How to Stop a Foreclosure in New York: Delay Tactics and More

Give up is not your only option! Foreclosure law has been developed over the years specifically to benefit homeowners, not mortgage lenders. This is especially true in New York, where residents have a number of protections not afforded to residents of other states. 

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Here at Moshes Law, P.C., our attorneys are proficient in stopping foreclosures. If you are wondering how to stop foreclosure on your home, review these common foreclosure defense techniques and then contact a qualified foreclosure attorney. 

Experienced attorneys will review your situation and help create a plan of action specific to your needs. Whether you need additional time to find a new home or want to stop a foreclosure in its tracks, trust the experienced attorneys at Moshes Law to assist you. 

Guide to the Judicial Foreclosure Process In New York

Historically, foreclosure of a home was a matter of contracting between the homeowner and the bank. If the parties agreed to certain terms, those terms would apply. This, however, led to unfair situations where aggressive lenders would zealously and quickly evict families from their homes without adequate time to remedy the late payments or find alternative housing. 

Homes are more than mere assets – they are part of a family’s history.  Not surprisingly, many homeowners refused to leave their family homes without a fight. This problem was at its height during the Great Depression and resurged again during the 2008 financial crisis. 

Recognizing the problem, state legislatures, including New York, passed numerous laws that outline exactly how the foreclosure process must take place. These laws generally act to protect the homeowners yet today the process became too complex for most of the homeowners. Here is a brief overview of the foreclosure process in New York state.

Below you will find more information about each stage of the process. Alternatively, you can scroll down to the “Reasons To Delay A Foreclosure” section.

90-Day Pre-Foreclosure Notice / Letter

The 90 day pre-foreclosure notice is the first required step in the foreclosure process. Once you fall at least 120 days behind in your payments, your lender will generally contact you in an attempt to resolve the problem. If the lender decides that it wants to move forward with the foreclosure, it must issue the 90 day pre-foreclosure notice. This notice will have legally required information and resources on how to avoid foreclosure and catch up on your payments. 

While 90 days may seem like a long time, stopping a foreclosure is not easy. For that reason, homeowners who receive a 90 day notice should seek help immediately. As soon as the 90 day period has lapsed, the lender can initiate the foreclosure proceedings. Note that the 90 day notice is only required for owner occupied residential homes.

Lender Files Lawsuit with the Court

New York has barred non-judicial foreclosures. This means that all foreclosures must happen through the court system under the supervision of a judge. The first thing the lender will do is file a “Lis Pendens.” A lis pendens, or “suit pending” in English, is a notification that is filed with the City Register’s office. It states that there is a current foreclosure case pending on the home and seeks to notify others who may take an interest in the home. For example, if you try to take out another mortgage using the home as collateral, the potential new lender will see the lis pendens and know that you are currently in foreclosure.

Next, the lender will file a summons and complaint. A summons and complaint are the two legal documents needed to initiate a lawsuit. You will be served with these documents as if you were being sued normally, either in person or, more commonly, by mail. These are generally standard forms that will list your name, address, and reason for the foreclosure. 

Homeowner’s Response to the Complaint

Like any lawsuit, you, as the defendant, have the opportunity to respond to the lender’s complaint. Of all the ways of how to delay a foreclosure, this is typically one of the easiest. Depending on how you were served notice of the complaint, you have either twenty or thirty days to respond to it. Oftentimes, it is best to wait until the last minute, as this will buy you additional time in the home. However, if you have a legitimate defense or the foreclosure was started improperly, it may be best to respond right away. A homeowner may also assert their own claim against the lender in the response, such as a violation of the homeowner’s rights.

Contents of the Answer

The answer is just that – your response to the lender’s complaint. It explains to the court why you should win the lawsuit and the foreclosure should not happen. This must be in written form and must be submitted formally to the court. Answers are typically short and do not need to include much factual information. The New York courts provide a helpful do it yourself foreclosure answer tool for those who want to begin the process themselves. 

Notice of Appearance

The worst thing you can do is fail to answer the summons and complaint. If you do fail to answer, the court will immediately rule against you and begin the foreclosure process without providing you any updates. This is called defaulting. If the court has entered a default against you, the lender can continue on to sell the home without consulting you any further. The court and lender will assume that you have walked away from the home.

If you wish to stay updated on the foreclosure process and potentially fight it in the future, but do not wish to file an answer, you can file a Notice of Appearance. This notifies the court that you are willing to participate in the case and want to be notified of all future updates. If you file a notice of appearance, but not an answer, you will have a second opportunity to file an answer after the settlement conference, described below. If you are given this second chance to file an answer, it will generally be due 30 days after the settlement conference.

Settlement Conference & Meeting With the Lender

Within two months from receiving service of the summons and complaint, you will receive notice from the court of the time and date of your settlement conference. The settlement conference will take place in a local court, generally in a side room, between you, the lender’s attorney, and a court employee, such as an attorney or referee. This is a pivotal point in the process because it can immediately stop the foreclosure process on terms favorable to the homeowner. 

At the settlement conference, the parties will discuss different methods of how to stop the foreclosure proceedings. These methods will include paying the back due amounts all at once, setting up a payment plan, selling the home quickly in a short sale, utilizing a deed in lieu of foreclosure, and many other options. If you and the lender are able to reach an agreement, you will enter into a written settlement agreement and provide it to the court, which will halt the foreclosure proceedings.

Settlement conferences entail a lot of negotiation and discussion. Because of this, much of the work happens outside the courtroom and over time. If the parties do not reach an agreement at the first conference, but think they can eventually reach an agreement, the court will oftentimes schedule a second conference. In fact, there can be numerous settlement conferences if both parties are adamant about avoiding foreclosure.

Settlement or Litigation

If an agreement is reached at the settlement conference, the foreclosure is halted. You and the lender must both comply with its terms exactly. This is because the settlement agreement is a binding legal contract. Generally, the settlement agreement will last for a fixed period of time, such as until you are caught up on past payments. If you satisfy the terms, you keep your home and the foreclosure process is over. 

If you fail to meet the agreement, however, the lender will request a show cause hearing. At this hearing, both parties go before the court and the defaulting party must explain why their default was justified. If the judge does not agree, the foreclosure process will initiate again. The litigation process will also continue if the parties fail to reach an agreement during the settlement conference.

If the foreclosure process moves forward, the parties will begin litigation. Litigation will consist of the discovery phase and then summary judgment or trial.

Discovery 

Discovery is the process by which the parties request information from each other. Each party is legally required to furnish the information requested by the other party, absent certain exceptions found in the court rules, such as privileged information or information unrelated to the lawsuit. The homeowner has a legal right to discovery, and the foreclosure process cannot continue until the discovery period has ended.

Discovery requests may come in the following forms:

• Interrogatories – These are written questions directly asking the other party about certain facts. For example, a lender may wish to know whether a homeowner is employed.
• Requests for Production – These are requests for the other side to produce copies of documents in their possession. For example, a homeowner may request the lender produce copies of the mortgage and loan documents.
• Requests for Admission – These are requests that the other party admit a fact. These are generally used for simple issues the parties wish to get out of the way in preparation for litigation. For example, a lender may request that a homeowner admit they are the owner of the home located at their address. That way, the lender will not have to prove this fact at trial.
• Depositions – A deposition is a sit down interview with any person who has information related to the lawsuit. Lawyers from both sides and a stenographer will be present. These typically occur only in highly contested cases, due to the high cost.

The discovery process is typically the longest part of the litigation phase, and may run for a number of months. Each side has nearly a month to respond to the questions from the other side, and they typically take the full time. If a party is unsatisfied with the responses, the party may then request a hearing with the judge to compel an answer, thus making the discovery process even longer. 

After discovery, the parties will resolve the outstanding issues either by summary judgment or trial. Trial occurs only when there are uncontested facts that must be resolved by a jury. This is extremely rare in foreclosure and occurs only in the most contested cases. 

