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How Condominium Liens and Homeowner’s Association Liens Impact Mortgage Foreclosures in New Jersey

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In a New Jersey mortgage foreclosure action Condominium liens and Homeowner Association liens are governed by a different set of rules. More specifically, Condominium liens are governed by N.J.S.A. 46:8B-21 whereas Homeowners association liens are governed by their own internal documents.

Condominium Liens

Pursuant to N.J.S.A. 46:8B-21, where a condominium files a lien for “any unpaid assessment” for a “share of common expenses or otherwise” it shall have priority over prior recorded liens (including prior recorded mortgages) for the total amount outstanding not to exceed the “customary condominium assessment against the unit owner for the six-month period prior to the recording of the lien.” (See N.J.S.A. 46:8B-21(a).

The aforementioned priority is limited to liens recorded prior to the Condominium association’s receipt of a summons and complaint filed in a foreclosure action OR the filing of a lis pendens with the proper county giving proper notice. (See N.J.S.A. 46:8B-21(b)(1) & (2).

When filing a lien that may receive the aforementioned priority the association is directed to notify “any holder of a prior record mortgage on the property.” (See N.J.S.A. 46:8B-21(b)(6).

Where the unit in question is purchased as the result of a foreclosure of the first mortgage the purchaser shall not be liable for any unpaid common charges or other expenses. Further, any “remaining unpaid share of common expenses and other assessments, except assessments derived from late fees or fines, shall be deemed to be common expenses collectible from all of the remaining unit owners including such acquirer, his successors and assigns.” (See N.J.S.A. 46:8B-21(e).

In practice this means that Condominium lien may have priority over a first mortgage for a total of six (6) months of common charges. In order to receive this priority the lien must have been filed prior to the commencement of a mortgage foreclosure action. Should a mortgage foreclosure action be filed prior to the recordation of a Condominium lien and Plaintiff’s counsel serve a copy of the Summons and Complaint on the Condominium Association OR file a proper Lis Pendens that provides notice of the action the contemplated priority will be cut off and non-existent.

 

Homeowner’s Association Liens

Homeowner’s Association liens are not governed by statute and are instead governed by their own internal documents. Therefore, it is difficult, if not impossible, to determine the priority of a Homeowner’s Association lien without reviewing said documents.

 

Written By Adam J. Friedman

Foreclosures & Failure to Prosecute

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Once a residential foreclosure matter is released from the Foreclosure Settlement Conference Part the Plaintiff can file a motion requesting a Court order appointing a Referee to compute the total amount due the Plaintiff on the underlying debt. Prior to filing a motion, the Plaintiff’s attorney must receive an OCA Affidavit from their client and then sign an OCA Affirmation. If the Plaintiff attorney experiences a delay in receiving that affidavit, or if there is an issue with the bank’s paperwork, the Plaintiff’s attorney is unable to sign the OCA Affirmation and in turn unable to file the motion.

When a motion isn’t filed it remains in the Foreclosure Settlement Conference Part and therefore in that part’s inventory. Over the past 18 months or so these parts have received pressure to clean up their inventory. As a result, these parts have started to dismiss cases for failure to prosecute pursuant to CPLR 3215 (if an answer was not filed) or CPLR 3216 (if an answer was filed). Every county differs slightly in their approach. Some hold Foreclosure Status Conferences whereby a Judge or Referee will question the Plaintiff’s attorney on the status of the case and pressure them to move their case along. Other counties (most notably Westchester County) schedule dismissal calendars where Plaintiff attorneys that cannot represent on the record that they have received the OCA Affidavit have their cases dismissed.

As you can imagine this creates numerous additional court appearances. While it may provide some temporary assistance to homeowners, 99% of the time the action will be recommenced after dismissal. While the Foreclosure Settlement Conference parts are able to clear up their inventories through this process, more often than not it simply delays the inevitable.

Written By Adam J. Friedman

A Good Faith Notice Before Moving For Default

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A “GOOD FAITH” NOTICE BEFORE MOVING FOR DEFAULT

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WELLS FARGO BANK, N.A. v. BUTLER: A MISAPPREHENSION AND UNFOUNDED JUDICIAL TRANSFORMATION OF THE LIMITED SCOPE AND OBJECTIVES OF THE SIMPLE SETTLEMENT CONFERENCE PROCEDURES LEGISLATIVELY IMPOSED BY CPLR §3408

A recent Supreme Court decision in the second department, Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) (N.Y. Sup. Ct. 2013), appears to shut the door on a new breed of “defense-to-default” being offered by mortgagors who fail to interpose an answer or make a pre-answer motion. The decision appears to resolve prior New York Supreme Court decisions that were based upon misapprehension of CPLR 3408’s intended purpose.

In a foreclosure case, much like any other litigated matter, the defendant (borrower) is served with a Summons and Complaint. Once the borrower is served, the time period to appear/answer the complaint and assert any affirmative defenses begins to run (typically 30-days after proof of service is filed with the county clerk). If the borrower fails to appear/answer the complaint or make a pre-answer motion during the aforementioned period then without question the borrower is considered in default.

