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Real Estate Law Articles From Peter T. Roach & Associates

Located in Syosset, NY, Peter T. Roach & Associates, P.C. has the most experienced professionals in real estate, litigation, foreclosure, and bankruptcy law. Our vast knowledge and experience allow us to effectively take on any case. We do everything we can to better serve our clients and exceed their expectations! To learn more about our practice, please read some interesting articles about New York debt collection and real estate law.


If The Bank Financing My Mortgage Goes Out of Business, Could I Really Lose My Deposit?

Most people buying houses today have only a vague idea of how the process really works. They know that the contract will be contingent upon their mortgage approval, and that if they fail to obtain a mortgage commitment, their contract deposit will be refunded.

What they don’t realize is that mortgage commitments can be withdrawn, if there is an adverse change in their financial condition, conditioned upon requirements they are unable to satisfy or that even the largest of financial institutions can fail and be unable to fund the mortgage they committed to.

So what happens if something goes wrong and the lender fails or refuses to fund the loan in accordance with the commitment? Will you get your deposit back?

Shockingly, the printed forms of the most commonly used contracts in New York State contain a mortgage contingency clause that provides that the purchaser will receive a refund of their deposit if they are unable to obtain a mortgage commitment from the bank, however, once the commitment is issued, this contingency becomes fully satisfied.

What this means is that if the bank issues a commitment but does not fund for any reason, you will lose your deposit!

You might ask: How could a lender issue a mortgage commitment, but then refuse or be unable to fund the mortgage? One possibility is that the bank itself could go out of business. Think this is impossible? Think again. Look at Lehman Brothers, American Home Mortgage and hundreds of other mortgage lenders which have closed their doors in the last 10 years.

If that happens, and you’ve signed the standard contract, you have satisfied the mortgage contingency and are obligated to close anyway! And if you cannot, you are out of luck - you may never see your deposit again!

So if these clauses are already printed in the standard contract forms, what can a buyer do? Just say no! Refuse to sign the contract unless this clause is modified to provide that your deposit is fully refundable if the lender does not fund the mortgage for any reason. This will protect you in the event that the bank goes out of business or refuses, for any reason, to fund the loan.

Sometimes you need to play hardball to make sure your life’s savings are fully protected. Before signing a contract, make sure you review every word of the mortgage contingency clause with an experienced real estate attorney and that you are willing to take the risks that the contract provides.


Peter Roach
Peter T. Roach & Associates, P.C.





What is the difference between litigation attorneys and collection attorneys?

In order to effectively utilize the courts to collect a debt owed, a creditor must understand the difference between litigation attorneys and collection attorneys.

Litigation attorneys, also known as litigators, engage in the litigation process from the drafting of the summons and complaint, through discovery pre-trial, trial, and appeal. In simplistic terms, litigators start lawsuits, and continue the process until judgment is rendered and all appeals have been exhausted or waived.

Collection attorneys, on the other hand, are experts in enforcing the judgments litigators obtain; they have the substantive and procedural knowledge, as well as the resources and relationships needed, to enforce the judgment obtained by the litigator.

Litigators are typically paid on an hourly basis, with hourly rates varying greatly, until the case is settled or a final judicial determination has been made; Collection attorneys are typically paid on a contingency basis, and are retained, more often than not, after the final judgment has already been entered. Litigation attorneys charge the same fee regardless of the outcome of the litigation; Collection attorneys earn a substantial percentage of the money collected, but charge no fee at all if no money is received.

While litigation attorneys rarely attempt to engage in “collection work” and enforce the judgments they obtain, (and don’t accept contingency fees in any event!), collection attorneys will often include “basic litigation,” either at a lower rate than litigators usually charge, or in exchange for a higher percentage of the recovery that results, or a “hybrid” of the two.

Regardless of who commences the lawsuit and obtains the judgment, if the judgment debtor fails to satisfy it, enforcement may require some of the more common tools utilized by collection attorneys, such as information subpoenas, restraining notices, and wage garnishments. In order to restrain a bank account or garnishee a salary, however, one must “find” the bank or place of employment (POE). Locating a judgment debtor’s bank account or POE requires multiple resources, including proprietary software, access to various databases, relationships with vendors to the collection industry, etc. Skip tracers are needed to locate parties required to be served with restraining orders, income executions and information subpoenas. Relationships with vendors to the collection industry allow collection attorneys to maintain “cutting-edge technology” in locating bank accounts and/or places of employment. Custom proprietary software enables direct communication with banking institutions, searching bank accounts to matching Social Security numbers and other contact information to identify any bank accounts owned by the judgment debtor.