Summary Judgment 

During the summary judgment phase, each party will submit written briefs to the court, utilizing all of the facts disclosed in discovery, explaining why they should win. The court will allow each side to then reply to the other side’s argument. Preparing and submitting each of these briefs typically takes a number of months, and extensions are fairly common. After the written briefs are complete, the parties will attend a summary judgment hearing before the judge where the lawyers will make brief oral arguments. The judge will then either issue an immediate judgment or take time to reflect on the case and issue a judgment a later time

Final Judgment * Auction of Home

If you win at summary judgment or trial, the foreclosure proceeding is immediately over. If you lose, however, the judge will enter a final judgment authorizing the home to be foreclosure on. The lender will then go forward with settling a time and place to auction the home to the highest bidder. Once sold, the proceeds of the sale will be used to pay off the balance of the mortgage. Any proceeds beyond the mortgage balance, such as equity you have in the home, will be returned to you.

If there is a deficiency, meaning the home was sold for less than the outstanding mortgage balance, the lender may seek a deficiency judgment against you. To do so, the lender will have to request the deficiency judgment from a judge. If successful, you will be liable for the remaining amount. 

New York law, however, limits the amount of a deficiency judgment to the fair market value of the home. Imagine, for example, the outstanding mortgage balance is $600,000. The fair market value of the home fell to $550,000. Because of that, the highest bidder paid only $500,000 for the home, leaving a deficiency of $100,000. In many states, the deficiency judgment against you could be for the full $100,000. In New York, however, it is limited by the fair market value to only $50,000.

Right of Redemption

Redemption is the process by which a homeowner can pay off the balance of the mortgage and redeem their home during the foreclosure proceedings. There are two types of redemptions: Equitable and Statutory. 

Equitable redemption allows the homeowner to pay off the balance of the home at any point in time prior to the final sale of the home at auction. Statutory redemption is a right provided by statute that allows the homeowner to redeem the home for a certain fixed period after the foreclosure sale. New York does not have a statutory right of redemption.

If you are seeking to equitably redeem your home, you will need to come up with the full amount of the mortgage balance before the foreclosure sale. This is typically done by acquiring the funds from another mortgage lender. Your current lender will generally be willing to help you through this process, as it avoids the cost of foreclosure litigation.

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Reasons to Delay a Foreclosure

Foreclosures happen for a number of reasons, from divorce to a sudden loss of a job. Oftentimes foreclosures are inevitable. This is especially true in situations where the home has lost value and the outstanding mortgage balance is more than value of the home. If a family has recently gone through a divorce, it may be impossible to afford the home on a single income. In these situations, the homeowner may want to simply delay the foreclosure process, rather than stop it. Delaying a foreclosure can help the homeowner find a new place to live, get their assets in order, or find a new job. 

If you are in a similar situation and are wondering how to delay foreclosure, there are thankfully a number of efficient and effective methods. 

Lost Documents

Mortgage loan services are generally large national companies. This means they have to keep immaculate records of all the outstanding mortgages. This is often a difficult task. Making the challenge worse, mortgage loans are often sold and transferred between entities, sometimes multiple times. 

The issue for lenders is that time is money, and every day you spend in your home, the lender is losing money. Because of this, lenders are known to initiate foreclosure proceedings prior to having all of the necessary mortgage documents on hand. When the foreclosure process begins, the lender must be ready and able to produce all of the mortgage documents evidencing that a foreclosure is possible. Large lenders may have a difficult time locating your particular mortgage loan documents. Requesting all of the required mortgage documents from your lender at the first mention of foreclosure may buy you additional time while they search their records. 

Hardship

Hardship is generally not an adequate reason to delay a foreclosure proceeding. This is because nearly every person going through a foreclosure is experiencing hardship. If the hardship you are experiencing is truly substantial and unique, it is worth mentioning to your attorney, who can make the case to the judge or your lender. 

Significant Equity in the Home

Foreclosure is an extreme remedy, and courts recognize that. The unfortunate thing is that a lender can foreclosure on a home for nearly any amount of outstanding balance due. This means that someone who has made payments on their home for 29 years could face foreclosure. That individual would clearly have significant equity built up in their home, through repayment of principal and appreciation. In this case, judges have been known to take the homeowner’s side, and allow them to sell the home on their own terms. This means they can place the home on the market and get a fair market value price, rather than rely on the foreclosure auction process, which potentially leads to below value sales. Your lender may also be more willing to negotiate with you if you have large equity in your home, perhaps agreeing to a refinancing.

Covid-19 Foreclosure Moratoriums

The beginning days of the Covid-19 Pandemic saw millions of Americans facing long-term furloughs. As many Americans live largely off of limited savings, this immediately brought an influx in residential and commercial evictions, leading many to worry that widespread foreclosures were inevitable. Because of that, the federal and many state governments, including New York, quickly passed foreclosure bans. These bans have largely been extended and continue to protect homeowners.

New York Covid-19 Foreclosure Ban

In December 2020, the Governor of New York, Andrew Cuomo, passed an emergency foreclosure and eviction moratorium. This unprecedented law allows any homeowner or owner of ten or fewer residential units to file a Hardship Declaration with their mortgage lender and immediately halt foreclosure proceedings. This is valid for foreclosures that began prior to the Covid-19 Pandemic and those were initiated after it began. The Act also prevents foreclosure due to tax liens by government entities. The New York ban applies to mortgages that are not otherwise covered under the Federal CARES Act, discussed below. 

Federal CARES Act Foreclosure Ban

The Federal CARES Act passed in March of 2020 included a ban on foreclosures for all mortgages backed by numerous federal agencies. The vast majority of standard residential loans will qualify for this federal protection. If you are unsure of whether your mortgage is federally backed, a call to your lender can quickly lead to an answer. 

How Long Can I Delay A Foreclosure Filing

The New York moratorium is currently valid through May 1, 2021. The Federal mortgage foreclosure ban is valid through June 30, 2021. If you are in jeopardy of foreclosure, you should diligently monitor these deadlines, as they both have been pushed back numerous times. Additionally, because many fear that there will be a large influx of foreclosure proceedings immediately after the bans end, there have been frequent calls for additional protections for homeowners going forward.

What is a Deed in Lieu of Foreclosure?

A Deed in Lieu of Foreclosure is an excellent choice for homeowners facing foreclosure that no longer wish to retain their homes and would like to leave on their own terms. It is generally a simple and amicable process that all homeowners facing foreclosure should consider.

How Does a Deed in Lieu of Foreclosure Work

A deed in lieu of foreclosure is simply that, the homeowner will hand the lender the deed to the home in lieu of foreclosing on it. The outstanding balance and interest on the mortgage will then be forgiven and each party will move on from the transaction. The bank will then sell the home in an attempt to recoup the mortgage balance.

How To Get a Deed in Lieu of Foreclosure

Lenders are generally willing to enter into a deed in lieu of foreclosure transaction because it saves them the costs associated with foreclosure. This is especially true in New York, where judicial foreclosures are lengthy and expensive. To begin the process, you should contact your mortgage lender before the formal summons and complaint are served. While it is possible to enter into an agreement after the proceedings have started, the earlier you reach an agreement with your lender, the more willing they may be to help and may even provide financial incentives.

Reasons to Consider Completing a Deed in Lieu

A deed in lieu of foreclosure is a great option for a number of reasons. First, it avoids the foreclosure process. This means that, you, as the homeowner will not have to experience the foreclosure process. While this may seem like an insignificant reason to hand over the keys to your home, the foreclosure process is often frustrating, demeaning, and combative, leading many to avoid it at all costs.

Second, a deed in lieu of foreclosure is much cheaper for the homeowner than the foreclosure process. You will not have to hire an attorney to navigate the court proceedings, nor will you have to pay the fees associated with the foreclosure that lenders typically add on to the mortgage balance. 

Finally, many lenders are so willing to enter into these agreements, that they offer incentives for homeowners. Sometimes called “cash for keys” programs, your lender may be willing to pay you upfront for the keys to your home, even if you do not have equity. This is because they save significant amounts by not having to go through the foreclosure process. 

Deed in Lieu of Foreclosure Disadvantages 

There are a number of obvious disadvantages to a deed in lieu of foreclosure. The main disadvantage is that you will not keep your home and will lose all built in equity. This means that you cannot go through the settlement process that takes place during the foreclosure proceedings where the parties attempt to reach a resolution that keeps you in your home. 

