If you default on your mortgage payments in New York, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. New York law specifies how foreclosures work, and both federal and state laws give you rights and protections throughout the process.
If you get a loan to buy residential real estate in New York, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property. If you fail to make the payments, the mortgage provides the lender with the right to sell the home at a foreclosure sale to recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many New York mortgages have a provision that requires the lender to send a breach letter if the borrower falls behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
If the property is a borrower-occupied, one- to four-family dwelling, or a condominium unit, New York law requires the lender to send a notice at least 90 days before starting the foreclosure. The 90-day time period runs concurrently with the 120-day preforeclosure period under federal law. This notice provides, among other things:
If the lender or servicer doesn't send the 90-day notice or doesn't strictly comply with its requirements, you could have a defense that might result in a dismissal of the foreclosure action. Consider talking to a lawyer to get specific advice about your situation if you think the lender or servicer didn't follow the 90-day notice law.
Approximately half of the states, including New York, require the lender to file a lawsuit in court to foreclose. The lender gives notice of the suit by serving you a summons and complaint, along with information about the foreclosure process. (N.Y. Real Prop. Acts. Law § 1303, § 1320). You typically get:
After the foreclosure begins, for borrower-occupied properties, the court will schedule a foreclosure settlement conference to take place within 60 days after the lender files proof of service with the court clerk. The conference aims to provide an opportunity to work out an agreement to avoid foreclosure, like a loan modification.
The court will notify the parties of the time and place of the settlement conference and the documents they should bring to the meeting. (N.Y. Civil Practice Rule 3408).
State law says that if the homeowner appears at the settlement hearing pro se (without a lawyer), the court should consider it a motion to proceed as "a poor person." The judge is then supposed to figure out whether the homeowner can go through the foreclosure process unrepresented or if the court should appoint a lawyer to help the homeowner. (N.Y. Civil Practice Rule 3408). However, a proposed class action lawsuit filed on June 7, 2023, claims that courts have failed to implement this rule.
If you can't work out a way to avoid foreclosure at the settlement conference, and you fail to answer the court action, the lender can get a default judgment from the court. The judgment will give the lender permission to hold a foreclosure sale.
If you respond to the lawsuit, however, the case will go through the litigation process. The lender might then request the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the critical aspects of the case.
If the court grants summary judgment for the lender—or you lose at trial—the judge will order the home sold at a foreclosure sale.
If the lender gets a final judgment of foreclosure against you, a sale date is set. Notice of the sale is published in a newspaper and posted publicly (in some cases). (N.Y. Real Prop. Acts. Law § 231).
The process ends with a foreclosure sale. The lender usually makes a bid on the property using what's called a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure.
Under New York law, you may reinstate the loan at any time prior to final judgment, and then the case will be dismissed. Or you could pay the arrearage after judgment, but before the sale, and the proceedings will be stayed (postponed). If you later default again, then the court can order enforcement of the judgment. (N.Y. Real Prop. Acts. Law § 1341).
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states, including New York, allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In New York, the lender can get a deficiency judgment if you're served the complaint and summons personally, or you appear in the foreclosure action. To get the deficiency judgment, the lender must make a motion with the court within 90 days of the consummation of the sale. (The sale is consummated when the deed is delivered to the purchaser.) (N.Y. Real Prop. Acts. Law § 1371).
The amount of the deficiency is limited to the total amount of the debt minus the higher of either the fair market value or the sales price. (N.Y. Real Prop. Acts. Law § 1371).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. New York law, however, doesn't provide a post-sale redemption period.
New York's "Foreclosure Abuse Prevention Act" (S5473) says that a lender's voluntary discontinuance of an action to foreclose a mortgage doesn't stop the six-year statute of limitations period from running.
The law took effect on December 30, 2022, and also applies retroactively to any pending foreclosure action filed before that date, for which a final judgment and order of sale had not been enforced.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure.
Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.