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Foreclosure Process in NY Expedited by Federal Ruling

A pivotal Federal Court decision concerning court jurisdiction for foreclosure lawsuits in New York was handed down on March 1, 2017, by Judge Nicholas G. Garaufis, United States District Judge for the Eastern District of New York.

This ruling is important because in New York, foreclosures in the state court system now routinely take up to three years to complete. The state has a system and statutory framework that outlines the procedure for the processing of New York foreclosure cases.

However, by staying out of state courts, the foreclosure process can be accelerated. “In Federal court, you don't need to go through the state mediation settlement conference,” said Alan Weinreb, plaintiff’s attorney. “In New York state courts, all residential owner occupied properties are entitled to a settlement conference with the borrowers and the lenders, and there are procedural safeguards during the foreclosure proceeding,” he added. “That makes it slow. It's like everything is on hold in New York. Your case can't proceed until you go through this separate settlement conference, which could delay cases for up to a year or more.”

The petition for ruling by the court was filed by Plaintiff Avail Holding, LLC, holder of the mortgage on the foreclosed property. Defendant was Frances Ramos and several additional defendants that “may claim to have some interest in" the subject property.

The defendant, Frances Ramos, maintained that because New York has a comprehensive statutory framework to protect borrowers in residential foreclosure cases, including procedural safeguards in the law, that the Federal court should abstain from hearing these types of cases.

After an extensive consideration of New York’s statutory protections, Judge Garaufis ruled that the Federal court need not abstain from hearing this type of court case and can determine a New York residential foreclosure action, provided there is diversity jurisdiction and that the amount in controversy exceeds $75,000.

Weinreb said that to get a case heard by a Federal court, you have to prove diversity. “Diversity means the citizenship of the plaintiff is different than the citizenship of each and every defendant. Our plaintiff in this case was a Florida company,” he said. “They hold the note. Because they hold the note and they’re in Florida and it’s a New York property with New York borrowers, the citizenships are different.”

The original note on the property was secured by a mortgage which Ramos executed, acknowledged, and delivered to Mortgage Electronic Registration Systems, Inc., as nominee for First Franklin. The note and mortgage were reassigned several times before being assigned to Plaintiff Avail on November 6, 2015. Beginning in August 2010, Ramos stopped making the required monthly payments and thereby defaulted on the mortgage. Default continues to date and, as of the filing of the Complaint, Ramos owed approximately $548,653.76.

On December 11, 2015, Plaintiff began a foreclosure action in the Federal Court pursuant to New York Real Property Actions and Proceedings Law. According to Ramos, this is the third foreclosure action that Plaintiff and its predecessors have filed against her, with the first two actions being dismissed "because the plaintiff in each failed to comply with New York foreclosure law's predicate notice requirements and other statutory protections.

Ramos’ attorneys argued that the court should abstain from adjudicating this action "in order to effectuate New York's comprehensive regulatory scheme and consumer protections governing residential foreclosure actions, which address a foreclosure crisis of compelling interest to the State of New York."

Plaintiff’s attorneys argued that the court has diversity jurisdiction to adjudicate this action. Instead, Ramos argued that the court should decline to exercise its jurisdiction and should dismiss the case pursuant to the abstention doctrine. Under this doctrine, however, a district court may decline to exercise or postpone the exercise of its jurisdiction in certain "exceptional circumstances."

Defendant's primary argument was that abstention is appropriate because "the New York state courts continue to grapple with the parameters of the good faith negotiation standard and the appropriate remedies for failure to negotiate in good faith" with respect to the settlement conferences that are mandated by state law.

Additional arguments were fielded concerning whether Ramos was entitled to a settlement conference in federal court, whether she had failed to negotiate in good faith, and whether her conduct did not constitute a meaningful effort at reaching a resolution. Plaintiffs cited cases that said, “In cases like the one at hand where state law issues are not unclear, the federal court should not abstain.”

At the end of the day, the court declined to dismiss the action based on the abstention doctrine and declared that the Defendant’s motion to dismiss was denied thus paving the way for the Federal Courts to hear New York residential foreclosure cases. Weinreb said that this case may have ramifications in other states following a similar model to New York. He thinks that attorneys will see what happened in New York and will want to bring their own federal cases in states that have similar requirements to New York. “Just be sure you have the diversity and that the amount owed is more than $75,000,” he said.

Although foreclosures in New York are declining, Weinreb said that the courts are struggling because of the time it takes to process a foreclosure in that state. Plaintiffs were represented by Alan H. Weinreb and Alyssa L. Kapner, Margolin & Weinreb Law Group, LLP. Defendant was represented by Franklin H. Romeo and Christopher Newton of Queens Legal Services.

About Author: Sandra Lane

Sandra Lane has extensive experience covering the default servicing industry. She contributed regularly to DS News' predecessor, REO Magazine, from 2004 to 2006, covering local market trends, the effects of macroeconomic shifts on market conditions, and "big-picture" analyses of industry-driving indicators. But her understanding of the mortgage and real estate business extends even beyond those pre-crisis days. She is a former real estate broker and grew up in what she calls "a real estate family." A journalism graduate of the University of North Texas, she has written articles for various newspapers and trade journals, as well as company communications for several major corporations.

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