Additionally, you will be unable to delay the process like you would during a formal foreclosure. A typical foreclosure may take a year or longer, during which you can stay in your home and find a new place to live. A deed in lieu of foreclosure transaction is much quicker, which often means that you will have to quickly find a new home. In some situations, a lender may be willing to rent your home back to you while you find a new place to live. 

Deed in Lieu of Foreclosure and Taxes

In a deed in lieu of foreclosure, the lender agrees to cancel your mortgage in exchange for the deed. This situation is exactly the same as if you sold your home to the lender in exchange for cash and then used that cash to pay off the mortgage. A problem occurs when you owe more on the home than the home is actually worth. In that case, federal and state tax laws may treat you as recognizing a gain on the sale. Take the following example:

You have a home worth $500,000 with an outstanding mortgage balance of $700,000. If you enter into a deed in lieu of foreclosure, you are exchanging $500,000 worth of property for $700,000, meaning that you gained $200,000 in the transaction.

Thankfully, the federal government has recognized this as a significant problem and has passed laws exempting certain homeowners from paying tax on this income. If you are considering entering into a deed in lieu of foreclosure transaction, always consult a foreclosure attorney to ensure there will be no surprise tax bills in your future.

Short Sale

A short is another method by which a homeowner can reach an agreement with their lender to avoid the foreclosure process. While short sales are not nearly as popular as they were during the 2008 financial crisis, there are still many short sales happening today.

Choosing a Short Sale vs Foreclosure 

A short sale is drastically different from a foreclosure. In a foreclosure, the lender takes actual ownership of the home through the judicial foreclosure process. At that point, the homeowner no longer has any interest in the home. The lender will then sell the home and apply the sale proceeds to the outstanding balance. In a short sale, the homeowner will personally list the home on the market and seek out a seller. This means that both parties are able to avoid the foreclosure process and auctioning off the home.

How Exactly Does a Short Sale Work

Short sales occur when the outstanding balance of the home is more than fair market value, meaning that the home is “under water.” Recognizing that the lender is going to lose money on the home, the lender agrees that the homeowner can list the home for sale. The homeowner will list the home through a real estate agent who will solicit offers. Once a potential buyer is found, the homeowner must get approval of the sale from the lender. This is because the lender is going to take a loss on the transaction and will be unwilling to accept the sale if the loss is too large. If the lender agrees, the buyer will remit payment directly to the bank. The lender will then discharge the remaining amount of the mortgage and the homeowner walks away.

Why Choose a Short Sale

The main reason to engage in a short sale transaction is to avoid having a foreclosure on your credit report. If you go through the foreclosure process, there will be a foreclosure judgment on your record, oftentimes making it harder to lend money in the future. Additionally, if there are unpaid amounts on the mortgage after the foreclosure sale, a deficiency judgment may be entered against you. In a short sale, the lender agrees to forgive the mortgage balance in excess of the sale price. This means that you will not be liable for these amounts and no liens will be entered against you. Finally, a short sale allows you to avoid the cost and emotional burden of a foreclosure proceeding. Rather than worrying about the impending foreclosure and court hearings, you can focus on transitioning to a new affordable home. 

A short sale is not a process you should go through alone. There are numerous legal issues, such as reviewing and accepting the mortgage discharge from the bank and ensuring that no taxes will be owed on the forgiven mortgage balance. An experienced short sale attorney in New York can help you through the process and ensure that you are legally relieved from any future obligations under the mortgage. 

Risks of Using a Short Sale to Avoid Foreclosure

When the process goes well, there are few risks to a homeowner in a short sale. The largest challenge to a short sale is that the homeowner will begin the process and be ultimately unable to sell the home. This could be because there are no interested buyers or because the lender is unwilling to accept the received offers. Additionally, while a short sale is generally considered to cause less of an impact on your credit, no one quite knows for sure how true this is. A short sale will negatively impact your credit, but the common view is that a foreclosure is worse. Finally, like with a deed in lieu of foreclosure, there is a large risk that cancellation of debt income may be taxable to the homeowner. For that reason, a homeowner utilizing a short sale should contact a qualified attorney before agreeing to the sale. 

How Foreclosure Mediation Can Help You Keep Your Home

Mediation is the process by which parties sit down at a table with an independent third party and all worth together to reach a resolution. In the foreclosure situation, this means that the lender and homeowner will work together to find a way to keep the individual in his or her home. The mediation process in New York, called a Settlement Conference, is mandatory and must be attended by both parties. Other states do not have similar protections.

How Does Foreclosure Mediation Work?

The mediation process generally requires the homeowner to take a serious look into their finances. The homeowner is expected to have an accounting of all expenses and sources of income. This is so that the parties can determine what the homeowner can pay and weather that amount is sufficient for both parties.

In New York, the settlement conference begins shortly after the foreclosure complaint is filed. It is mandatory that each party attend. A court employee will act as the mediator and facilitate discussion. The homeowner and lender will consider a number of options, such as reducing future payments, applying a lump sum, amortizing past due amounts over a set period, and refinancing the home if there is built in equity. There may be multiple settlement conferences depending on how complex the situation is. 

Are there Costs Associated with Foreclosure Mediation? 

In New York, the settlement conference is free for all homeowners facing foreclosure. Sometimes, lenders may offer mediation proceedings before the foreclosure process begins and may charge for these services. Generally, however, lenders are willing to front the small cost of mediation if it means they can avoid the more costly foreclosure process. 

Automatically Scheduled vs. Opt-in Process For Homeowners

Many states have an opt-in requirement for foreclosure mediation. This means that the homeowner must affirmatively reach out to the lender to initiate the foreclosure mediation process. If they fail to do so, the foreclosure continues. In New York, however, the mandatory settlement conference mediation is automatically scheduled shortly after the foreclosure complaint is filed and there is no need to affirmatively opt-in. 

Should I Go to Foreclosure Mediation?

Not only should all homeowners facing foreclosure go to mediation, in New York, it is required. Generally, all communication prior to the mediation will be done via email, mailings, and phone conversations. Mediation is a powerful process because it forces the parties to sit down and face the realities of the situation together. Additionally, the parties have the benefit of the third party mediator who takes an independent look at the situation and helps guide the parties discussion. Many homeowners find that mediation provides the best opportunity to save their homes. 

Your Options If Mediation is not Available

If you do not live in a state like New York, where foreclosure mediation is mandatory, that does not necessarily mean that you are out of luck. Many large lenders have internal mediation programs that they make available to homeowners. These may have these programs because of requirements under state or federal law, or simply because they make more money by keeping homeowners in their homes. If you are facing foreclosure, always reach out to your lender to see what options for mediation are available. 

Tax Implications of Foreclosure Mediation Settlements

Just like with other foreclosure alternatives, mediation may result in a taxable event it results in the discharge or cancellation of debt. Mediators and lenders are typically well versed in these issues, as foreclosure mediations are quite common. This means that any potential tax impact can be built into the terms of the mediation agreement, if one is reached. 

Despite this, a homeowner should never go into a mediation alone. Having an attorney that is well versed in the foreclosure process and its potential implications is vital to protecting your rights. We here at Moshes Law, P.C. frequently find ourselves resolving foreclosures at the mediation table. We excel at receiving the best results for our clients and ensuring that any mediation agreements are comprehensive, fair, and final. 

Does Loan Modification Stop Foreclosure?

When facing foreclosure, many people wonder how exactly does loan modification stop foreclosure and allow you to keep your home? Loan modification in lieu of foreclosure has become more popular in the past few years because home prices have continually risen. This means that homeowners often have significant equity built up in their homes and are less willing to walk away. 

Loan modification is one of the best ways to stop foreclosure proceedings. This is especially true if you have current income and expect to keep it going forward. Mortgage loans, however, are complex legal documents. If you are interested in a loan modification to stop foreclosure, a foreclosure attorney can help you through the process by communicating with the bank and ensuring the foreclosure process is halted.

What Is Loan Modification And How Does It Work?

