New York Gives Owners a Second Chance to Save Their Homes From Foreclosure

The New York State Legislature voted to give thousands of homeowners facing foreclosure a second chance to fight for a deal to save their homes as it rushed towards its summer recess in June.


The second-chance provision (p.33, lines 26-49) was the product of deals hammered out in the final days and hours of the session by the three men in a room: Governor Andrew Cuomo, Senate Majority Leader John Flanagan and Assembly Speaker  Carl Heastie. The second-chance legislation was tucked into a 44-page bill, which was a part of a larger piece of legislation, dubbed as the “Big Ugly,” which addressed numerous topics, including ethics legislation and control of public schools in New York City. The omnibus 44-page bill, which also dealt with dozens of topics, took second place, with many legislators and staffers referring to it as the “Little Ugly.” Both the Assembly and the Senate passed the “Little Ugly” on June 17.


Six days later, on June 23, Governor Cuomo signed the measure, and it officially became known as Chapter 73 of the Laws of 2016.


The second-chance law was vitally important to homeowners, who, unable to meet their mortgage payments, were left to their own devices to fight lenders’ lawsuits to take back their homes. Failure to attend to legal niceties came with disastrous consequences: an inability to raise any defenses to lenders’ demands for the surrender of their homes. The problem was seriously aggravated by an iron rule handed down by an appeals court in Brooklyn. The second-chance amendment overrode the Appellate Division, Second Department’s rule.

The legal nicety, which stymied homeowners, was a requirement that homeowners file a legal document, called an “answer,” within 30 days of receiving the lenders’ foreclosure papers. Failure to do so meant that the homeowner was in “default,” a status that precluded the homeowner from mounting any defense.


The enormity of the problem is apparent from statistics cited by the New York State Office of Court Administration (OCA) in its 2010 report.  According to that report (p.8), prior to the state’s passage in 2008 of a law requiring good-faith negotiations to determine whether homeowners monthly mortgage payments could be lowered, nearly 90 percent of homeowners failed to file answers. By way of contrast, the report noted that, after enactment of the mandatory conferencing law, 80 percent of homeowners showed up for the court-supervised settlement conferences required by the 2008 law.


But, showing up for a settlement conference had no bearing upon whether there would be relief from the default. That meant that, if the homeowner and lender could not work out a modification, the homeowner was without redress in opposing foreclosure. That was often the case as illustrated by the $26 billion settlement wrested from five of the nation’s largest banks in 2012 for failing to comply with federal protocols for determining when a modification is in order and, if so, how much.

According to the latest statistics available from OCA, there were more than 100,00 settlement conferences held in the 12-month period that ended in October 2014. All but 11,800 homeowners responded to notices that they could avail themselves of the opportunity to seek a loan modification, which reflected a response rate of 88 percent.

But applying the 10 percent rate at which “answers” were filed prior to the adoption of the good-faith law, as noted in the 2010 report (p.8), more than 89,000 homeowners statewide were in default during the 12 months ending in October 2015 (2015 Report, p.9) and without any ability to oppose foreclosure upon their homes should the “good faith” negotiation fail to pan out.

A veteran foreclosure lawyer, Lynn Armentrout, provided a graphic description of the minefield posed by the requirement that homeowners file an answer in an article published in the New York Law Journal[1] in March of this year.

She cited the example of an architect, who was facing foreclosure because of the steep decline in his business as a result of the Great Recession of 2007-8. When asked whether he had filed an answer, the architect asked, “What do you mean, by serve an answer?…I have no idea how to do that. But I did call the attorney [for the lender] whose name is on the summons.” By the time, the architect had found his way to Armentrout, who worked with a New York City Bar Association project offering free legal services to persons facing foreclosure, the architect was already in default and at the mercy of the lender if a modification could not be agreed to.


Armentrout noted that she had “scores” of similar conversations with other clients over the years, adding that she was using the illustration of the architect to demonstrate that “it is not just the uneducated or unsophisticated, who are stymied by the notion of preparing a legal pleading.”


