I wrote recently about “non-recourse” debts after New York bankruptcy, commenting that the terms “recourse” and “non-recourse” loans usually refer to deficiency judgments after foreclosure. Specifically, state laws differ on allowing plaintiff-creditors to sue defendant-debtors for amounts owed beyond either the fair-market value of the properties or the auction prices at foreclosure sales. Some states permit creditors to sue for deficiencies along with the foreclosure, and others bar them. New York, I wrote, has an unusual “election of remedies” rule that distinguishes it from other states. Homeowners who are struggling with their payments can benefit from knowing how it affects a possible foreclosure process—as well as identifying when lenders are straying from it.
So what’s this rule? New York’s Real Property Actions and Proceedings Law (RPAPL) section 1301 gives creditors a choice for resolving a dispute with a delinquent property owner. They can sue a debtor for an unpaid mortgage debt, but they can only initiate a foreclosure after the judgment has been executed without complete repayment. Or, they can start with the foreclosure, but they must wait no more than 90 days after the sale to sue the debtor for the deficiency once the foreclosure is completed and title is transferred.
In short, creditors cannot both sue debtors for mortgage deficiencies and foreclose on them simultaneously, unless they can prove the existence some “special circumstances,” which I’ll get into in a moment. The state’s reason for the “election of remedies” rule is to protect debtors from simultaneous actions over the same mortgage and to keep cases against the same debtors in the same courts. In some states, often judicial-foreclosure jurisdictions, lenders can include the deficiency suit with the foreclosure action. In some non-judicial-foreclosure actions, lenders must sue debtors separately. In general, the New York rule motivates creditors to foreclose first, giving them something of value for certain up front, and then they sue on deficiencies later. They may take the opposite path if they feel the debt is more likely to be paid sooner or the collateral is more secure.
RPAPL section 1301(3) gives lenders the opportunity to seek leave of the court to maintain both actions concurrently. Such a motion requires lenders to prove that “special circumstances” justify both actions, like the debtor’s consent to such actions or the debtor’s abandonment of the mortgaged property. Debtors can halt such actions if lenders do not prove special circumstances.
New York homeowners can benefit from the “election of remedies” rule because it can provide them more time to plan their options, including filing bankruptcy. If you are nearing foreclosure or a lawsuit on your mortgage, then you should talk to an experienced New York bankruptcy lawyer as soon as possible.
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.
