During the pandemic, thousands of homeowners have entered into forbearance agreements with their lenders. Many may have difficulty resuming their monthly payments as the forbearance periods draw to a close. Avoiding foreclosure may require a variety of strategies depending on the legal issues in each case and each family’s unique circumstances. Some cases may call for assistance with modification applications, forbearance agreements and repayment plans, whereas litigation is called for in others. As a result, foreclosure prevention work includes not just legal analysis, but also holistic analysis of each family’s circumstances.
Foreclosure Prevention Through Family Counseling and Negotiation
Nassau Suffolk Law Services’ Foreclosure Prevention Unit has helped homeowners restructure millions of dollars in mortgage debt this year. With lower interest rates or extended loan maturity dates to make monthly payments more affordable, a large group of homeowners are now able to remain in their homes.
In two recent cases, Foreclosure Prevention Unit Staff Attorney Kathleen Maher worked with families to evaluate opportunities to reduce expenses or increase household income. Maher then worked with the families and their lenders to achieve sustainable solutions following a mortgage default.
For example, recently a young family approached the Foreclosure Prevention Unit for assistance after the father lost his job in the financial sector. While he was able to find new employment, it was at a lower salary. The young family of four decided that their home was large enough for the wife’s parents to move in to assist with mortgage payments and childcare. This in turn allowed the family to qualify for a loan modification.
For some families, reinstating their mortgage may be a better option than modifying their mortgage debt. This can be accomplished by paying the arrears over time, or with a single lump sum payment. In another recent matter, Maher negotiated a reinstatement for a client that included more than $90,000 in debt forgiveness. A great result, but one that can also result in tax consequences to the homeowner.
Ordinarily any debt, including mortgage debt, that is forgiven by the lender is treated as income for tax purposes and income tax must be paid on the full amount of debt forgiveness. This may be nearly impossible for a struggling homeowner. However, at the end of 2019 Congress revived an important protection for struggling homeowners, the Qualified Principal Residence Indebtedness (“QPRI”) exclusion. In short, the QPRI allows a taxpayer to exclude up to 2 million dollars of forgiven mortgage debt. This extension is critical to homeowners trying to resolve mortgage arrears. The extension applied retroactively to mortgage forgiveness in 2018 and 2019. However, the QPRI extension has a limited life span and is due to expire on December 31, 2020.
In other cases, the Foreclosure Prevention Unit may focus on negotiating additional time for homeowners to make moving arrangements, or funds to assist with moving expenses. This goes a long way towards making transitions less traumatic.
Foreclosure Prevention Through Litigation
In the case of T, the Foreclosure Prevention Unit focused on a litigation strategy. T is an elderly homeowner who took out a reverse mortgage on her property. The lender brought a foreclosure action against T alleging that she failed to pay property taxes and maintain hazard insurance on her home.
New York Real Property Actions and Proceedings Law Section 1304 (RPAPL 1304) requires lenders to send “90-day notices” to homeowners at least 90 days before starting a foreclosure action. These notices warn homeowners of an impending foreclosure and refer homeowners to housing counselors to seek timely help. While the 90-day notices were originally only required for mortgages that required ongoing monthly payments, in December 2016 RPAPL 1304 was amended to require the notices for reverse mortgages as well.
This amendment was important because many elderly reverse mortgage borrowers are not aware that they may face foreclosure as a result of unpaid property charges or may have missed property tax or insurance payments because of hospitalization or other health crisis. However, because of a drafting error there was a dispute about the effective date of the amendment extending the 90-day notice requirement to reverse mortgage cases.
Foreclosure Prevention Staff Attorney Heather Graham reviewed T’s case and saw that the lender had failed to send a 90-day notice prior to starting the action. Graham opposed the lender’s motion for summary judgment on this basis and cross moved for summary judgment dismissing the action as to T for failing to meet this mandatory prerequisite to foreclosure. The lender argued, however, that the amendment to RPAPL 1304 did not go into effect until May 2018, one month after it started its foreclosure action.
The Court agreed with Graham's argument that 90-day notices were required in reverse mortgage actions by at least April 20, 2017, a year before the lender started the foreclosure action against T. The Court therefore granted Graham’s motion, effectively ending the foreclosure action.
The Court's decision will provide T time to address the underlying allegations that she failed to stay current on property charges. It is also an important confirmation that vulnerable reverse mortgage borrowers were entitled to 90-day notices over a year before many lenders began providing them.
The Nassau Suffolk Law Services Foreclosure Unit and a number of nonprofit organizations met with homeowners and renters at the Nassau County Bar Association's Housing Open House on August 27. The Bar Association set up tents in their parking lot to allow people in need to meet with attorneys and housing counselors while respecting social distancing.
Pictured from left to right: Senior Staff Attorney Mike Wigutow, Staff Attorney Kathleen Maher, Paralegal Shervon Miller and Staff Attorney Heather Graham meet with homeowner at Nassau County Bar Association Open House. Photo provided courtesy of Nassau County Bar Association.