Collection attorneys will often serve restraining notices on numerous banking institutions, in the hope that the judgment debtor maintains an account in one. A restraining notice “freezes” the judgment debtor’s property, so it cannot be transferred while a sheriff or marshal can be obtained, via property execution, to seize the judgment debtor’s assets.

Once the account is restrained, an information subpoena may also be served so additional information regarding the judgment debtor’s assets may be obtained. New York’s CPLR § 5223 authorizes attorneys to issue information subpoenas - a legal document that compels the judgment debtor or a third-party to answer specific questions - to obtain information that can lead to locating a judgment debtor's assets; however, unlike a restraining notice, an information subpoena can only be served on those whom the collection attorney reasonably believes has information that would aid the judgment creditor in collecting his or her judgment.

Wage garnishment differs from restraining bank accounts, but also requires skip tracers and relationships with multiple database vendors to locate places of employment. In New York, the garnishment is commenced by sending an income execution to a sheriff or marshal, who will then serve the judgment debtor with it and advise that a voluntary payment plan must be arranged in twenty (20) days, or the judgment debtor’s employer will be notified of the garnishment. If a payment arrangement is made, the judgment debtor’s employer is not notified and the judgment debtor makes payments to the sheriff or marshal. If no payment arrangement is made within twenty (20) days, the judgment creditor may direct the sheriff or marshal to serve an income execution upon the judgment debtor’s employer and garnish up to ten percent (10%) of a judgment debtor’s gross income.

While litigation attorneys can obtain the judgment, enforcing it requires these types of assets be located, and a collection attorney will usually be required to do so.

Peter Roach
Peter T. Roach & Associates, P.C.





Acceleration: Is There No More (Graf vs.) Hope?

Most mortgages contain an “acceleration clause,” which provides that the lender has the right to accelerate the entire balance of the mortgage in the event of an uncured default. In 1930, when, following a relatively minor and inadvertent payment default, the Court of Appeals held the right to accelerate the entire debt was a covenant “neither oppressive nor unconscionable . . . fair on its face to which both parties willingly consented,” the right to accelerate appeared to be inviolate and lenders could simply refuse to allow a mortgagor to cure their default and insist on the entire debt being paid in full. (Graf v. Hope Building Corp., 254 N.Y. 1 (1930)).

In the days when Graf was decided, mortgage payments consisted of a constant principal payment plus a payment of interest that had to be calculated each month by the Mortgagor. In Graf, the interest payment was incorrectly calculated by one of his clerks, who then contacted the lender and advised that the deficiency would be corrected immediately upon the president’s return home from a business trip. When the president returned, however, the clerk forgot to do so. Since the mortgage provided a 20-day grace period, the lender waited until the 21st day of default to accelerate the mortgage and commence a foreclosure action. Although the president immediately offered to cure the default, the lender refused to reinstate the mortgage and insisted on payment of the entire balance.

At both the trial level and the Appellate Division, the foreclosure proceeding was dismissed; however, the Court of Appeals, in a divided 4-3 opinion, reversed and allowed the plaintiff to foreclose.

Despite this result, a great victory for lenders, an analysis of Graf would not be complete without discussing Chief Judge Cardozo’s dissenting opinion, which has provided fodder for later cases that digressed from the principles of the Graf holding. In his dissent, Judge Cardozo focuses heavily on the purpose of equity to “prevent [a] creditor from taking an unconscionable advantage of” the debtor. Id. at 11-12 (Cardozo, J., dissenting) (citing Console v. Torchinsky, 97 Conn. 353, 357 (1922)).

Cardozo insisted that there are times when a “hardship” emerges “that will limit the occasions upon which” the acceleration “power should be exercised.” Id. at 10. To him, “in this case, the hardship [was] so flagrant, the misadventure so undoubted, the oppression so apparent, as to justify holding that only through acceptance of the tender will equity be done.” Id. at 14.

