Foreclosure Defense

On August 30, 2013, a new law in New York will go into effect amending the specific procedural rule governing residential foreclosure actions, CPLR 3012-b, and finally now requires lenders’ lawyers to prove, at the initial pleading [Complaint] stage, that the foreclosing party has standing to sue. Finally, the New York legislature has pushed back the clock on lenders seeking to foreclose and will cut down on the legal limbo that has existed since 2010 and the initial fight against the robo-signing scandal. Named the “shadow docket bill”, the ostensible goal is to shorten the length of a foreclosure case, and limit cases filed to only those who have the Note and Mortgage, Assignments and modification agreements. In addition, bank lawyers have to file a Certificate of Merit along with those supporting documents, to even get the case into the Courthouse.

The new law is a momentous and overdue fix to foreclosure procedure in New York in this author’s opinion. It has given teeth to the requirement on banks to show they have standing to foreclose at the outset of the litigation, and not months to years afterwards, if at all.

As in many cases and before this new law, judges were free to ratify bad process service issues and deny homeowners any right to defend based upon a failure to answer the Complaint. At very least, the new law requires the bank to due minimum due diligence before it files a lawsuit and not long after. However, it remains so critical that a homeowner answer a foreclosure and timely at that. Timely answering a foreclosure Complaint is especially important with the new law because now, presumably, issues of standing are no more. The initially filed documents by the bank must now show a prima facie case, and do away with an affirmative defense by homeowners that has powerfully used since 2010.

On a more serious note, consumers have rights upon the threatened or pending foreclosure of their home. If violated, these rights can be asserted in defense against a lender's, assignee's or investor's foreclosure action. Among other things, they can range from simply a failure by the original lender to disclose consumer rights, to outright fraud or predatory lending, to identity theft. These rights might also be affirmatively prosecuted under federal and state laws which govern the mortgage lending industry. Whether in defense of a foreclosure action, or by way of an affirmative lawsuit against the holder of the mortgage, consumers often do not know their rights. It is most advisable to seek a knowledgeable attorney at the earliest possible stage to perhaps avert foreclosure proceedings, or to try to reverse them, if it is not too late to save the home.

Those old issues of predatory lending still remain in some cases. Homeowners should always be aware of the e.g. veracity of the appraisals at the inception of their loan, the existence of any “straw buyer(s)” in the transaction, unaffordable interest rates, and the verification process of the borrower(s)’ income. Many loans out there still originated prior to 2007, and the exposure of industry-wide mortgage fraud leading to the credit crisis of 2008. Certain cases can still put forward these defenses, and perhaps prosecute these issues in an affirmative action against the wrongdoers in a plenary action, or by way of a Counterclaim.

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