Within different legal disciplines (i.e. Personal Injury), a defendant in default of answering the complaint will receive a good faith notice indicating that his/her/its time to answer the complaint has expired and if an answer is not received within seven days of the date of “good faith letter” then the Plaintiff shall proceed towards obtaining a default judgment, and eventually setting the matter down for an inquest.

In foreclosure litigation, CPLR §3408 throws a metaphoric wrench in the “simplicity” of receiving a default judgment and proceeding toward final judgment. In New York, CPLR 3408 requires that a Mandatorysettlement conference be held for any residential foreclosure action involving a home loan,  as such term is defined in section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure. While litigants are in the Foreclosure Settlement Conference Part (FSCP), the pending foreclosure action is stayed until the case is either discontinued following settlement or the case is released from the FSCP without settlement.

In a situation where the borrower has sufficient income to support a modification and a modification is offered and accepted, the issue of default is inconsequential. Conversely, in situations where the borrower cannot support a modification or does not negotiate in good faith (i.e. failing to provide a modification package), which prompts a Court Attorney Referee or Judge to release the case from the FSCP, borrowers are now more regularly attempting to hang their hats on participation in settlement discussions as reasonable excuse for failing to answer the complaint.

In Wells Fargo Bank v. Butler, 41 Misc. 3d 547N.Y.S.2d 41 (Sup. Ct. 2013), Justice Battaglia writes:

“…that there is authority that at least suggests that, under some circumstances, an “informal appearance”after the expiration of  the time to answer or move specified in CPLR 320(a) will preclude entry of judgment by default.”

In the aforementioned Butler case, because of the extraordinary degree of participation, which is rarely repeated to the degree of the borrower, Butler, Judge Battaglia seems to have fashioned a decision which suggested that a default in answering was not a default in answering.

According to the court’s case management database, defendant Butler appeared 25 times in the FSCP, appeared twice before the IAS part after the action was released from the FSCP, and served opposition to plaintiff’s motion requesting default.

Based on the above factors, Judge Battaglia decided that “public policy in favor of disposition on the merits is at its strongest in residential foreclosure actions.” See Butler, 41 Misc. 3d 547N.Y.S.2d 41 supra.

Inarguably settling a matter on the merits is the preferred method of resolution in any litigated setting, however, the Butler decision is flawed in that it seems to suggest that mere appearance in the FSCP should allow for a default to be excused.

NOTHING should be further from the truth with respect to a party in default. As shown in CPLR 5015, such section affords a party relief for failing to answer the complaint or making a pre-answer motion if he can demonstrate 1) excusable default and a 2) meritorious defense.

The question of what constitutes a reasonable excuse is dealt with unequivocally with respect to settlement conference participation in Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) (N.Y. Sup. Ct. 2013).

In Navarro, the court found that “participation in statutorily mandated settlement conferences, which are scheduled by court personnel after the time in which an answer is due, may not, in itself, serve as a de facto extension of the time to answer and/or a reasonable excuse for a default.” See Bank of New York Mellon v Izmirligil, 2010 WL 8412713 (Sup Ct. Suffolk County 2010); See also Deutsche Bank Natl. Trust Co. v Young, 2012 WL 6019543 Sup Ct. Suffolk County 2012).

To hold otherwise would effect an unfounded judicial transformation of the limited scope and objectives of the simple settlement conference procedures legislatively imposed by CPLR 3408 into a revocation of longstanding rules and laws governing defaults which the legislature chose not to alter (see e.g., CPLR 320; cf., L.2008, c. 472, § 3, eff. Aug. 5, 2008; Amended L.2009, c. 507, § 9, eff. Feb. 13, 2010; L.2013, c. 306, § 2, eff. Aug. 30, 2013).

Further, Navarro states that:

“…the mere fact that parties to a foreclosure action engage in pre-action and/or post-action loan modification discussions is alone insufficient to constitute a reasonable excuse for a default in answering, especially where the default in answering remains unchallenged by the party in default for a lengthy period of time.” Onewest Bank, FSB v. Navarro, 41 Misc. 3d 1238(A) supra.

In reviewing the relevant caselaw, statutes as well as common practice of other legal practice areas, I believe that a single step of Plaintiff’s in the foreclosure process can resolve this issue: Providing the aforementioned “good faith letter” via regular/certified mail to the borrower after the statutory period to answer/make a pre-answer motion elapses.

As previously mentioned, the current foreclosure legal landscape is seeing a paradigm shift where a number of borrowers are failing to interpose an answer to Plaintiff’s Summons and Complaint and are then relying on making a plea for an IAS Judge to permit them an opportunity to interpose a late answer because of their participation in the FSCP. This in turn drives up litigation costs and clogs the court’s calendar because:

1)    The lender must oppose the instant motion to interpose a late answer

2)    Then, once the Motion to Interpose a Late Answer is granted (because of the aforementioned and more often used equity argument),

3)    An additional motion must be prepared for Summary Judgment against the litany of boilerplate defenses of (standing, failure to provide RPAPL 1304/1306 notices, and estoppel, laches, and fraud).

