When property goes into foreclosure, state law dictates the foreclosure process. In most states, properties are held by deeds of trust and are called “trust states.” In New York however, loans for real property are secured through mortgages rather than through deeds of trust which makes New York a “judicial foreclosure state.”

The term judicial foreclosure essentially means that most of the foreclosure proceedings in New York must go through the courts before a property can be sold at public auction; making the foreclosure process of a trust state much faster than the process required in New York. On average, it can take 12-18 months after a lis pendens (notice of mortgage default) has been filed for a foreclosure proceeding to move through the court system and the property to end up on the auction block.

The Process

When processing a foreclosure through the court system, the lender files suit against the borrower for the amount in default. The foreclosure lawsuit is commenced by the lender serving upon the homeowner a summons and complaint and filing with the County Clerk's Office an Affidavit of Service. If the homeowner is personally served with the summons and complaint, they have twenty days thereafter to serve upon the lender's attorney a responding pleading called an answer. If service of the summons and complaint is effectuated upon the homeowner by any means other than personal delivery, the homeowner has thirty days to serve and file their answer.

Within sixty days of the lender filing its Affidavit of Service, the Court must schedule a mandatory foreclosure settlement conference. This is an opportunity for the homeowner to meet face-to-face with the lender, or its representative, to try to reach an amicable resolution of the matter, such as a mortgage modification. The homeowner should appear and participate in these Settlement Conferences, which are frequently adjourned numerous times and re-scheduled for later dates. The foreclosure action is effectively stayed, or halted, until the Settlement Conference procedure is exhausted, which serves to lengthen the foreclosure process considerably.

If the borrower does not appear, the court can rule against the borrower, allowing the foreclosure sale. If the borrower appears, the court considers the case before ruling whether the property can be foreclosed on. If the court rules against the borrower, a foreclosure sale is scheduled. The foreclosure proceedings leading up to the court ruling usually take 7-9 months.

In New York, foreclosure sales are made by public auction, usually at the county courthouse. The property is sold to the highest bidder and anyone, including the lender, may bid. The winning bidder typically has to pay 10 percent of the final bid at the sale and the remaining balance within 30 days. When the full amount is paid, the winning bidder takes ownership of the property. Borrowers have no right of redemption after the sale.

It is important for you to know the laws of your state when educating yourself about the foreclosure process and investment strategies. Seeking the guidance of an experienced attorney is strongly suggested to protect your legal rights.