Armentrout, who is a now deputy director of housing at South Brooklyn Legal Services, also laid out her legal research demonstrating how the Appellate Division, Second Department’s approach to defaults imposes a strait jacket upon owners’ ability to fight foreclosures. Her research found that, with one exception (law office failure), the Second Department has refused to relieve homeowners of the consequences of their defaults. Even more telling, she reported that the Brooklyn based-court “routinely” reverses lower court orders granting homeowners relief from their default. Her research found 13 examples of such rulings as of the date her article was published  on March 16, 2016.

Once in default, homeowners lost the right to assert their defenses to foreclosure under the Second Department’s rule. The amended  law allows homeowners a chance to answer the complaint during the settlement conference process, and to assert any defenses that would otherwise have been barred because of their initial default.

Likewise, homeowners, on their second chance, can require lenders to prove that they own the homeowner’s mortgage loan. Previously, once a homeowner was in default, lenders were not even obligated to prove facts essential to their cases, such as their ownership of the  loan.

The Second Department’s rulings are particularly important in the field of foreclosure law because four of the counties it covers —Suffolk, Nassau, Queens and Brooklyn—consistently have, by far, the highest foreclosure caseloads in the state. According to OCA, as of the end of May, those four counties accounted for nearly two-thirds of all foreclosure cases pending in the state.

Other positive changes for homeowners enacted as a part of the “Little Ugly:”

Housing lawyers, present in Albany at the end of the session, credited “tireless work” by Assemblywoman Helene Weinstein, chair of the Assembly’s Standing Committee on the Judiciary, and her counsel, Nadia Gareeb, with spearheading the effort to enact the changes discussed in this article.


Specifically, the advocates said that Weinstein had sponsored a bill, which was passed by the Assembly in May that contained many of the protections included in the Little Ugly package.

The advocates also praised the New York State Department of Financial Services for formulating a bill, which incorporated many of the protections that survived the legislative deal-making process. They also credited Governor Andrew Cuomo’s office as being instrumental in pushing for the changes.

Representative Annette Robinson, the head the Assembly Banking Committee, credited the New York State Foreclosure Defense Bar, whose members made three trips to Albany during the legislative session, with moving the second-chance measure forward by providing “very specific and vivid examples of how owners were losing their homes because of the sloppy and nitpicking way in which lenders dealt with requests for loan modifications.”

In response to my question as to whether OCA was involved in the adoption of the new protections, OCA spokesman Lucien Chalfin responded, “While we were not directly involved with the passage of the legislation, we are familiar with its provisions and will make it work.”





[1] The content of the Law Journal is published exclusively in NEXIS and cannot be linked to.



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Fed Auctions of Troubled Mortgage Loans Hurts Homeowners, Yet Again

In 2013, the U.S. Department of Housing and Urban Development (HUD), the federal agency historically charged with increasing homeownership among working families, ramped up its sale at auctions of distressed mortgage loans for the purchase of single-family homes. A year later, Fannie Mae and Freddie Mac, the two giant government-sponsored entities responsible for maintaining the liquidity of the nation’s housing markets, followed with their own auctions.

Since HUD first started auctioning distressed loans in 2010, the three federal organizations charged with safeguarding the health of the housing market have sold approximately 148,000 soured loans worth nearly $27.4 billion. [1] Those loans have sold at a 41 percent discount from value. [2]

That steep a discount raises a serious question as to why the three agencies would resort to a method designed to generate profits for investment banks and hedge funds, and players in the real estate market in subsequent sales. This is especially the case because one outgrowth of the government’s bailout of the nation’s economy in 2008 was the federal government’s Home Affordable Mortgage Program (HAMP), which requires most mortgage holders to work with strapped homeowners to restructure their loans to lower payment levels within their reach.

