What to do when you are served with a foreclosure lawsuit

DEFENDING A FORECLOSURE LAWSUIT – 101

WHAT TO DO WHEN YOU ARE SERVED WITH A FORECLOSURE LAWSUIT

A foreclosure lawsuit is like any other lawsuit.  It is the same as being sued for a personal injury or breach of contract case.  Under NY law, when a person is sued, she has 20-30 days to “Answer” in Court, or the “Plaintiff” (the one who is suing), can get a “Default Judgment” against the Defendant (the one who is being sued).  Once a Judgment is taken against you, the Plaintiff can “collect” on the Judgment by restraining a bank account, seizing assets, or garnishing your wages. No trial is necessary.  In the case of Foreclosure, the Judgment allows the bank to sell your home after 30 days.

Many of my small business clients are sued by vendors, banks or the Small Business Administration.  When a business is sued, it will ask me to defend the lawsuit immediately and avoid a Default Judgment.

However, when it comes to foreclosure lawsuits, many homeowners follow the advice of “friends” and neighbors who tell them to ignore the lawsuit because they will buy extra time to not pay their mortgage, while working out a Loan Modification with the bank.  This is the wrong advice and will only harm the homeowner in her foreclosure action.

What happens if you do not answer the foreclosure lawsuit?

Under NY law, once you file an Answer, the bank and Court must direct all further notices and correspondence directly to you or your attorney.  If you do not “appear” in the action by defending it, you may not receive notices of Settlement Conferences, Court hearings and motions, or of a final Judgment of Foreclosure and Sale.

Failing to appear and Answer can result in a homeowner waiving her right to the mandatory Foreclosure Settlement Conference, which allows her to apply for a loan modification before the bank can continue its Foreclosure case.  If the property is a rental property, the bank can skip the loan modification process and proceed directly to a Motion for Judgment of Foreclosure without proper notice to you.

A second danger of failing to appear and answer is that a homeowner loses defenses if a Loan Modification is denied.  The strongest of these defenses is “lack of standing,” alleging that the bank suing you does not actually own the mortgage.  If this defense is not alleged by you in an Answer, you lose the right to raise this defense in your foreclosure action.

Another danger of failing to appear and answer is giving up the right “discovery”, forcing the bank to disclose your complete payment history, the bank’s charges for taxes, insurance, attorney’s fees, and any other late fees and penalties.

Finally, once the Bank obtains a Judgment, it need not give further notice of the actual sale or auction date, if the Homeowner has not appeared or Answered.

Many friends and neighbors suggest doing nothing until the bank is about to sell the home, and then run into Court with an attorney to claim that the innocent homeowner had no legal representation and, thus, could not fight against the evil bank in its unfair foreclosure action.  As I have mentioned many times, the Law may be dumb, but it is not stupid.  Most Judges will reject the “innocent homeowner” argument, and at most, may grant the homeowner a 30-day extension of time to allow her lawyer to catch up with the case.  In one of recent cases, a client came to me after a foreclosure action had been pending for over one year, and the Judge allowed me only 30 days to prepare for trial.  Needless to say, this is not an efficient way for either a homeowner or her attorney to save her family’s home.

As always, please feel free to contact me for a free consultation regarding your specific financial circumstances.