Despite the fact that Chief Judge Cardozo was the dissenting voice in Graf, the evolving case law since 1930 has actually largely adopted Cardozo’s reasoning that “foreclosure may be denied in the case of an inadvertent, inconsequential default in order to prevent unconscionably overreaching conduct by a mortgagee”, especially where the default was not a default in payment. Karas v. Wasserman, 91 A.D.2d 812 (App. Div. 1982). A showing of “waiver, estoppel, bad faith, fraud, or oppressive or unconscionable conduct on the part of the mortgagee” may also induce a court to compel reinstatement of the mortgage and stop foreclosure proceedings. In rem Tax Foreclosure Action No. 31, Borough of Manhattan, 136 Misc.2d 533 (Sup. Ct. N.Y. Cty. 1987).

To further complicate and add confusion to the current status of a lender’s right to accelerate, effective September 1, 2008, CPLR § 3408(f) requires mortgagees to “negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible.”

In today’s world, most foreclosure defendants are seeking loan modifications, not reinstatement, and many have claimed that their lenders/servicers have violated CPLR § 3408 and are subject to sanctions for not negotiating in good faith as a way to pressure the lenders into granting their requests for a loan modification. However, on February 13, 2014, the Appellate Division 2nd Department decided Bank of America v. Lucido, 2014 NY Slip Op 00956, stating "Nothing in CPLR 3408 requires plaintiff to make the exact offer desired by [the] defendant[ ], and [the] plaintiff's failure to make that offer cannot be interpreted as a lack of good faith".  Thus, even with the requirements of CPLR § 3408 and the watering down of the Graf holding, the “stability of contract obligations must not be undermined by judicial sympathy.” Wells Fargo Bank, N.A. v. Meyers, 108 A.D.3d 9, 22 (App. Div. 2013), and a court “may not rewrite the contract that the parties freely entered into . . . upon a finding that one of those parties failed to satisfy its obligation to negotiate in good faith pursuant to CPLR § 3408.” Id.

So where do Graf, its subsequent case law, and CPLR § 3408 leave mortgage servicers today? While Courts may not “rewrite contracts” and the case law appears to be evolving that a refusal to accept a defendant’s loan mod request is not, in and of itself, “bad faith”, there is a significant difference between modifying a loan and allowing a borrower to cure their default.  Accordingly, lenders should be more wary of having foreclosures severely delayed, if not dismissed, or being sanctioned for their refusal to “negotiate in good faith”, should they refuse to allow a foreclosure defendant, entitled to the provisions of CPLR 3408, to reinstate the mortgage by curing the default than they would be for refusing to grant a requested loan modification.

Peter Roach
Peter T. Roach & Associates, P.C.

Do I Need to Appoint a Receiver?

During the foreclosure process, any party may seek the assistance of a Receiver. The purpose of a Receiver is to maintain the status quo. They manage the property by overseeing maintenance and day-to-day operations, including collection of rent and payment of expenses. A Receiver has the ability to enter into leases, authorize repairs, retain attorneys, etc.  

The party seeking a Receiver should consider a few things before making their decision. Does the property offer a substantial rental income? If not, there is a risk of being responsible for subsidizing the property’s maintenance. Balance that against the benefits of depriving the Mortgagor of the ability to collect rent during the pending foreclosure.

If the mortgage involved provides a standard clause that states “Mortgagee entitled to appointment of receiver,RPAPL §254 provides that the Receiver may be appointed without notice (ex parte) and without regard to the value of the property involved. In such an event, the plaintiff’s attorney may apply for the appointment of a Receiver ex parte, immediately after the filing of the summons and complaint. In fact, an order appointing and transferring possession to the Receiver may then be served upon the Mortgagor simultaneously with the summons and complaint!

If the mortgage does not contain a notice provision, when the order appointing the Receiver is served on the Mortgagor, it may be the very first time that the Mortgagor becomes aware that a lawsuit has been commenced, since the notice requirements of RPAPL 1304 only apply to residential, owner-occupied properties!

If the Mortgagor posts a bond or can show that the property’s value sufficiently exceeds the mortgage amount, the court can vacate the order appointing the Receiver, but the Mortgagor must still transfer possession to the Receiver until the order is vacated.

The Receiver is compensated by retaining 5% of the rents collected (in addition to the fees paid to a management company or rental agent). If the income is not sufficient to maintain the property, the court may order the party that requested the Receiver provide sufficient funds to cover those expenses. Should that party fail to provide the funds needed, a judgment may be entered against them!

When the foreclosure is complete, any remaining funds in the Receiver’s account are added to the foreclosure sale proceeds and distributed in accordance with the Judgment of Foreclosure.

