Early this Summer, as foreclosure filings in New York hit record levels, the New York State court system announced a Residential Mortgage Foreclosure Program, one of the first court-initiated programs in the country to address the residential foreclosure crisis. Foreclosure cases present unique challenges for courts and litigants, including a 90 percent default rate, defendants who desperately need legal representation and financial counseling, and a legal process that is lengthy and complex, taking up to 18 months in some areas of the state.
In discussing these problems with homeowner advocates and the banking community, we learned that both sides welcomed early court intervention to promote settlements that reduce the time, expense and potential losses involved in foreclosure cases. When these cases languish, lenders’ losses mount, homeowners’ problems intensify, neighborhoods deteriorate and the opportunities for positive outcomes diminish.
The program we developed, piloted initially in Queens County, now serves as a model for our statewide efforts. It took on special importance in August with the enactment of chapter 472 of the Laws of 2008. This article reviews the Queens experience and our plan to implement the new foreclosure legislation.
Queens Pilot: We selected Queens as our pilot site because foreclosures had more than tripled there since 2005, with residential neighborhoods like Jamaica devastated by the crisis. The program reflects the court system’s desire to take action, consistent with our role as the neutral adjudicator of disputes, to promote better outcomes for lenders and homeowners alike. The centerpiece is an early court conference designed to foster early negotiations that may lead to loan workouts and settlements. In recognition of the high homeowner default rate, the court mails a written notice directly to the parties early in the life of the case, immediately after the lender files proof of service of the summons and complaint. The notice informs both parties that a court conference is available and gives homeowners the information they need to connect with available legal representation and mortgage counseling services. Even if the conference does not lead to a settlement, it is an opportunity to plan active case management going forward.
The early results in Queens are promising. Through Dec. 10, 189 Queens homeowners requested settlement conferences and 133 conferences have been held. Close to a third of the conferences fostered productive discussions, and we estimate that most of them will produce settlements that avoid foreclosure.
At one typical conference, the lender accepted a $2,500 payment toward arrears and agreed to drop the foreclosure action upon the homeowner making six consecutive payments under a new payment schedule. At another conference, the lender agreed to postpone the sale of the property and allow the homeowner to remain in the home for up to a year in return for the homeowner’s promise to maintain the property in good condition. Such arrangements give homeowners time to find new living quarters, minimize disruption to children, and spare the neighborhood an abandoned property that could fall victim to vandalism and disrepair.
New Legislation: Chapter 472 provides for court settlement conferences at the borrower’s option in foreclosure cases filed before Sept. 1, 2008. Implementation of this provision is well underway. The cooperation of lenders’ law firms in providing the courts with homeowners’ contact data in electronic format has enabled us to create a database from which we have automatically generated and mailed almost 27,000 written notices to New York homeowners advising them of their right to request a court settlement conference.
For cases filed after Sept. 1, there is a 90-day period during which the parties must try to resolve the case before the lender may sue – in effect a moratorium on the filing of new cases prior to Dec. 1. For cases filed on or after Dec. 1, the court must hold a settlement conference within 60 days.
Immediately the court system developed a comprehensive plan to ensure that these conferences are scheduled and conducted in a timely, meaningful manner, and created a home page for attorneys, www.nycourts.gov/attorneys/foreclosures.shtml, that contains relevant legislation, rules, forms and other information.
Under a new court rule, §202.12-a of the Uniform Rules of the Trial Courts, a lender who brings a foreclosure action on or after Dec. 1 must file a special request for judicial intervention (RJI) that provides the court with the homeowner’s contact information. The court promptly mails to the parties a written notice scheduling a settlement conference, telling them what documents to bring and informing homeowners of available legal representation and mortgage counseling services. The lender’s representative may attend by telephone or videoconference. Counsel for both parties must be fully authorized to settle cases. If the homeowner appears without a lawyer, the court must entertain an application for poor person relief and appointment of counsel.
In counties with large foreclosure caseloads, the courts will establish special parts modeled on the Queens pilot. In lower volume counties, the local judge and staff will schedule and hold settlement conferences.
Early Screening and Referral Program: It is difficult to conduct productive conferences if homeowners come to court unprepared and lack access to professionals who can advise them of their rights and options and represent them in negotiations. Therefore, to promote meaningful conferences and minimize adjournments, particularly in high volume counties, the court system is implementing an early screening program, relying on certified housing counselors or attorneys from organizations that have received funding for this purpose.
Homeowners will be instructed to appear for a meeting 30 days prior to the settlement conference. The meeting will facilitate preliminary borrower-lender contacts and allow a screener to make an objective evaluation to determine whether the homeowner needs representation by a legal services provider or pro bono attorney, or the assistance of a housing counselor. Court staff will follow up on the screener’s recommendation and make phone calls to connect homeowners, prior to the court conference, with professional service providers.
The severity of the foreclosure crisis has led to increased public and private funding in New York to help affected homeowners. Legal services, bar and nonprofit groups are taking advantage of these resources and responding to the new legislation.
In particular, the New York bar has recognized the enormous need for pro bono assistance and is rising to the occasion, as it has done so many times before. The Division of Housing and Community Renewal is distributing nearly $20 million to dozens of organizations around the state to provide foreclosure prevention services. The Federal Reserve Bank of New York has provided funding to underwrite the Bar Association Foreclosure Network of New York City, a cooperative pro bono effort by lawyers from the New York City Bar Association, Brooklyn Bar Association and Queens County Bar Association. The New York State Bar Association is working with local bar groups to provide free training to hundreds of volunteer lawyers, including 250 Queens and Brooklyn lawyers this month who have pledged to accept pro bono clients as a condition of training. The New York County Lawyers’ Association has also recruited and trained attorneys.
Administrative judges across the state are coordinating with local service providers to ensure that court staff can successfully match homeowners with lawyers and counselors following early screening. In Brooklyn Supreme Court, for example, attorneys and staff from the South Brooklyn Legal Services Foreclosure Prevention Clinic were permitted to set up an office in the courthouse so that homeowners can be referred for immediate legal help and financial counseling. We are meeting regularly with the state’s leading legal and professional service providers and bar associations to coordinate efforts and address systemic issues. This month, judges and nonjudicial personnel from every judicial district received two full days of training focused on the new legislation, understanding subprime and nontraditional mortgages, foreclosure law and procedure, loan modification and refinance options, available legal services and foreclosure avoidance resources, and case management best practices.
Like the rest of the country, New York state faces a serious foreclosure crisis with broad collateral consequences for families, neighborhoods and the state economy. Plainly the court system, in partnership with the bar, can and should be part of the solution to this crisis. We are committed to improving the effectiveness of the judicial foreclosure process and promoting better outcomes for lenders and borrowers, and for the public.
Ann Pfau is the chief administrative judge of the New York state courts.