When a borrower misses one too many mortgage payments, the lender has the right to file a lawsuit against them because mortgage loans are secured by real estate, meaning the property is used as collateral. The borrower is served with papers telling them that they must appear in court. If the borrower still refuses to pay, the lender can ask the judge to sign a judgment giving them ownership of the property. This process, whereby a lender seizes and sells a home or property after a borrower is unable to meet their repayment obligations, is called foreclosure.
After a foreclosure, the lender takes possession of the property and may sell it at auction, using the proceeds from the sale to pay off the balance on the original mortgage.
New York is a state with a large number of foreclosures and has the second-highest rate of foreclosure in the country. In fact, 1 in 21 homes in New York state are in foreclosure and another 1 in 10 are at risk .
If you are having trouble making your monthly mortgage payment, you could end up losing your home. If you have missed too many payments, or if you owe more money on your loan than your house is worth, you should talk to a bankruptcy attorney. Our experienced team at Roemerman Law is committed to helping you explore your options and choose the best way forward for your particular circumstances.
What Happens When Someone Defaults on Their Mortgage?
When someone misses even a single payment on their mortgage, they become delinquent. When a person becomes delinquent, they are still responsible for paying back the full amount owed on their mortgage. They also remain liable for all future payments. Once a person is delinquent, they are considered in default.
There is no set amount of time before you face foreclosure. It depends on how much money you owe, whether you have made any late payments, and what type of loan you have.
Non-Judicial vs. Judicial Foreclosures
Some states allow non-judicial foreclosure. Homeowners who lose their homes through non-judicial foreclosure do so without going to court. Non-judicial foreclosures happen when the lender files a notice of default with the county recorder’s office. If the borrower doesn’t respond within 30 days, the lender takes legal action to force the sale of the property. This type of foreclosure is quick but can fail to protect homeowners.
New York is one of those states that require judicial foreclosures, whereby the lender has to go to court to obtain a judgment against the borrower. Judicial foreclosures are generally considered to be fairer than non-judicial ones. They protect the borrower from scammers and offer the opportunity for redemption if the borrower wants to fight the foreclosure. Judicial foreclosures, however, can take longer to complete.
How Long Does Foreclosure Take?
According to the New York State Comptroller, the State’s chief fiscal officer who ensures that State and local governments use taxpayer money effectively and efficiently to promote the common good, the average foreclosure case takes about 2.5 years in New York State. In reality, the length of time it takes for foreclosure varies depending on where you live. In upstate New York, foreclosure cases take about 1.5 years, while cases downstate tend to take longer—about 3.5 years. 
While a foreclosure can be completed in a few weeks, some lenders may prefer to drag things out as long as possible if they make more money by charging higher rates of interest during the foreclosure process. At the same time, generally speaking, the longer a foreclosure lasts, the lower the price that the lender may get for selling the property.
Can You Avoid Foreclosure?
Foreclosure can be scary. Many people find themselves unable to make their mortgage payments during hard times. This makes them feel trapped. Staying in a foreclosed home, however, does not mean that you’re stuck without having any options. For instance, you can move into another home, rent an apartment, or even sell your house. If you decide to stay in your current home, you may be able to save money by fixing up your house instead of moving into a rental. Hopefully, you could end up getting more money when you sell your house later.
If you have got equity built up in your home, you can borrow against it. Equity means the difference between what your house is worth and what you owe on it. For example, if your house is worth $100,000 and you owe $90,000 on it, then you have $10,000 in equity. If you borrow against this equity, you can pay off other debts or fix up your house.
If you plan to stay in your home for a few months, you can also apply for a short-term loan. These loans let you pay off your mortgage over a period of several months. Of course, even if they are not usually as expensive as a traditional mortgage, they can still cost hundreds of dollars.
There are options available, and you do have rights, but in order to choose the best way forward for you, it is important that you talk to a bankruptcy professional who specializes in foreclosures. A good attorney will help you figure out whether you can afford to stay in your home and advise you on what you can do to stave off foreclosure.
What Are the Stages of Foreclosure?
In New York, the stages of foreclosure are as follows:
1. Pre-Foreclosure Notice
Liens are recorded against the property. If the homeowner is 30-60 days behind on their mortgage payment, the lender may send the borrower a 90-day pre-foreclosure notice. This is a document informing them that the lender is pursuing legal actions toward foreclosure. When a lender files a lien against a borrower’s property to secure repayment, it becomes part of the public record.
2. Notice of Default
Once a lender has filed a lien, they must send a notice of default to the borrower. This notice informs the borrower that they are behind on their mortgage payment(s). It also notifies the borrower that they have 30 days to cure the default.
If the borrower fails to cure the default within the specified timeframe, the lender can begin foreclosure proceedings. The length of time needed to complete each stage varies depending on the type of loan involved. Many mortgages, for example, last for 15 years. During that time, there may be multiple notices of default sent to the borrower. Each notice requires additional paperwork and fees.
3. Demand Letter
The demand letter is a formal request by the lender to the borrower to pay back the entire outstanding balance due on the loan. It usually comes about two weeks before the scheduled sale date.
The demand letter should include information regarding the total amount owed, the current interest rate, and the number of late payments. The lender should also state how much time remains before the next scheduled payment is due. Finally, the lender should inform the borrower that if the full amount isn’t paid back by the end of the grace period, the lender may have no choice but to go ahead with the sale of the borrower’s property.
The borrower has 45 days to file an answer. If the borrower fails to respond to the demand letter or make any payments, the lender can start foreclosure proceedings.
4. Summons and Complaint
Once the lender starts foreclosure proceedings, the court sends a summons and complaint to the borrower. These documents notify the borrower that the lender wants to take ownership of the property. They also tell the borrower what to do to avoid having the property sold at auction.