A loan modification is a change in the mortgage agreement between you and your lender. The changes can be to any number of loan terms, such as length of the mortgage, the interest rate, or the principal. Both parties will have to agree to the changes and there is usually some give or take. Once an agreement is reached, the lender will write up a loan modification document that will amend the terms. You will go over it and sign on just as you did with the original mortgage document. Once it is signed, the terms of your loan have changed. Ultimately, both parties walk away from the loan modification in a better position: you get to keep your home and the lender gets to keep collecting your principal and interest payments without going through the foreclosure process. 

When Should You Consider a Loan Modification

A loan modification should be used when you can afford to keep your home, not simply because you want to keep it. If your home is significantly underwater or you simply can no longer afford it, a loan modification may not be right for you. A common example of someone seeking a loan modification is after a divroce. The spouse that keeps the home is now down to one income and can no longer afford the monthly payments. If the payments were slightly reduced, however, it may be affordable. 

Basic Eligibility Requirements 

Not everyone will be eligible for a loan modification. There are various requirements depending on the type of mortgage you have and whether it is federally backed. Many federally backed mortgage loans have their own loan programs that determine who is eligible. Sometimes, the mortgage lender itself may have a standalone mortgage modification program that it offers to its customers. Typically, a loan modification will require that:

1. The home is your primary residence, and not a rental or vacation home.
2. Since the time you entered into the mortgage, you have experienced some hardship event that altered your ability to pay, such as a divorce, injury, or loss of employment.
3. You have an income sufficient to pay the modified payments. Generally the payments should be between 25% and 40% if your income.

How to Apply for a Loan Modification

You apply for a loan modification directly with your mortgage lender. Lenders are legally required to provide most loan modification programs for federally backed loans, such as Fannie Mae and Freddie Mac loans. The process begins by contacting your mortgage lender, requesting an application packet, and returning it completed. Under most federal programs, the lender will have 30 days to review and respond to your request. 

Note that there are many private companies that offer mortgage modification services, meaning that they will handle the modification discussions with your bank. These companies are generally disfavored, as the process is quite simple. In fact, New York law prohibits the collection of a fee from a mortgage modification company prior to completion of the modification process. 

Documents You’ll Need to Provide With Your Application

The documents required to modify a mortgage will generally depend on the lender and type of mortgage you are seeking to modify. The application will be very clear on what is required. Typically, you will need to provide the following documents:

• Proof of wages or other income for a fixed period of time, such as the past 6 months.
• Tax returns for the past 2-3 years.
• Proof of the event causing hardship, such as divorce or loss of your job.
• Proof of any assets, such as cars or investment accounts.
• Proof of any other obligations, such as car payments or second home mortgages.

Mortgage Modification Options

Once you have applied for a mortgage modification, there are multiple options available to you to make your payments more affordable. These are the most common methods to lower your monthly payments.

Principal Reduction

Principal reduction is generally considered a flat out forgiveness of a portion of the loan’s principal balance. The most common principal reduction programs are through the federal government’s Principal Reduction Program for loans that are federally backed. These programs have strict requirements and are intended to assist homeowners who are seriously behind on their mortgages and owe more than their homes are worth. Because the debt is simply forgiven, the mortgage lenders themselves are unlikely to provide principal reduction programs. 

Lowering the Interest Rate

Interest rates are lower now than they have been in years. This means that refinancing is more appealing to current homeowners. If you are behind on your payments, however, your lender may be unwilling to refinance your home and lend additional money. In that case, a loan modification that lowers your interest rate may be possible. 

Monthly mortgage payments consist of principal and interest. Early on in the loan, the vast majority of the payments are interest payments. This means that by simply lowering your interest rate a few points, you can significantly reduce your monthly payments. The exact amount of money you will save monthly is a fairly easy calculation to make with the help of your lender. If foreclosure is inevitable without some assistance, your lender may be willing to lower your interest rate to keep you in your home. 

Extending the Loan Term

One of the simplest ways to lower monthly payments on a loan is to extend the term. This will generally increase the interest you pay, but make the overall loan more affordable. If you have paid on your 30 year mortgage mortgage for say, 10 years, then 20 years of payments remain. Your mortgage lender may be willing to extend the current balance over the next 25 or even 30 years if it means keeping you in the home and making payments.

Adjustable to Fixed Interest Rate

Adjustable rate mortgages can cause serious headaches. An adjustable rate mortgage is a mortgage in which the interest rate will vary over time. These types of mortgages are generally attractive to homeowners because they start off with low rates, allowing the homeowner to save more money.  The rate increases, however, often taking homeowners by surprise, especially if their monthly payments increase more than expected. If you were in an adjustable rate mortgage and your payments have now become unaffordable, your lender may be willing to modify the loan to a traditional fixed rate.

Postponing Payments

Another method of loan modification is when the lender agrees to postpone monthly payments for a fixed period of time. Those postponed payments can then either be added to the end of the loan term, thereby extending the term, or amortized over the current payments, increasing them slightly. Postponed payments are a great idea for those who may have suddenly lost a job or are going through similar temporary hardships. 

Types of Loan Modification Programs

If you are considering a loan modification, there are many federal programs available to facilitate the process. The number of programs may seem overwhelming, but a simple class to your lender can help narrow down which program is best for you.

Flex Modification Program

The Flex Modification Program is a federally run program available to homeowners whose mortgages are backed by Freddie Mac or Fannie Mae. The Flex Modification Program works by lowering your payment by as much as 20%. It can also take the amount you are behind on your mortgage and spread it over the remaining term of your loan. Afterwards, you will be up to date on your mortgage. This is a great option for those who have steady income, but are unable to catch up on their deficit. 

The Flex Modification Program has certain requirements that should be discussed with your lender. It is generally available only for homeowners who are more than 90 days behind on their payments and who have proof of stable income. You must submit your application at least 37 days before a foreclosure sale is scheduled. Once you are approved, there will be a short term trial period so that the lender can ensure you are able to comply with the modified terms. 

The Home Affordable Foreclosure Alternatives (HAFA) Program

The Home Affordable Foreclosure Alternative program was a program for homeowners who were unable to secure loan modification. The program expired in 2016. The program allowed a streamlined short sale program where the sale price would be pre-approved by the lender. The homeowner would then have up to four months to find a buyer for the home. Once a buyer was found, finalizing the short sale process was much more efficient. Lenders were offered financial  incentives through this program, which made short sales a great option.

USDA’s Special Loan Servicing

If your home loan is guaranteed by the US Department of Agriculture, you may be eligible for the USDA Special Loan Modification program. This program allows adjustments in interest rates and potentially an extension of the loan term for up to 480 months. This program is more rarely used than other types of loan modification, but is still a great option for those with qualifying loans. 

Know Before You Modify

A mortgage loan modification, like the decision to take out a mortgage in the first place, is an important decision. Homeowners should not agree to modify their home loan without first understanding the impacts it may have, which can be far reaching. Your loan servicer should be able to answer many of the typical questions that arise, but independent research should be done as well.

How Does a Loan Modification Affect Your Credit?

A loan modification can negatively impact your credit. Ultimately, whether it will impact your credit depends on how and if your loan servicer reports the modification to a credit reporting agency. One common way that loan servicers report loan modification is as a “settlement.” While not generally a good thing, a modification on your credit report is always better than the alternative, which is a foreclosure. In fact, a loan modification will likely have a positive impact on your credit score over the long term, if you are able to successfully pay off the loan in full.

Taxes

Whether a loan modification will have taxable implications is not a straightforward determination. Generally, there are two types of modifications to a mortgage loan: economically significant and nonsignificant. Economically significant modifications are those that meet certain threshold requirements, such as large changes in interest rates or principal amounts. Non-economically significant modifications are everything else, such as small or insignificant modifications. Economically significant modifications are treated as taxable events and may lead to cancellation of indebtedness or other income. Many federal programs alleviate these concerns by providing special exemptions for income from federal loan modification programs. To be sure, any homeowner considering a loan modification should be 100% certain of the tax implications it will have.

