Making Protections for Homeowners Permanent

This year’s New York State Budget included some very good news for homeowners.  One important piece was continued funding for housing counseling agencies and legal services providers who provide critical support for homeowners at risk of foreclosure. The other was a provision that made two of the strongest protections for these homeowners permanent: the requirement that they receive notice of the availability of foreclosure prevention services and providers, and mandatory settlement conferences for all mortgages.

These protections are all intrinsically linked.  Many homeowners who are struggling with their mortgages simply need the professional help of a housing counselor to help them navigate the complex processes involved in preventing foreclosure, or of a legal services attorney who can represent them at a settlement conference with their mortgage holder and help them come to an agreement that saves their home.  But few homeowners already struggling with keeping up with their payments have the financial wherewithal to be able to afford these services – that’s why funding for housing counseling and legal services providers who can provide these services free of charge are key to keeping communities whole.

The Mortgage Crisis and the Great Recession

After the Great Recession and mortgage crisis of the late 2000’s, New York State enacted several protections for homeowners that were meant to slow the almost unprecedented numbers of foreclosures that were occurring.  Not only were families losing their homes, the mortgage crisis also resulted in increasing numbers of vacant and abandoned properties, loss of property value in many communities, and urban blight in those areas hardest hit.  Between the displaced families, the communities hit by housing instability, the jurisdictions who saw a decline in tax revenue, and the banks and mortgage servicers who were ill-prepared for the crisis, there were no winners.

New York State attempted to address some of these concerns with the creation of mandatory notices and foreclosure settlement conferences.  Beginning in 2010, mortgage servicers were required by law to notify homeowners who fell behind on their mortgages that they not only were at risk of a foreclosure action, but to also alert these homeowners that there were services available to assist them in keeping their homes.

Mandatory Notices to Homeowners at Risk of Foreclosure

These not-for-profit housing counseling agencies assist homeowners in a number of ways.  Services include assisting homeowners with applications for repayment plans and forbearance agreements in order to prevent a foreclosure action from being filed.  If a foreclosure action is commenced by the lender, the counselors help applications to modify the homeowner’s mortgage.  While these applications might sound simple, in fact the process is often a nightmare.  Lenders may not have enough staff to process the volume of applications affecting; meanwhile, those staff members often are not consistently trained.  As a result, homeowners trying to navigate this complex process often receive conflicting information depending on which lender’s representative they speak with at any given time.  Housing counselors deal directly with the mortgage servicer or their agent, often having consistent, reliable contacts they can reach out to. This expertise can relieve a lot of stress and confusion for the homeowner.

Mandatory Settlement Conferences

In addition to providing notice to homeowners about where to turn for help, New York State also implemented mandatory settlement conferences.  When a homeowner with a residential mortgage fell into foreclosure, the first step the court now takes is to schedule this settlement conference.  The objective of the conference is to bring the parties together in front of a judge and determine if a mutually agreeable resolution can be reached between the homeowner and mortgage servicer to prevent the loss of the home.  At the conference, (or often a series of conferences), the homeowner, or an advocate for the homeowner, appears in court with a representative for the mortgage servicer.  Both are obligated to negotiate in good faith to see if a resolution can be reached where any delinquencies are brought current, and the homeowner can afford the mortgage payments moving forward.  Most typically, the route for a homeowner to retain their home is to receive a loan modification, whereby the arrears of the loan are added to the principal balance and spread out over the remaining years on the mortgage.

Before the establishment of the mandatory settlement conferences, there was little recourse for a homeowner whose application for a loan modification or repayment plan wasn’t being reviewed fairly.  Now, with judicial oversight, punitive measures could be taken against a mortgage servicer who isn’t making good faith efforts to avoid a foreclosure.  The foreclosure action can only move forward if the servicer can prove to the court that they have acted in good faith in working with the homeowner and have still not been able to come to a mutually agreeable solution.

Agencies like Empire Justice Center are able to provide attorneys to represent homeowners at these settlement conferences.  Access to this professional expertise mitigates the fear, confusion and frustration of a homeowner having to appear in court on their own behalf and ensures the court is able to hear the full story from both sides of the foreclosure dilemma – making a fair decision much more likely.

Lasting Solutions

Both the mandatory notices and the foreclosure settlement conferences were initially created as temporary solutions to what was thought to be a temporary problem.  However, in the nine years since they were implemented, Empire Justice Center and other organizations across the state have seen the long-term value these protections offer to homeowners and their communities.  We are therefore incredibly happy to see state legislators agree with this assessment and make both of these protections permanent.

New York State’s requirements for notices to be provided to homeowners at risk of losing their homes, along with the mandatory settlement conferences, have resulted in the prevention of tens of thousands of foreclosures across the state.  In addition, these consumer protections have instilled some basic fairness in a system where it had been sorely lacking.

Need for Further Protections

However, further consumer safeguards in the system are required.  New York residents with reverse mortgages, for example, are not afforded the same protections as conventional mortgages.  These homeowners, most often elderly and low income, can find themselves in foreclosure with little warning.  Without mandatory settlement conferences, the foreclosure action can proceed very quickly.  And without assistance from a housing counselor and/or legal services provider, these most vulnerable citizens are left to fend for themselves in a system that can be incredibly difficult to navigate.

Similarly, homeowners who fall into tax foreclosure are also in need of further consumer protections.  Many of the notice requirements under mortgage foreclosures do not exist for tax foreclosures, and as a result homeowners facing tax foreclosure can often lose their homes very quickly.  Sadly, we often see cases where homeowners lose their homes to tax foreclosure when they only very small amounts in back taxes – sometimes just hundreds of dollars.  Clearly, there is much work to be done in this area.

We at Empire Justice Center are grateful for the recognition of the importance of housing counseling, legal service providers, and permanent consumer protections in the 2019 New York State budget.  We are committed to continuing to advocate for the critical protections that are still needed for the most vulnerable New Yorkers.