U.S. Representative Yvette Clarke, whose Ninth Congressional District in central Brooklyn has been particularly hard hit by the foreclosure crisis, said she is pushing the Federal Housing Finance Agency (FHFA), which oversees both Fannie and Freddie, “to consider principal reductions in amounts comparable to the discounts being offered to private investors to achieve neighborhood stability in districts like my own.” To that end, she is seeking a meeting between FHFA Director Melvin L. Watt and representatives from other districts, which have been hit hard by the foreclosure crisis.

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HUD Sells Troubled Mortgages to Wall Street at 41% Discount

This presents a brief explanation of why I spent a good part of the last month figuring out how to derive the “discount” realized by the winning bidders of auctions sponsored by the U.S. Department of Housing and Urban Development (HUD). I have pegged the discount at 41 percent through my examination of eight auctions held since October 2013, at which HUD sold for $7.6 billion nearly 74,000 troubled mortgages, worth $12.9 billion.

I will post a more comprehensive story later in the week.


While attending a community meeting convened in February by Brooklyn Congresswoman Yvette Clarke, I first heard housing advocates criticize the three major federal entities, responsible for maintaining the stability of the nation’s housing market, for selling distressed mortgage loans at substantial discounts to hedge funds and other private equity groups.

In an article I wrote about the meeting in February, I reported that housing advocates and public officials attending the meeting raised piercing questions about why government-connected agencies would resort to an auction process that enabled financial institutions to profit from the spread between what winning bidders paid to buy the troubled loans and their estimated value.

Why, they asked, had not those agencies insisted that, in the first instance, the institutions holding the troubled loans work with homeowners to restructure their loans so the monthly payments would be more within reach? After all, most major lenders were under a federal mandate to engage in such a process as a part of the Troubled Asset Relief Program (TARP), enacted in 2008 by Congress, to save the nation’s economy. Additionally, state and local governments in 20 jurisdictions have enacted laws requiring that lenders engage in such efforts BEFORE foreclosing upon loans.

I felt that I could not report upon those claims without first ascertaining the size of the discount. The level of the discount would allow for assessment of what the buyers’ profits would look like. Conversely, it would show how much room was available for working out a loan modification to allow borrowers to stay in their homes.

The U.S. Department of Housing and Urban Development (HUD) was the first governmental agency to begin auctioning troubled mortgage loans in 2010. The other two entities, Fannie Mae and Freddie Mac, which are officially designated as “government sponsored enterprises,” followed suit in the summer of 2014.

Fannie and Freddie publish quite a bit of data about the results of their auctions. But their data lacks a key ingredient without which the amount of the discount cannot be derived: the amount winning bidders have paid for the loans they have acquired at the auctions.

Fortunately, HUD’s reports of its auction do disclose the amounts paid by winning bidders or, at least, sufficient information from which that information can be gleaned.

In order to derive the 41 percent figure, I first had to determine what percent of value winners paid for the loans they had acquired at the auctions. That percentage (59 percent) was derived by dividing the total winning bids ($7.6 billion) by the total value of the loans ($12.9 billion) determined by the method HUD used in its most recent survey of the results of its auctions. Under that method, value is ascertained by determining the amount of unpaid principal remaining on the loans that were auctioned, or “Unpaid Principal Balance” (UPB) in real estate parlance.

The discount figure of 41 percent was then yielded by subtracting the percentage of value paid by winners (59 percent) from full value (100 percent). Further details concerning my methodology are contained in the footnotes to the chart.