Benefits & Drawbacks of a Loan Modification

There are many pros and cons of entering into a loan modification, rather than the other options available to stop a foreclosure. A homeowner considering a loan modification should consider the following:

How to Stop a Foreclosure With Loss Mitigation

If you are wondering how to stop a foreclosure, Loss mitigation may be your answer. Loss mitigation is the process by which a homeowner can work with his or her lender to avoid the foreclosure process and keep the home. Rather than a discrete solution, it is a process by which the lender and homeowner sit down and discuss options other than foreclosure.

What is Loss Mitigation and How Does it Work?

Loss mitigation can come in a number of forms, such as entering into a repayment plan or forbearance agreement. Federal law requires that lenders enter into loss mitigation prior to foreclosure for certain federally backed loans. While New York law requires that the parties engage in loss mitigation, the Settlement Conference that takes place during the foreclosure court proceedings satisfies this requirement. It is possible in New York, however, to begin the loss mitigation process before a foreclosure complaint is ever filed. 

Deficit Repayment Plans

Entering into a mortgage repayment plan to stop foreclosure is an excellent option for those who have steady income, but have fallen behind on their payments and cannot catch up. Because of that, deficit repayment plans are commonly used by homeowners who were out of work for a short period of time, and now want to get current on their mortgage. 

How Does a Deficit Repayment Plan Work?

A deficit repayment plan works by taking the amount that the homeowner currently is behind on the mortgage and spreading it over a period of time, called the repayment period. That amount is added to the current monthly mortgage payment for the length of the repayment period. Once the repayment period has ended, the mortgage payments return to their normal amounts and the homeowner is up to date on the mortgage. For example, a homeowner who is $5,000 behind on their mortgage with a monthly payment of $1,000, may agree to spread the $5,000 over the next 10 payments. The homeowner’s new payment would then be $1,500 for the next 10 months and then it would return to $1,000. 

Deficit Repayment Plan Eligibility

Whether or not you are eligible for a deficit repayment plan depends entirely on your lender. You will, however, need to show that you have a steady income and are able to pay the increased monthly payments. Repayment plans through federally backed mortgages typically have strict requirements that your loan servicer will screen for. Generally, lenders will want to see:

• A strong history of employment, such as pay stubs or prior tax returns, which evidences your ability to pay. 
• That you are enduring some type of short-term hardship, which temporarily caused you to fall behind on your payments, and that the hardship will or has ended. 
• That you are unable to refinance your home.

Types of Deficit Repayment Plans

Once again, the type of repayment plan available will depend on the type of home loan you have. The only real difference, however, is the length of time you have to repay your deficit. Fannie Mae loans are eligible for up to a 12 month repayment plan, but may also be for 3, 6, or 9 months. Freddie Mac loans have similar limitations on loan repayment plans, but in some circumstances can be for longer. 

Benefits and Drawbacks of a Mortgage Deficit Repayment Plan

Repayment plans can be a great option for those homeowners who experienced a short term hardship and are working to get back on their feet. If you think a mortgage repayment plan may be helpful for you, consider the following benefits and drawbacks

Forbearance Agreement

A common option for loss mitigation is loan forbearance. Forbearance is a general term that includes a number of different strategies to keep homeowners in their homes. Generally, forbearance includes lowering of the monthly payment for a short term so that a homeowner experiencing temporary hardship can make the payments and remain in their home. The lender will agree not to foreclose on the homeowner during this time. What the lender does with the excess amounts is what differentiates forbearance agreements. 

Forbearance Process

A forbearance agreement is an agreement entered into between the homeowner and lender. Because of that, both parties will have to agree on the terms of the forbearance, which means that they vary significantly from case to case. Typically, the homeowner will apply for forbearance by submitting documentation that they are experiencing temporary hardship. If the homeowner is still working or can afford lower monthly payments, the monthly payments may simply be reduced. If the homeowner has no income, the lender may potentially agree to completely suspending the monthly payments.

Once the forbearance period has ended, there are a number of options of how to deal with the unpaid amounts. The first is to add those amounts to the end of the mortgage term, thus extending the mortgage period and the amount of interest that will ultimately be due. Another option is to have the homeowner pay lump sums. This can be either one lump sum or a few over a period of time. Another common option is to add the unpaid amount pro-rata over the remaining monthly payments. This will cause a small increase in the monthly payments going forward. In extraordinary situations, a lender may agree to forgive the payments entirely, although this is rare. 

FHA Special Forbearance Eligibility

If you have a loan insured by the Fair Housing Administration (“FHA”), you may be eligible for a number of forbearance programs they offer FHA borrowers. One of these includes the Special Forbearance Program. The FHA Special Forbearance program is offered only to homeowners who are unemployed at the time of application and are available only once three monthly payments are missed. The FHA program allows the homeowner a minimum of 12 months to find new employment. If the homeowner fails to find employment during that time, the lender will reevaluate the situations and potentially look into more permanent loss mitigation options, such as modifying the loan terms. At no time during the program can more than 12 months of payments be due.

Benefits & Drawbacks for Forbearance 

If you are temporarily unemployed and are having difficulties making your monthly mortgage payments, you may be a candidate for a mortgage forbearance agreement. Entering into a forbearance agreement, however, is merely one option available. A homeowner considering such an agreement should consider the following pros and cons of mortgage forbearance agreements:

Submitting a Forbearance Application

Forbearance agreements will generally be provided by your lender and the application will be through them directly. This means that the application documents and eligibility requirements may vary from lender to lender. If you have a FHA loan, the FHA Special Forbearance Program has strict requirements that must be met. Your lender will help you through this process, making the application much easier to complete. 

Bankruptcy and Foreclosures

Many homeowners feel overwhelmed and intimidated by the foreclosure process. Because of that, they may have procrastinated or ignored the foreclosure notices from their lender. If you are in this position, you may be looking for a quick solution to your foreclosure worries. Bankruptcy is one of the few ways to stop foreclosure immediately. Bankruptcy will stop foreclosure immediately because once filed, the bankruptcy court will issue an automatic stay.

An automatic stay is essentially a halt on all actions pending against you. This includes foreclosure actions, debt collection, and even lawsuits such as those for personal injury. The reason an automatic stay is necessary in a bankruptcy proceeding is because the court will take a comprehensive look at your financial situation. The court does not want any actions going forward against you while you collect all the necessary financial documents and discuss a resolution with your creditors and the court.

Automatic Stay Exceptions

There are a number of proceedings that are not halted by the automatic stay resulting from a bankruptcy filing. Many of these automatic stay exceptions will not affect the average individual, however, some will. These are the most common automatic stay exceptions:

• Eviction of a debtor where the lease or other housing contract has been previously terminated.
• Actions pending to establish paternity of a child. 
• Actions pendings to determine custody or other child visitation matters.
• Divorce proceedings, in some limited circumstances.
• Audits and other proceedings by taxing authorities to determine the amount of tax the debtor owes.

There is also a general exception that state governments can stop an automatic stay to exercise their “policing power.” This is a widely debated term and generally means activities to protect the “health, safety, and welfare” of the community. It is uncommon that this is ever in issue; however, if a homeowner filing for bankruptcy has any actions or investigations pending against them by the New York state government, they should discuss the matter with an attorney. 

When Should You File for Bankruptcy

Many homeowners want to know how to stop a foreclosure at the last minute. While bankruptcy can do that, it may not be the best choice. The timing in which a homeowner files for bankruptcy can determine whether or not they keep their home. If you are considering filing for bankruptcy to stop a foreclosure sale, you should communicate this with your attorney as soon as possible. Generally, bankruptcy will be filed before or after the foreclosure sale.

Before the Foreclosure Sale

Filing for bankruptcy before the foreclosure sale is generally the most common method. This is because the automatic stay from the bankruptcy court will immediately halt the pending foreclosure action. Bankruptcies take a number of months to complete, meaning that the homeowner can buy additional time in their home. 

Additionally, a homeowner wishing to keep their home should aways file bankruptcy before the foreclosure sale. This is because the lender will act as a creditor during the bankruptcy proceedings. The homeowner can then work with the lender, as he or she would with a normal creditor, and attempt to enter into an agreement to keep the home. 

