Many homeowners file New York bankruptcy to prevent a foreclosure. However, sometimes the terminology can confuse homeowners as to their rights, particularly the terms “judicial” and “non-judicial” foreclosure. Some states allow only one type of foreclosure, but some allow both. Adding to the confusion is that New York used to allow both types, but it repealed its non-judicial foreclosure law in July 2009 (see here). Unfortunately, it’s not uncommon to see New York still referred to as a non-judicial foreclosure state. For non-New Yorkers, it’s an important distinction because there was some concern that the “robo-signing” controversy back in 2011 was due in part because of the lack of scrutiny of lenders in non-judicial foreclosure jurisdictions. So, what are these types of foreclosure, and what are the differences?
Foreclosures in New York follow the judicial method. Judicial foreclosure means the lender must sue the homeowner in court to initiate the foreclosure proceeding. This means filing a complaint in the county Supreme Court in which the homeowner’s house is located and then serving that along with a summons on the homeowner. Usually the court will give borrowers who have not defaulted some time to cure delinquencies, e.g. six weeks, but if that doesn’t occur, the court will order the sheriff or a referee to auction the property to the highest bidder, which can include the original lender.
After the sale, whoever’s presiding over the auction will deed the property to the purchaser and pay the proceeds to the lender. In the 30 days after the sale, the sheriff or referee must file a report of sale with the court, which will confirm the sale after three months.
Non-judicial foreclosures used to occur in New York only if the mortgage note included a “power of sale clause.” This line in the loan documents waived the mortgagor’s right to a judicial foreclosure and authorized a sale if the debtor defaulted. The lender could either execute the sale itself or allow a representative (a “trustee,” which is not a bankruptcy trustee) to do so. Power of Sale clauses in New York mortgages are no longer valid unless the foreclosure began before the law was repealed in 2009. That shouldn’t be an issue anymore.
The timetable for a New York foreclosure is much longer than before, about 18 to 24 months. Importantly, debtors do not have a “right of redemption,” which means they cannot repurchase the home after it has been sold. If there’s a deficiency between the foreclosure sale price and the amount owed on the mortgage, the lender may pursue the former homeowner for the judgment, but this kind of debt can be discharged in a chapter 7 bankruptcy.
Homeowners who are falling behind in their mortgage payments are well advised to contact a New York bankruptcy lawyer as early in the process as possible. A timely bankruptcy filing can prevent a foreclosure proceeding because of the automatic stay.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn NY foreclosure attorneys Bruce Weiner for a free initial consultation.