Discounts at HUD Auctions from
June 11, 2013 to May 18, 2016*

Sale Name and Date Number of Loans Sold Value Based on Amount Still Due on Mortgages (UPB) Fn.1 Amount Winning Bidders Paid Percentage of Value Paid by Winning Bidders Discount Off Full Value
2014-1 National; Oct. 30 and Dec. 17, 2013 17,149 $3.0 Billion $1.6 Billion 53% 47%
2014-1 Neighborhood Stabilization Outcome (NSO); Dec. 19, 2013 Fn. 2 3,188 $657.3 Million $403.8 Million 61% 39%
2014-2 National; June 11 and Sept. 30, 2013 27,580 $4.5 Billion $2.9 Billion 64% 36%
2014-2 NSO; June 25 and Nov. 19, 2014 6,847 $1.2 Billion $703.3 Million 59% 41%
2015-1 National; July 16, 2015 3,752 $582.5 Million $339 Million 58% 42%
2015-1 NSO; July 16, 2015 1,501 $343.7 Million $187.8 Million 55% 45%
2016-1 National and NSO combined; Nov. 18, 2015 Fn.3 7,644 $1.2 Billion $616.6 Million 51% 49%
Aged Delinquent Portfolio Sale; May 18, 2016 Fn.4 7,892 $1.4 Billion $776.5 Million 55% 45%
Total Fn.5 73,811 $12.9 Billion $7.6 Billion 59% 41%
*Source: Material in this chart for auctions held between Oct. 30, 2013 and July 16, 2015 came from HUD’s Report to the Commissioner dated Jan. 22, 2016 at pp. 39, 41, 44, 46 and 49. Data for the auction held on Nov. 18, 2016 is found in HUD’s “Sales Report Summary” for that auction pp.1-3 to 1-5. The data for the sale dated May 18, 2015 is contained in the “Sales Results Summary.” Link pp.1-3 and 1-4 for the auction on that date.
Fn.1: In real estatate jargon, the method is called “Unpaid Principal Balance” (UPO).
Fn.2: Sale of pools of mortgages that are subject to more stringent rules requiring winning bidders to meet goals to improve neighborhoods.
Fn.3: The number and value of the sales at the Nov. 18, 2015 auction have been reduced because one pool (# 301), though listed, was not sold. Sales Result Summary, Nov. 18, 2015, p 1-3.
Fn.4: The number and value of the sales at the May 18, 2016 sale have been reduced because one pool (#408) was listed but not sold. Sales Results Summary, Jan. 18, 2016, p. 1-4.
Fn.5: The figure of 59% for the ratio of winning bids to value was obtained by dividing $7.6 Billion by $12.9 Billion. The amount of the discount was derived by subtracting 59% from 100%.

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Judge: 2 Lawyers Vulnerable to Contempt for Referring to Material in Unsealed Documents

U.S. Eastern District Judge Brian M. Cogan yesterday released the bulk of the records being sought by the Associated Press in its quest for documents relating to Donald Trump’s business dealings with a real estate developer, who had mob connections and a hidden criminal record in his past.

But at a court hearing in Brooklyn yesterday, Cogan offered no quarter to the two lawyers before him, whom he has referred for a criminal contempt investigation. He repeatedly, and sharply, warned lawyers Fred Oberlander and Richard Lerner that they could face more contempt charges if they publicly reveal information about materials sealed by a host of gag orders issued in a criminal case involving the the real estate developer since 1998. That could be the case, he stressed, even if the previously sealed document has been unsealed.

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Cogan Ramps Up Pressure on Northern District

Eastern District Judge Brian M. Cogan has faulted the U.S. Attorney’s Office in Syracuse for offering pabulum rather than specific facts to defend the continued sealing of court documents being sought by the Associated Press.

Cogan, who sits in the Brooklyn-based Eastern District of New York, last week rejected the Northern District office’s letter submission and ordered it to submit a brief in support of its position that the documents should remain out of public view. Read Cogan’s order.

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With Trump in Picture, Judge’s Push for Contempt against 2 Lawyers May Falter

Eastern District Judge Brian M. Cogan issued a highly unusual order last week, attempting to jawbone the U.S. Justice Department to bring criminal contempt charges against two New York lawyers, whom I wrote about extensively in 2012 and 2013, Frederick M. Oberlander and Richard E. Lerner. View WiseLawNY stories dated Aug. 8, 2012 and Aug. 22, 2012.