Another reason to file for bankruptcy before the foreclosure sale is if the lender intends to forgive a portion of the loan, which may result in taxable income to you. If the lender discharges the debt before bankruptcy is filed, it may immediately be considered income. Filing for bankruptcy before the lender forgives the debt may alleviate this problem. Note that there are many exceptions to discharge of indebtedness income available to homeowners. If you are concerned that your lender’s discharge of indebtedness may result in taxable income, speak with an attorney immediately. Moshes Law P.C., has assisted hundreds of clients navigate the bankruptcy process and avoid problems such as discharge of indebtedness income. 

After the Foreclosure

In practice, there is only one reason why a homeowner should file for bankruptcy after the foreclosure sale has occurred. This is because the lender has sold the house at auction and the proceeds of the sale are insufficient to cover the mortgage balance. In that case, under New York law, the lender may be able to sue you and obtain a deficiency judgement for the difference, up to the fair market value of the home. In this case, filing for bankruptcy may work to completely discharge the deficiency judgment. There are, however, many federal and state limits on whether a lender can obtain a deficiency judgement after a foreclosure sale. A qualified foreclosure attorney can help talk you through this process and determine when is the best time for you to file for bankruptcy. 

When You Have No Choice

If you are currently facing a foreclosure and the foreclosure sale is near, you may have no choice but to file bankruptcy, especially if you do not have alternate living arrangements. While filing for bankruptcy will automatically stay an eviction proceeding after the foreclosure sale, it is possible for the lender to petition the court to proceed with the eviction, despite the stay. If you file for bankruptcy before the foreclosure sale, however, you will be able to remain in your home during the bankruptcy proceeding. For that reason, you may have no choice but to file for bankruptcy before the foreclosure sale if you are facing an impending foreclosure sale and have not secured adequate housing. 

Saving Your Home With Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a powerful tool that homeowners can use to not only delay foreclosure, but keep their homes as well. Chapter 13 bankruptcy is not the typical bankruptcy that people are generally familiar with, where all assets are sold off. Rather, Chapter 13 bankruptcy allows the debtor to keep many, if not all of the assets they can afford. Additionally,  during Chapter 13 bankruptcy, foreclosure proceedings are automatically halted, meaning that you can remain in your home during the bankruptcy proceedings. 

How Does Chapter 13 Bankruptcy Work

Rather than selling off all of your assets and distributing the proceeds to creditors, Chapter 13 bankruptcy works by reaching an agreement with all creditors. The agreement will have you make periodic payments to the bankruptcy trustee, who will then distribute a portion of that money to each of the creditors. This will last for an agreed upon length of time, with payments generally happening monthly. Once the payments have all been made, all of the outstanding debts are discharged and you will be able to keep any assets provided for in the settlement agreement.

Chapter 13 bankruptcy works by first filing a bankruptcy petition with the federal bankruptcy court where you live. Once this happens, an automatic stay is immediately issued by the court. On your bankruptcy petition, you must list all known creditors to whom you owe money. The court will then notify all of the creditors that you have filed for bankruptcy and that they can no longer collect on those debts while the case is pending. 

Along with the petition, if you file for Chapter 13 bankruptcy in New York, you must file a proposed repayment plan. That plan will be circulated to the creditors for review. The court will then schedule a 341 Creditor meeting. At this meeting all of the creditors will come together and discuss the proposed repayment plan, objecting if they wish. In reality, creditors rarely will attend these meetings, as the amounts that filers owe to individual creditors are rarely worth the time to attend the meeting. Once the creditors agree to, or do not object to, a repayment plan, it is submitted to the judge for approval. 

Eligibility for Chapter 13 Bankruptcy

There are a number of requirements to be able to file for Chapter 13. First, you must have a steady income that is sufficient to cover your living expenses and the amount of the creditor repayment plan. Second, you must meet the debt limitations. The current maximum amount of debt that you can have and still qualify for Chapter 13 bankruptcy is around $1.3 million dollars in secured debts and $500,000 in unsecured debts. Third, you must not have filed for Chapter 7 bankruptcy in the past 4 years. Finally, you must have up to date tax filings for the past four years, which is a requirement that can be easily remedied if not met. Unlike Chapter 7 bankruptcy, there are no income limitations for Chapter 13 bankruptcy. 

Advantages & Disadvantages

Delaying Foreclosure With Chapter 7 Bankruptcy

In most cases, Chapter 7 bankruptcy alone will not work to save your home from foreclosure. The main benefit of filing is that during Chapter 7 bankruptcy, foreclosure proceedings against you will be halted. This means that you can stay in your home while you look for alternative housing arrangements.

How Does It Work

Chapter 7 bankruptcy is what most people think of when they hear bankruptcy. In Chapter 7, a relatively similar process to filing Chapter 13 is followed. The difference, however, is that in Chapter 7 bankruptcy, there is no repayment plan. Rather, the court will order that you sell all of your assets at the highest price possible. Exceptions for certain small assets exist, such as personal property and a vehicle. Once the assets are sold, the proceeds are distributed amongst the creditors pursuant to an agreement reached between them and the court. Of the assets sold off during Chapter 7 bankruptcy, your home will almost certainly be one. While Chapter 7 bankruptcy may not help keep your home, it may significantly extend the time you can stay in your home while you sell your assets and search for a buyer. For that reason, many homeowners file Chapter 7 bankruptcy near the foreclosure sale date, to extend the time they may legally stay in their homes. 

Eligibility for Chapter 7 Bankruptcy

Chapter 7 bankruptcy has stricter requirements than Chapter 13 bankruptcy. Importantly, Chapter 7 bankruptcy eligibility is limited to those who make under a certain income limit. This is not a single amount of income, but rather a calculation under the “means test.” The means test starts by deducting necessary living expenses from your annual income to arrive at your disposable income. This disposable income is then compared to the median income in the area you live. Even if you do pass the means test, but have enough disposable income to pay off some creditors, the judge may make you do so. If you are considering filing Chapter 7 bankruptcy, a bankruptcy attorney can help you go through this calculation and determine whether or not you are eligible to file. 

Cautionary Notes About Chapter 7

Filing bankruptcy to stop foreclosure is oftentimes a worst case scenario. That is to say, you should not file bankruptcy simply to stop a foreclosure proceeding. While bankruptcy and foreclosure attorneys commonly specialize in both areas, Chapter 7 should be filed only after a comprehensive review of your financial situation, because there are serious long lasting effects of filing bankruptcy. 

Summary of Chapter 7 vs. Chapter 13 Bankruptcy

The decision between filing Chapter 7 or Chapter 13 bankruptcy is not an easy one to make. Despite the similar names, each has dramatically different results and implications. If you are considering filing bankruptcy to stop foreclosure proceedings impending against your home, consider the following differences:

How to Apply for Chapter 7 Bankruptcy

Applying for Chapter 7 bankruptcy is generally done in the same manner as Chapter 13 bankruptcy. Prior to filing the petition, the court will require you to undergo credit counseling with an approved credit counselor. In this class, which generally lasts 6 months, you and the counselor will discuss whether you actually need to file for Chapter 7 bankruptcy, or whether other options are available. Once the counseling is completed, your attorney will file a petition for bankruptcy with the bankruptcy court where you live. A $338 fee must be paid at the time of filing the petition, but you may request a fee waiver if you are unable to afford the filing fee. 

Much like in a Chapter 13 bankruptcy, the court will schedule a 341 meeting of the creditors. At this meeting, all known creditors will attend and attempt to negotiate the payment and or discharge of the outstanding debts. Creditors will rarely attend this meeting, as the amounts owed to any single creditor are generally small and not with the cost of sending a representative. Once an agreement is reached, the sale of your assets will begin and the proceeds will be paid to the bankruptcy trustee. Once this is done and the proceeds are disbursed, the court will approve the bankruptcy and order the discharge of any remaining debts.

Other Ways to Stop Foreclosure in New York

If you are still wondering how to stop foreclosure proceedings, there are many options available in addition to the methods identified above. These are some of the most common methods we utilize to help our clients stay in their homes.

