you ask. Good question. There are some basic steps you can take which, although are not guaranteed to end in a positive result, will put you ahead in the process.
Step 1: Be Proactive
One of the worst things you can do is to put your head in the sand once you start having trouble with your bills. If you lost your job because of COVID-19 or experienced a COVID-19 related financial hardship and are worried about making payments you should call your mortgage servicer. They may be willing to place you on a forbearance for a few months. During this time you would not need to make mortgage payments so you can get your finances back in order. Depending on the lender they may extend the term of the loan to account for those payments or put a lump sum on the end of the loan for what was missed during the forbearance. Ask your servicer what they will do.
Once you start getting default notices, start saving money to put towards a resolution. If you need help with this you should contact a HUD approved Housing Counselor, like the Buffalo Urban League or Belmont for some assistance. They can also help you with some of the forms the lender will have you fill out and are a great resource.
Step 2: Be Aware
Unfortunately, all foreclosures are public information once filed with the courts. Even worse, there are some bad actors out there who will use this information to try to scam people out of their money or even out of their home. Older adults are seen as ripe targets for the scammers so they will try to contact you by mail or telephone. At this time the old adage “if it’s too good to be true, it probably isn’t” is one of your most valuable assets. If someone is promising that they can save your home no matter what with 100% effectiveness, or even after it is sold, they’re almost certainly trying to scam you. The good news is that legitimate organizations exist to help homeowners in need. The Foreclosure Prevention Project of Buffalo and Western New York and HUD approved housing counseling agencies can provide you with free assistance and are legitimate and approved by the courts.
Step 3: Get an Attorney
I know, a law firm’s blog telling you to get an attorney is one giant cliché. However it is so important in these circumstances to get legal assistance. An attorney can represent you at Settlement Conference so you do not need to miss work and can advise you on whether submitting an answer is the best tactic. Contact the Foreclosure Prevention Project at 716-828-8428 to get connected with an agency that may be able to provide free legal assistance during your foreclosure. Your lender will have someone going to bat for them and you should as well. Please call before your first conference so we can get you connected with an attorney and cut down on the confusion a virtual court appearance might cause.
Step 4: Go to Settlement Conference
If you do not have a lawyer, go to your first conference. As I explained above, it is such a crucial process and so helpful for you as the borrower. You should be able to connect with an attorney at the conference and the court should give you some time to establish that attorney client relationship. If you already have an attorney, they can appear on your behalf.
Step 5: Keep up with Document Requests
You will at some point get an application for a loan modification. If you fill it out and submit it to the lender expect them to come back and ask for additional documents. It happens all the time. Be prompt in submitting those documents since delays may cause what you already submitted to become outdated and require you to start the whole application process over again.
Following those five steps will prove to be an immense help to get you started in resolving your foreclosure. Since each case is different you should speak to your attorney on any other steps you might want to take to put yourself in a position where you can keep your home.
If you have received foreclosure notices or a complaint, please contact CELJ’s Foreclosure Prevention Project at 716-828-8428 to be connected with an attorney. For additional questions, call our main office number at 716-853-3087, or email us at email@example.com.