Should you wish to avoid the time and expense of appointing a Receiver, most mortgages contain an “Assignment of Rent” clause, where the fee owner assigns to the lender the right to collect rents in the event of default. This only encompasses the right to keep the rent that is collected if the tenant voluntarily pays it; however, it does not include the right to evict tenants who do not pay.

The benefit is that it is far more cost efficient to simply send a letter to tenants demanding rent, rather than to appoint a Receiver. While it is far less likely that a tenant will pay rent to the lender than to a Receiver, who has the power to evict, it is also far less likely that the tenant will continue to pay rent to the landlord until the foreclosure has been resolved. Accordingly, while there is often no direct monetary benefit to the Mortgagee resulting from sending rent demand letters, there can be a great deal of benefit obtained by cutting off Defendant’s revenue stream which may be the inducement to litigate and delay the foreclosure.

Finally, one must always consider the risk of becoming a “Mortgagee in Possession” and taking on a variety of potential liabilities as a result of making the demand for rent.


Peter Roach
Peter T. Roach & Associates, P.C.



How Short Is The Short Sale Process? 

In order to understand the process mortgage holders use to determine if they accept or reject short sale requests, one must try and see their point of view. Typically, the term short sale refers to a sale of property where the mortgage balance exceeds the value of the property. Typically, in exchange for receiving the proceeds, the lender is asked to waive their rights to pursue a lawsuit against the property owner for the deficiency.

If the lender declines the short sale request, they can eventually complete the foreclosure and then  go on to pursue a Deficiency Judgment. A Deficiency Judgement is an unsecured money judgment against a borrower or guarantor whose mortgage foreclosure sale did not produce sufficient funds to pay the mortgage balance, in full. This judgement would be entered  against the defendants in the action who originally executed Notes and Guarantees, however, pursuant to RPAPL 1371, the judgment would be limited to the difference between the mortgage balance and the property’s fair market value anyway! If the lender gives up the right to pursue a Deficiency Judgment, they can immediately receive payment of the proceeds, although that sum will be less than the total amount owed.

The decision to accept a short sale can be impacted by the position of the decision maker. One should consider if the decision maker will directly benefit from the liquidation of the asset or is a salaried employee subject to criticism for waiving the right to a Deficiency Judgement. The former will be more aggressive in attempting to liquidate the asset whereas the latter will be more concerned with justifying the decision to waive the deficiency. With this in mind, your strategy should be tailored accordingly.

To expedite the process, the lender must be satisfied with the following areas:

  1. The price is reasonable.

  2. The Obligors (Borrowers and Guarantors) do not have such substantial assets that they would pay the obligation, regardless of the value of the mortgaged premises.

  3. All reasonable expenses paid from the purchase price (reducing the amount being paid to the lender), are necessary to consummate the short sale.  

The first requirement is achieved by providing property access to the lender’s representative and allowing them to inspect the premises. It’s important to note that lenders will rarely, if ever, accept an appraisal performed by anyone other than their own representative, therefore paying for your own appraisal is not cost efficient.  

The second requirement is achieved by providing a financial statement, which may be required to be in the form of an affidavit. Often, defendants are reluctant to disclose their assets because they fear the lender will use that information if the foreclosure is completed. While it is a risk that must be considered, major residential lenders rarely pursue Deficiency Judgments and unless you provide them with all required information, your short sale request will be denied.  

Finally, the contract of sale should provide that current liens exceed the purchase price and that the sale is contingent upon the lender’s consent. The contract must be executed by all parties and be included in the short sale package for the lender to process the short sale application.

The seller’s attorney should also prepare a proposed HUD-1 Form showing the expenses to be paid from the short sale proceeds as well as the net amount available to pay the lender. The lender will carefully review the real estate brokers’ commissions, the seller’s attorney fees, any subordinate liens and other closing costs being paid from seller’s proceeds to ensure they are not excessive. Of course, what is excessive to a lender who is not being paid in full may be less than what was expected by the real estate brokers, seller’s attorney and subordinate lienholders, so these should be negotiated in advance with the lender’s parameters in mind!

Once the short sale package is received, if all paperwork is in order, the process should be quick, but don’t expect it to be! Each lender has their own bureaucracy and approval process, so it’s best to plan for an additional delay when entering into a short sale. Communication is key; expectations must be realistic; patience is a virtue!

What have your short sale experiences been like?

Peter Roach
Peter T. Roach & Associates, P.C.