Assumption and Lease 

An assumption and lease is yet another option that a homeowner facing foreclosure may utilize. An assumption and lease will generally allow the homeowner to stay in their home and avoid foreclosure all together. In an assumption, the assuming party pays you the built-in equity in your home, assumes the mortgage, and obtains the deed. You then use the cash received to pay rent to the assuming individual going forward. The downside, however, is that you will no longer own the home.

How Does an Assumption and Lease Work?

An assumption occurs when one party takes over the legal right of another by stepping into their shoes in the contract. In the terms of a mortgage, this means that the individual assuming the loan agrees to be liable for the monthly payments. In order to assume the large loan balance, the assuming individual will require you to transfer them the deed to the home as well, so that they are now the legal owner of the home. If there is any equity built up in your home, you may be eligible for a cash payment from the assuming individual.

Now that the assuming individual is the legal owner of the home, they can do what they please with it. Typically, before the assumption is completed, you will enter into an agreement for the assuming individual to lease the home back to you. You will then continue to live in the home and pay the assuming individual rent that you can afford, typically using the cash received from the built-in equity in your home. If you no longer wish to stay in the home, you can simply walk away after the assumption is complete and avoid having a foreclosure on your credit report. 

Are all Mortgages Assumable?

No, all mortgages are not assumable. This is due to a lease provision called a “Due On Sale Clause.” A due on sale clause says that upon the sale or transfer of your mortgage by you, the entire balance of the loan will become automatically due to the lender. There are certain federal limitations to when a due on sale clause is enforceable. For example, a due on sale clause cannot be enforced if the sale or assumption is to your child. 

How to Qualify for Mortgage Assumption

Most commercial mortgages today have a due on sale clause. This means that you cannot enter into a mortgage assumption by yourself, without prior approval from your lender. If your lender agrees to the terms and is satisfied with the creditworthiness of the assuming individuals, they may agree to waive the due on sale clause and allow the assumption. 

Types of Assumptions

There are two types of mortgage assumptions available. The first is called a standard assumption. In a standard assumption, the assuming individual agrees to assume the mortgage and become liable under it. However, by definition in an assumption, the lender has not agreed to release you, the homeowner, from your obligations under the mortgage. This means that if the assuming individual defaults in the future, you may still be liable for the missed payments.

The second type of assumption is called a novation. A novation is the same as an assumption above, but the lender affirmatively agrees to release you from any further liability under the mortgage. If you are considering a mortgage assumption to avoid a foreclosure, you should always seek to be released by your lender through a novation. 

Advantages and Disadvantages of a Mortgage Assumption and Lease

Refinancing

Another method to stop or delay foreclosure in New York is through refinancing. Refinancing is a great method for homeowners who have a steady and stable income and are facing or have faced short-term challenges or income changes.

How Does Refinancing Work

A refinancing works by capitalizing on the equity in your home. A refinancing is essentially a new mortgage taken out against your home. The proceeds from the new mortgage will be used to pay off your old mortgage. Ideally the new mortgage will have more favorable terms than the previous mortgage, such as a lower interest rate and more manageable payments. Additionally, if there is any equity built up in your home, either through appreciation or principal payments, you may be able to keep that equity as cash or use it to cover the deficit on your old mortgage. 

Types of Refinancing

There are a few common types of refinancing mortgages. The first is called a “rate and term” mortgage. A rate and term mortgage just called this because you generally alter the rate and the term of the mortgage. For example, an adjustable rate mortgage that you have been paying monthly payments on for 10 years may be refinanced into a fixed rate 30-year mortgage. These can be cash-in or cash-out refinancings. In a cash-in refinancing, the homeowner makes an additional lump sum payment into the mortgage, which results in a decreased monthly payment. In a cash-out refinancing, the homeowner receives additional cash based on the equity in their home, and their monthly payment is increased.

Another type of refinancing is called the FHA streamlined refinancing. This is available for homeowners with FHA secured mortgages. The FHA streamlined program is much easier and quicker than a traditional rate and term mortgage, which often requires more paperwork and negotiation than a traditional mortgage. 

A third type of refinancing is called a home equity line of credit. This is generally used by homeowners with significant equity in their home. The bank will advance funds to the homeowner drawn against the homeowner’s equity, similar to a credit card.

There are many other types of refinancing available, such as refinancing programs available to homeowners through the Veterans’ Association. If you are in the market for a refinancing, your lender can provide you with a comprehensive list of options. A short discussion of some of the popular options is provided below.

Why And When Should You Refinance A Home

Refinancing is typically a good option for homeowners who have made payments on their home over a long period of time and have significant equity built up. Lenders are unlikely to allow a homeowner to refinance if they are behind on or in default on their mortgage, as the homeowner may be unable to pay back the loan in the future. Because of that, refinancing will rarely be useful to a homeowner currently in default. 

Refinancing, however, may be a great idea for a homeowner who is worried about their ability to pay in the future and wishes to get ahead of the problem. If a homeowner fears that he or she may not be able to continually make payments going forward and may risk losing their home, a refinancing can help lower the monthly payments into a more manageable amount. For that reason, refinancing should be a consideration early on in the process, before a single payment is missed.

The Cost of Refinancing Your House

Refinancing is not a low-cost option. A refinancing will generally cost between 2 and 3% of the home’s value to complete. These costs are from application fees, lender fees, title searches, appraisal fees, and title insurance. This is an expensive option because homeowners often benefit from the refinancing, either from a lower rate, longer-term, or a cash out. 

Benefits and Drawbacks of Refinancing

The greatest benefit of refinancing is that it allows an astute homeowner to get ahead of their payment and ensure that they do not default in the future. Preventing a default, missed payments, and ultimately a foreclosure is the best option for a homeowner experiencing difficulty paying their mortgage. If there is equity in the home, a cash-out mortgage may provide much needed support for a homeowner concerned about making future payments. These amounts can be put aside for future emergencies, such as when a monthly mortgage payment would otherwise be missed. 

There are numerous drawbacks of a refinancing, however, the biggest of which is the large cost associated with refinancing. Paying this high cost may not be possible for a homeowner who is experiencing financial hardship. Another drawback is that a refinancing may not ultimately help the owner save their home. While refinancing can lower the monthly payments, this typically is not a large change. If a homeowner cannot afford the payments as is, a slightly lower payment may simply prolong the issue. 

Fighting the Foreclosure in Court

Another way to stop or delay foreclosure is to fight back against the lender in court. In New York, foreclosures must be done through the judicial system. This means that the lender has to bring a lawsuit against you, rather than utilize the more streamlined methods available in other states. Fighting back against the foreclosure is a great idea for homeowners who have a valid legal defense to the foreclosure, such as a reverse mortgage foreclosure defense or a lender who engaged in unlawful or fraudulent business practices, cannot locate the mortgage documents, or has committed a violation of your rights, such as failing to send a 90-day pre-foreclosure letter. 

How Long Will Your Case Take

A foreclosure lawsuit can take an extremely long time. In fact, the New York Department of Financial Services estimates that the average foreclosure takes well over a year. A foreclosure lawsuit takes this long mainly because of the discovery phase, where the parties have significant periods of time to ask and respond to questions. 

While this may seem like an ideal way to stop, or at least delay, a foreclosure, fighting back in court has significant cost. Many homeowners rely on attorneys to fight the lawsuits for them. If a foreclosure case lasts over a year, charges can add up quickly. For this reason, unless there is a valid defense against the foreclosure, most homeowners choose to eventually settle the foreclosure, rather than delaying as long as possible. 

Benefits and Drawbacks of Fighting in Court

If you decide to fight back against foreclosure in court, you should have a discussion with your attorney first. An attorney can help you determine whether you have a valid legal defense to the foreclosure, or whether fighting back will ultimately be futile. Consider, also, the following benefits and drawbacks of fighting a foreclosure in court:

Mortgage Relief Refinance Programs For 2021

In this post-Great Recession world, there are a number of federal and state government programs aimed at helping homeowners keep their homes and avoid foreclosure. In 2021, this need is as strong as ever as homeowners face the Covid-19 Pandemic. Here are a number of government programs that may help you avoid foreclosure through a refinaining if other tactics have failed. 

