Elsewhere in the country there have been stories about foreclosure lawsuits filed by lenders against homeowners and … themselves. It sounds like a robo-signed document. What’s going on here? The homeowners owed the same bank two mortgages, and the lender has to sue itself to proceed with the foreclosure. It’s a bizarre—but not uncommon—situation, particularly when lenders buy loans or service them for other investors. Sometimes, to debtors’ frustrations, the loans are operated by separate entities within the bank. In this sense, the lawsuit isn’t really against itself.
For New Yorkers, this kind of situation will usually end with the lender filing a foreclosure action the homeowner on both loans and asking the court to sort it out. This is because New York abolished its rarely used non-judicial foreclosure law in 2009, so now lenders have no other choice but to go through the courts. It might be the best route for them.
In non-judicial foreclosure states, lenders have more leeway to foreclose on homeowners and benefit more by choosing which mortgage to foreclose on. Invariably, foreclosing on one loan legally “extinguishes” the other. There’s some strategy to this: If the home’s value is greater than the senior lien, then foreclosing on that mortgage allows the lender to obtain the assets first and then seek a deficiency judgment on the junior mortgage. If both mortgages are underwater, then the lender might just foreclose on the junior loan first, auction that loan to itself as though it were a third party, sell the property, and then pursue the deficiency on the junior loan.
Those options are possible in New York, but they’re unlikely as they lead to legal headaches, but since not all lenders act with both mortgages in mind, something like it could occur to unlucky homeowners. Obviously, if a lender knows what it’s doing, it would also consider offering a deed in lieu of a foreclosure agreement.
Regardless of the options it takes, homeowners do not want to be in the situation of dealing with piecemeal foreclosures by schizoid lenders. In these circumstances, it’s crucial to hire an experienced New York bankruptcy lawyer to ensure your rights are protected. It might help even in negotiating with warring units of the same bank to avoid bankruptcy.
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.