New York has a formalized Loss Mitigation Program to help open the lines of communication between debtors and lenders during a foreclosure action of a residential owner-occupied property. This program is designed to provide a range of solutions to stop the loss of the property to foreclosure, limit costs for lenders related to the foreclosure, or both.
Most Common Loss Mitigation Agreements
There are many options available for both debtors and lenders during the loss mitigation process to resolve the pending foreclosure action. Some of the most common agreements reached between parties during loss mitigation include:
- Loan modification
- Loan refinance
- Forbearance
- Short sale
- Surrender of the property in full satisfaction
Debtors and lenders may agree to any one, or combination of, the agreements above while working through the loss mitigation process. This is not an exhaustive list of potential agreements, and any agreement reached between debtors and lenders must be approved by the appropriate court to be implemented.
Who Can Request Loss Mitigation in New York?
In New York, the debtor or lender may file a loss mitigation request. Additionally, the court may also issue a Loss Mitigation Order, which requires the debtor and lender to complete the loss mitigation process. Any party may object to the request for loss mitigation, which will result in the loss mitigation process being suspended until a hearing on the objection can be held.
Loss Mitigation Process
The exact loss mitigation process will vary from case to case, depending on the specific details and needs of the debtors and lenders involved. However, most loss mitigation processes involve the following steps at a minimum:
Loss Mitigation Order
To begin the loss mitigation process, a Loss Mitigation Order must be issued by the court. A separate Loss Mitigation Order must be issued for each lender who is owed by the debtor, regardless of who initially filed the loss mitigation request. The Loss Mitigation Order will specify all deadlines the debtor and lenders must meet as part of the process, how the debtor and lenders should communicate with each other, and how the court should handle other pending legal matters related to the foreclosure. A Loss Mitigation Order also imposes the following duties on the parties involved:
- Good Faith – All parties involved in the loss mitigation process must participate in “good faith”, meaning with honest and sincere intention to resolve the debt without further court intervention
- Contact Information – Debtors and lenders must notify each other of how they are to be contacted, including names, addresses, and phone numbers, during the loss mitigation process
- Document Exchange – Debtors and lenders must notify each other of requests for information or documentation related to the loss mitigation process using the appropriate court affidavit form
Initial Contact
To prepare for the upcoming Loss Mitigation Sessions, the lender must contact the debtor via phone to discuss the framework for the sessions, possible loss mitigation solutions that each party will consider, and the plan for exchanging documents and information by the required deadline.
Loss Mitigation Sessions
During the Loss Mitigation Sessions, which may be held in person, via phone, or via video conference, the debtor and lender will negotiate possible loss mitigation solutions to avoid the pending foreclosure of the owner-occupied residential property. Multiple sessions may be required to work out all the details of an agreed-upon loss mitigation solution, if any.
Status Conferences
The Loss Mitigation Order will specify when and where a loss mitigation status conference will be required to update the court on the status of the loss mitigation process. At any point during the loss mitigation process, any party involved may request additional status conferences with the court.
Settlement
If the debtor and lender are able to come to a settlement agreement during the loss mitigation process, they will present this proposed settlement to the court during a settlement conference. If the court approves of the proposed settlement, they will specify the exact manner in which the settlement may be implemented according to relevant federal and state laws, any fees or costs that the debtor is required to remit to the lender as part of the settlement agreement, and obtain signatures of all parties involved. If the foreclosure is part of a bankruptcy proceeding, other special rules and laws may apply that will be reviewed during the settlement conference.
Termination of Loss Mitigation
Once a settlement has been agreed upon by the debtor and lender and approved by the court, or if a settlement is not reached by the loss mitigation parties, the court will issue a Termination of Loss Mitigation Order to formally close the loss mitigation process.
Roach Lin, P.C., is a New York based creditors’ rights law firm.
