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Keep in mind the consequences of short sale, deed in lieu of foreclosure

In our last post, we began speaking about some of the alternatives for homeowners who are delinquent on their mortgage payments. Here we’d like to pick up on the topic of another possible alternative to foreclosure: deed in lieu of foreclosure. This is an arrangement in which the lender allows the homeowner to sign their home over to the lender rather than going through a foreclosure, allowing the lender to sell the home to make up for what was lost.  

One important point to make about short sales and deeds in lieu of foreclosure is that there is a good possibility that the lender will suffer a loss and seek a deficiency judgment from the borrower. A deficiency judgment is a court order that requires the borrower to pay back the loss suffered by the lender at the sale of the home. 

Considering alternatives to foreclosure

According to RealtyTrac, the current rate of foreclosure is below the national average, but overall foreclosure activity has been on an increasing trend over the last six months. Given that fluctuations in the foreclosure rate are always occurring, it is hard to tell exactly where we will be in another six months.

What we can say is that there are still a good number of homeowners out there who are struggling to keep their homes and who need advice on how to keep their home or advocacy pursuing foreclosure-related legal options. What exactly are these options, though?

Addressing the issue of illegal subletting

In our last post, we began discussing the controversy surrounding Airbnb, the house-sharing website which could be said to be the real estate version of the ride-sharing services offered by companies like Uber and Lyft. As we noted, illegal subletting has been one of the concerns with the company’s business model in New York, especially because of the negative impact it has had on the housing crisis.

With respect to the Manhattan Housing court decision last fall in favor of a tenant who had used Airbnb to illegally sublet her room, it isn’t clear yet whether that decision will represent the rule of law going forward. Prior to the decision, it had been widely assumed that illegal subletting was a non-curable offense, which means that tenants caught doing it were not able to avoid eviction even if they corrected the situation. With that ruling establishing that illegal subletting may be curable, landlords may have to change their policies and/or management style to ensure that their tenants are in compliance with the law. 

House-sharing website under scrutiny in NY for illegal subletting

New York residents have probably all heard of Airbnb, an online service which aims to capitalize on the sharing economy model by providing a forum for parties to rent out lodging on a short-term basis. Users of the website are required to register and set up a profile which can be given recommendations, ratings and reviews. The company has a strong presence in New York City.

One of the issues that come up with the increased popularity of the website is that tenants often use the service to illegally sublet their leased properties to renters in violation of a city law prohibiting short-term subletting. The law in question prohibits tenants and landlords from renting out an apartment for less than 30 days unless they are also living in the same unit as the renter. The law, if enforced strictly, would curb Airbnb’s ability to expand its host base. 

More on avoiding mistakes in short sales

In our last post, we began speaking about short sales and the importance of potential buyers doing their research before committing to such a purchase. Here we want to look at several additional tips for those considering purchasing real property on a short sale.

First of all, short sales are unique in that banks are going to lose money on the sale, and so are looking for the best possible offer they can get. Because of this, potential buyers need to make an attractive offer to the bank, but should be aware that it isn’t always clear what exactly would be a good offer. Among other things, it depends on whether the listing agent priced the home at a price higher or lower than the bank wants to get out of the property and how long the property has been listed, as well as the condition and location of the home. 

Work with real estate expert to avoid common mistakes in short sales

Real estate transactions, whether residential or commercial in nature, should always be entered into with an appropriate amount of care and planning. This is especially true of transactions which carry additional risk for the buyer, such as short sales.

As readers may know, a short sale is a real estate sale in which the lender agrees to accept the proceeds of the sale as full satisfaction for the mortgage even though the proceeds will not actually pay the full amount off. A lender may agree to such a transaction when it costs them less than pursuing a foreclosure. Although the number of short sales has decreased as markets have improved, there are still some markets where buyers willing to take a risk can get a good deal. How good a deal? In New York, short sale costs last September were 31 percent less than full market value, on average. 

Foreclosure settlement conference program extended

Avoiding foreclosure is no easy task. In many cases, borrowers do everything they can to work with a lender, only to be repelled by the lender's determined pursuit of foreclosure. One program that helped to address this problem in New York was the foreclosure settlement conference program. Although that program reached the end of life under a sunset provision, it has been extended for five more years for residential home loans.

The goal of settlement conferences, for those who aren't aware of the program, is to ensure parties are informed of their rights and obligations and to evaluate possibilities for avoiding foreclosure. If alternatives are possible, payment schedules or loan modifications are discussed, and if there is no possibility of avoiding foreclosure, the goal shifts to helping plan for a smooth legal process going forward.

More public money to be devoted to legal assistance in NYC Housing Court

Last month, we wrote about a proposal being considered by the New York City Council which would have dedicated more public dollars to funding legal representation for tenants who are unable to afford it. The bill would have dedicated over $100 million per year to help tenants defend themselves in court. As it turns out, the city council declined to devote that much money to the cause, but a bill has been passed which dedicated a $36 million more to provide tenants with free legal assistance.

Although the spending plan is significantly lower than was hoped, it is still good news for tenants in housing court, 90 percent of which make do without a lawyer. With the help of legal counsel, more tenants will be able to having a fighting chance in their case. 

Landlords: beware of potential court bias and work with experienced attorney, P.2

We began discussing, in our last post, the issue of potential bias against landlords in the court system, and we mentioned several cases that landlords and their attorneys claim to be representative of that bias. There may or may not be substance to these claims, and to the political and juridical explanations for any bias in the court system, but the bottom line is that disputes between landlords and tenants are not to be decided according to the whims and predilections of the judges.  

There are, of course, a variety of issues that can go up on appeal in landlord-tenant disputes and the ultimate outcome of a dispute depends on the law. Because of the nature of appeals, though, the precise application of the law in a case is not always clear at the outset. When a dispute goes up on appeal, it is inevitable that there may be different approaches to resolving the issue among the judges in any given court. 

Landlords: beware of potential court bias and work with experienced attorney, P.1

In recent posts on this blog, we've been focusing a fair amount on tenant’s rights, particularly in the context of illegal eviction proceedings, cases involving breach of the warranty of habitability and other housing court cases. We’ve also spoken about the need for tenants to work with an experienced attorney to ensure they seek out an appropriate remedy in their case, and the challenges tenants face in housing court when they are unable to work with an attorney.

Although it is important for tenants to receive the advocacy they need in landlord-tenant disputes, advocacy for landlords is important as well. Everybody deserves a fair hearing in court. This is all the more important to emphasize when the court system is potentially biased in favor of tenants, which is an allegation many property owners are leveling at the New York Court system at present. 

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Gary J. Wachtel, Esq.
450 Seventh Avenue,
Suite 1905,
New York, NY 10123
Phone: 917-503-9616
Fax: 212-371-7722

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