The springboard that Cogan used to demand an end to the investigation against the two lawyers was a motion brought by the Associated Press to open a sealed file, containing information about a mob-connected criminal cooperator, Felix Sater, who has had business dealings with Republican presidential candidate Donald Trump. Read Cogan’s order.

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Public Advocate James, Fired Up, To Seek Meeting with Brooklyn Administrative Judge

Corrected and Revised*

New York City Public Advocate Letitia James cast a harsh spotlight on Justice Lawrence S. Knipel, the administrative judge in charge of civil cases in Brooklyn Supreme Court, at a meeting convened Friday, under the leadership of Brooklyn Congresswoman Yvette Clarke, to examine the impact of foreclosures upon communities of color.

During the course of the meeting at Brooklyn Law School, James rose on several occasions to express dismay over the way foreclosure cases are being handled in Brooklyn and angrily  vowed to seek a meeting with him.

About 70 public officials, homeowners’ lawyers and their clients attended the session. The session was presented in conjunction with the New York State Foreclosure Defense Bar.

The message from about a dozen lawyers and their clients, who were designated as presenters, was clear: the foreclosure crisis of the Great Recession is not over. To the contrary, the crisis is greater than ever because government-related entities, such as Fannie Mae, have been selling off huge amounts of troubled mortgages at bargain prices to investors, who, in Brooklyn, are pressing hard for foreclosures so they can take advantage of rising prices as gentrification in some of its poorer neighborhoods speeds ahead.

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Thanks to my readers

Yesterday’s story about judge’s resistance to NY Chief Judge’s Lippman’s bail reform plan was more than twice as high as previously recorded on any single day— more than 1100 page views.

I am glad you found it interesting enough to share with your friends and hope that I can continue to find topics of such interest to write about.

Thank you,

Dan Wise

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Anger Over Lippman’s Bail Reform Plan Sweeps Through NYC Criminal Judges

Judges, both present and former, in Manhattan, Queens and the Bronx report in interviews that a wide swath of their colleagues handling criminal cases are adamantly opposed to Chief Judge Jonathan Lippman’s bail reform plan.

The judges say there is a widespread sentiment within the criminal bench that the Lippman plan is not reflective of the realities they face in setting bail; will sow discord among judges handling criminal cases; was rolled out in a manner that was demeaning to judges and the quality of work they do; and is at odds with statutory requirements and ethical restraints designed to protect the judiciary from outside influences.  Continue reading


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Misguided Conservative Attack with Lynch Nomination a Cliffhanger

Conservative critics of Loretta Lynch have raised a bogus argument in an effort to derail her nomination for U.S. Attorney General as her nomination enters a critical and perilous stage.

In the past week Senate vote-counters are predicting that, even if the Senate votes on her confirmation, the result would be a 50-50 tie with Vice President Joe Biden casting the deciding vote. That leaves Lynch, who has been the U.S. Attorney based in Brooklyn since 2010 zero-room for defectors. Four of the senators currently in her column are Republicans, one of whom is Hatch (R-Utah), who sits on the Judiciary Committee.

On Tuesday Senator Dick Durbin (D-Ill.), who as minority whip is the Democrats chief vote counter, told the Huffington Post link that he is “worried” about the outcome of a vote on Lynch’s confirmation. But yesterday, Senator Lindsey Graham (R-S.C.) told the Huffington Post that he thinks “a couple” of Republican votes will be found to put Lynch over the top.

In the past two weeks, two prominent publications with a conservative editorial bent have launched a factually inaccurate attack claiming that Lynch mislead Hatch in responding to a written question he posed to her after her two-day hearing before the Judiciary Committee wrapped up on Jan. 29.

On Thursday, March 11, the New York Observer ran an article written by a former federal prosecutor under the headline “Breaking: Loretta Lynch Caught in Deceptive Disclaimer.” The Observer story was followed a week ago Tuesday, March 17, by an editorial in the Washington Times, which likewise accused Lynch of misleading Hatch. Continue reading

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