Hardest Hit Fund (HHF) Programs

The Hardest Hit Fund Program is a federal program aimed at helping homeowners in the worst positions. Only states that have the most significant decline in home values received HHF funds. Further, it is available only to homeowners who are unemployed and whose homes are worth significantly less than their mortgage amounts. The exact requirements, however, change over time and based on state. If your state was awarded HHF money, you should check with your state’s Housing Financing Authority to see if you qualify. 

Principal Reduction Alternative 

The Principal Reduction Alternative program is available to homeowners whose mortgages are not guaranteed by Fannie Mae or Freddie Mac. There are also a number of other requirements, such as the home being worth less than the mortgage balance and that the mortgage was obtained before 2009. Under this program, a portion of the balance is put into a non-interest bearing account. That amount is then forgiven if the homeowner makes successful payments going forward.

Second Lien Modification Program (2MP)

If your home loan was already modified under the Home Affordable Modification Program (HAMP), you may also be eligible for the Second Lien Modification Program. The 2MP program works by adding a second mortgage on the home, which combined with the first mortgage, results in an affordable monthly payment. An estimated 1.5 million U.S. homeowners are eligible for the 2MP program.

FHA Streamline Refinancing

FHA Streamline Refinancing is available to homeowners who have a FHA backed mortgage. The purpose of this program is to quickly help homeowners refinance their homes before they go into default. It is not available for homeowners who are behind on their mortgages and is not a free program. If you are planning ahead,  however, and realize that you may be unable to make payments, the FHA Streamline Refinancing program may be a great option to keep your home affordable. 

HIRO: The Mortgage Relief Refinance Program

HIRO stands for the High Loan-to-Value Refinance Option. This program is offered by Fannie Mae, but Freddie Mac has similar options available. This program helps homeowners who wish to refinance, but have little to no equity in their homes. In fact, through this program, homeowners can refinance even if they have less than 3% equity in their homes, which would otherwise be nearly impossible to do.

VA Interest Rate Reduction Refinance Loan (IRRRL)

The VA IRRRL program is available to homeowners with VA backed mortgage loans. It works by helping homeowners lower their monthly payments by reducing their interest rate or by switching from a variable rate to a fixed rate loan. The requirements for the IRRRL program are quite lenient. Similar to the FHA Streamline Refinancing program, it is intended to be a quick and easy process. 

USDA Streamline Refinance Program

The USDA Streamline Refinance Program works in a similar manner to the FHA Streamline program and the VA IRRRL program. It allows homeowners who are current on their USDA backed mortgages to refinance their homes quickly and affordably, without the need to obtain an appraisal. There are a number of other requirements to qualify for the USDA program, such as debt-to-income and credit limitations. 

When Is It Too Late to Stop a Foreclosure?

Using the wide variety of methods available to a homeowner facing foreclosure, especially bankruptcy, it is generally never too late to stop a foreclosure, even up until the date of the sale. In fact, it is not uncommon for homeowners to file an emergency bankruptcy, without taking the necessary credit counseling classes, days before a foreclosure sale. This results in the foreclosure sale being postponed pending resolution of the bankruptcy proceedings. If you are in risk of foreclosure, however, and the auction date is quickly closing in, contacting an experienced foreclosure attorney is your best option, as he or she will help you understand all of the options available to you.

Tips on Managing a Potential Foreclosure

At the Moshes Law, P.C. we have helped hundreds of homeowners successfully avoid or delay foreclosure. By working with our clients, we have found that homeowners can significantly improve their chances of keep their homes by following the following tips:

Do No Ignore the Problem

Foreclosure is scary. Unfortunately, is it not an issue that will go away if you ignore it. As a homeowner, you need to tackle the issue head on. This means taking affirmative action before your first default. There are a number of programs that are available only to homeowners who are current on their mortgage. As soon as the first payment is missed, these options go away. If you want to have the best chances at saving your home, start looking into your options as soon as possible. 

Contact Your Lender As Soon As Possible

Remember that your lender is not always the bad guy. In fact, you are their customer. They are making money off of you and would like to keep it that way. If you believe you may miss a payment, contact your lender before you do. Not only are they legally required to offer many of the programs above, they may be willing to go the extra mile and offer you other relief to help make your home affordable. 

Know Your Rights Under the Law

If all else has failed and foreclosure is inevitable, you need to be protected. Do not simply have faith that a lender will follow the rules. While it is true that they want to keep you in your home, it is also true that they want you out as soon as possible if you cannot pay. Thankfully, New York state laws offer you protection. You should not be ashamed of invoking your rights and delaying foreclosure. These rights are provided to you by law. Talk to an attorney as soon as you can and ensure that your rights are protected. 

Top Foreclosure Mistakes Made by Homeowners

Many times, clients come to attorneys after there is already a problem. Our job as attorneys is to help fix these problems. The issue, however, is that many of these problems would be avoidable if only the homeowner sought sound advice earlier. Here are the top mistakes we see homeowners make, which ultimately make their situations more costly:

Ignoring Calls and Letters From The Bank

Your lender will want to communicate with you if they fear you are in risk of foreclosure. These letters may at times seem threatening, but do not be intimated. Staying in communication with your lender can help you stay informed and potentially resolve the issue at an early stage. Ignoring the 90-day pre-foreclosure notice in particular is a costly mistake many homeowners make. 

Not Trying To Negotiate Or Restructure

Yes, a mortgage is a legally binding agreement, but that does not mean it cannot be amended. Always negotiate with your lender. If you do not have the money to pay your mortgage, you simply cannot pay. Lenders recognize this are oftentimes willing to make the terms of your mortgage more affordable. In fact, they are legally obligated to offer homeowners in default many of the federally mandated programs above. Always try to negotiate or change the terms of your mortgage before you miss a payment.

Not Considering All Your Options

A homeowner facing foreclosure has a number of options. The ultimate choice will depend on their needs. Do you want to stay in the home? Do you want to give it up? How about sell it to a family member? Maybe refinance it and make it more affordable? There are plenty of options other than a foreclosure sale. Knowing your options is the first step in deciding what to do.

Letting The Property Go Into Disrepair or Damaging the Property

Foreclosure is frustrating. It is your home. Where you raised your family and built memories. Do not, however, think that neglecting the home or damaging it is a way to get back at the bank. Remember that there are numerous options to keep your home. This means that after the settlement conference negotiations, you may be able to keep your home after all. Also, if the home is to be auctioned off, you want to ensure that it is sold for the highest price possible. That is because you want to satisfy the mortgage balance (and avoid a deficiency judgment) and any excess proceeds will be yours. A damaged or neglected home will always sell for less than it would otherwise be worth.

Not Considering A Short Sale

Many homeowners dismiss a short sale because of the extra work involved in selling the home on the market. Also, many homeowners are unwilling to part with their home for less than they paid. The fact is, however, that a home sold in a short sale will almost always sell for more than at auction. If you no longer want to keep your home and simply want to get out of the mortgage, a short sale may be your best option. 

Not Seeking Help

Foreclosure is complex. There are a plethora of federal and New York state laws that govern everything from communications to negotiations. Many homeowners are in financial distress and think they can resolve the issue on their own, without asking for help. In some cases, this is true. In most cases, however, homeowners find it very difficult to navigate the process. If you feel confused, intimated, or overwhelmed, a professional foreclosure attorney at Moshes Law, P.C. can help explain your rights and options going forward.

FAQ

Facing Foreclosure? Get a Free Review of Your Legal Options

Oftentimes, the most stressful aspect of foreclosure is not knowing what to do. There are dozens of programs available to help you keep your home. Oftentimes, however, this only adds to the confusion, as each program has its individual requirements and qualifications. A foreclosure attorney does not just fight for your rights in court, but is a professional in navigating the foreclosure process and avoiding foreclosure through all of the means available.

If you are facing foreclosure, the attorneys at the Law Office of Yuriy Moshes, P.C. can provide a comprehensive review of your options. Contact us today to get the conversation started.