It is my position that should an IAS Judge review the opposition papers to the defendant’s first motion requesting the opportunity to interpose a late answer and find annexed to the instant papers a NOTICE that:

  1. Is clear and direct with respect to the consequences of not submitting an answer;
  2. Provides additional time beyond what is statutorily permitted for a defendant to answer and
  3. Is provided using the same exact measures required for pre-suit notices (by Certified and Regular Mail)

an IAS would be hard pressed to look passed the borrowers blatant disregard to protect its interest in offering a responsive pleading and would far less regularly afford the borrower the opportunity to vacate a default and interpose a late answer.

In sum I ask: Would it make a difference in the prevailing jurisprudential attitudes of Supreme Court IAS Judges if this additional step of providing a “Good Faith” Notice of Default was adopted by the Plaintiff’s Bar?

Written by Michael Derosa, Esq.

Possible Change in HAMP Modifications – Automatically Going Permanent

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HAMP modifications are government incentivized modifications that work off of a homeowners gross monthly income to determine an affordable monthly payment. After determining what the homeowner can afford the bank weighs the value of the modified loan against the value of a foreclosure of the property. If the modified loan has a greater net present value, it is offered in the form of a trial modification. After 3 trial payments are made the homeowner is again reviewed prior to the modification going permanent.

A major issue with HAMP modifications is that after making the 3 monthly trial payments banks have to complete a permanent modification review where the homeowner may be rejected. Banks had little incentive to determine the net present value of the modification compared to the foreclosure prior to offering a trial plan because the banks had no actual risk. Should the modification pass the net present value test a permanent modification would be offered. Should the bank determine the net present value of the foreclosure was greater than the modification the homeowner would be rejected and the bank would retain the 3 trial payments. It appears things may be changing.

Recently I have seen numerous HAMP trial modifications that automatically go permanent upon the final trial payment. No permanent review is required and all net present value calculations appear to have been conducted prior to the trial modification offer. This will likely lead to an increased number of rejections for homeowners who do not make enough money to pass the net present value test upon the trial modification review, it should lead to a large increase in permanent HAMP modifications. Assuming this is the new practice there will be a few side effects:

(1) Increased Bank Efficiency – Presumably each major bank has hundreds (if not thousands) of workers somehow involved loan modifications. If loan modifications are automatically going permanent the staff responsible for the permanent modification review would likely be directed towards assisting with other aspects of the modification review.
(2) Increase Court Efficiency – Every settlement conference part is bogged down with cases that require 5+ appearances to negotiate. Nearly every case that results in a permanent modification has one or two conferences that serve as a status updates where the appearing attorney simply advises that the permanent review has not yet been completed. If loan mods go permanent automatically it should result in less conferences per file.
(3) More Initial Rejections – Homeowners that don’t have enough income or have too much equity in their homeowner to pass the net present value test should find out upon the initial trial review as opposed to making three (or more) trial payments before being rejected.

Written by: Adam J. Friedman, Esq.

Plaintiff’s Right to Assign the Winning Bid at a Foreclosure Auction

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Court appointed referees commonly permit successful bidders to assign their bid and vest title via the Referee’s Deed into the entity of their choosing. While defense attorneys making a last ditch effort to oppose a Motion to Confirm the Referee’s Report of Sale may claim this assignment is improper, a review of relevant case law shows that courts believe this to be proper procedure.

The Second Department recognized the near unfettered right of Plaintiff or its assignee to assign its successful bid at a foreclosure auction in Polish National Alliance of Brooklyn U.S.A. In this matter Plaintiff was the successful bidder at auction and assigned the bid to an unrelated party. Subsequently the Referee delivered the Referee’s Deed directly to the third party. The court determined that an assignment of a successful bid should not be set aside absent factors such as diminished bidding competiton or the imposition of other inequitable benefits upon the mortgagee.

Further, the Fourth Department held that Plaintiff has the full power to assign their winning bid to a third party and then direct the Referee to execute the Referee’s Deed directly to that third party. See Geddes Federal Savings & Loan Association v. Ferrante 226 A.D.2d 1099, 642 N.Y.S.2d 109 (1996) and Forest Hill Cementery Association v. Sullivan, et al, 235 A.D. 269, 271 (1932).

In Lennar Northeast Partners Limited Partnership v. Gifalidi the Supreme Court of Monroe County went as far as to recognize the right of Plaintiff to receive a Referee’s Deed executed in blank so that it could secure a buyer for the bid at a later date without having to pay additional transfer taxes. Lennar Northeast Partners Limited Partnership v. Gifaldi et al. 181 Misc.2d 113, 695 N.Y.S.2d 213 (1998).

Perhaps more indicative of the case law listed above is the fact that it is there is no case on point that even questions this absolute right to assign post bid. It appears that an attorney or party claiming otherwise is merely trying to slow down the proceedings.

Written by: Adam J. Friedman, Esq.