The borrower has 20 days to answer the complaint if they were served in person, or within 30 days of the time when service of any other means is complete. They do so by submitting an Answer—a document where they explain why they have been unable to pay the mortgage. Alternatively, they may submit a Notice of Appearance, where they simply inform the court that they will participate in the case.
At some point after sending the initial notice of default, the lender must file a complaint that proves to the court that the borrower owes them money. After filing the complaint, the lender sends a “notice of sale” to the borrower. This document tells the borrower that they have until a certain date to come up with the money to prevent the foreclosure from going forward. If the borrower fails, the lender can proceed with the property sale.
5. Settlement Conferences
After the lender files a lawsuit, they typically hold a series of meetings with the borrower, called settlement conferences. These meetings between the borrower and the lender give both parties a chance to discuss the terms of a possible deal and work out a settlement agreement.
It is important for borrowers to show up for the settlement conferences, as they represent one more opportunity to reach a solution that works for them. If they don’t show up, the court may simply let the lender continue with the foreclosure.
Going to the settlement conference also gives the borrower more time to file an Answer, if they haven’t done so already. By attending, they get an extra 30 days, starting from the date of the settlement conference.
If the two sides reach an agreement, they sign a written contract. Otherwise, the case proceeds to the after-settlement conferences.
6. After-Settlement Conferences
If the lender and the borrower fail to reach an agreement, the next step for the lender is to ask the court for an Order of Reference to let a referee compute the amount owed to them. They will also file either a Summary Judgment Motion or a Default Motion, depending on whether the borrower has filed an Answer or not.
If the case goes to trial, the lender will ask the court for a Judgment of Foreclosure and Sale. This is a legal document that allows them to sell the borrower’s property. If the borrower loses, they have to pay the lender’s legal fees. In addition, the lender receives a judgment against the borrower—which means that the borrower now owes the full amount due on the loan.
8. Sale Date
Borrowers sometimes get their loans reinstated without selling their homes. This happens when the original lender agrees not to sell the property. In this case, the borrower still owes the same amount as before—but the lender has agreed not to collect the entire balance immediately. Instead, the lender collects the payments from the borrower every month.
If the lender does proceed with the property sale, their attorney will appear in court on the sale date along with several other people who represent the lender’s interests. Together, these people will ask the judge to approve the sale.
After the judge approves the sale, the lender’s attorney tells the sheriff where to find the house keys. Then, the sheriff knocks on the door and asks the homeowner to come outside. When the homeowner opens the door, the sheriff shows the papers proving that the lender owns the home. The homeowner then has one hour to evict from the house.
After the homeowner leaves, the sheriff enters the house, locks the front door, removes anything valuable that was left inside, and puts it in storage. Next, the sheriff contacts the new owner and tells them to move in.
10. Foreclosure Sale
The lender may choose to hold on to the property or sell the house. If they move forward with the sale of the property, the sheriff’s office will post signs advertising the sale, and local newspapers will publish advertisements announcing the sale. These ads often contain the name and address of the lender’s attorney.
Finally, the lender sells the property to the highest bidder. If there are multiple bidders, they will compete against each other until one person wins.
11. Settlement Statement
After the property has been sold, the lender sends the borrower a settlement statement. This document shows what the borrower owes in principal, interest, escrow advances, and other charges. It also lists any amounts already paid toward the loan.
Can I Get out of My Mortgage Early?
While filing for bankruptcy may offer you a way to avoid foreclosure, in some states, including New York, homeowners can’t file for bankruptcy unless they first try to save their homes by filing for “forbearance” (also called a short sale).
Forbearance was devised to help homeowners who found themselves in a precarious situation because of the price fluctuations in the real estate market. Some homeowners may have bought their homes at a significantly higher price than their current value. In such cases, their mortgage may be higher than the house’s value—so that, even if they sell it, they will still owe their lender the difference between the house’s current value and the remaining mortgage. In other words, people may have to keep making mortgage payments for years for a house they no longer own.
A forbearance is a possible way out of this situation. The lender agrees to receive all proceeds from the sale of the property and release the original homeowner from their mortgage loan—even though the full mortgage balance was not paid off by the proceeds.
Originally, short sales were relatively rare and intended to take place when an unfortunate homeowner had a financial catastrophe at the exact same time their home lost significant value. Nowadays, however, they are increasingly common, with over 1 million U.S. households receiving short sale offers last year—or about 2% of all U.S. homes listed for sale .
You must meet certain requirements to qualify for a short sale:
- You must have a valid reason for needing a forbearance. For example, if you lost your job or are facing unexpected medical bills, you may be unable to afford your mortgage payments.
- Your lender must agree to give you a forbearance. Lenders usually want to avoid foreclosing on borrowers’ properties because it is an expensive, time-consuming process. So, some lenders will agree to work with borrowers who ask for forbearance. Forbearance, however, is not an easy process. Some lenders require borrowers to put down extra money as a security deposit, which is returned once the forbearance ends. Also, some lenders won’t allow borrowers to use forbearance as a way to stop paying interest on their loans.
A bankruptcy attorney will help you explore the possibility of filing for forbearance.
Contact Roemerman Law to Explore Your Options
Judicial foreclosures offer borrowers several opportunities to save their homes from foreclosure. Additionally, you may also be able to file for Chapter 7 or Chapter 13 bankruptcy, thus enjoying the protection of a bankruptcy stay.
If you are facing foreclosure, Roemerman Law can help you explore all available options. We are committed to offering clear and easy-to-understand cost estimates and will help you make the most of the bankruptcy tools available to you.
Learn more about qualifying for a NY bankruptcy or contact Roemerman Law today for a free consultation.