Foreclosure Defense in New York

New York is a judicial-foreclosure state, which means a lender cannot foreclose without filing a lawsuit, getting a judgment of foreclosure and sale, and conducting a public auction. The full process commonly takes two to four years in the New York courts — longer than almost any other state — but the end of that process is real, and once the auction is held, the borrower's rights are largely extinguished.

How Bankruptcy Stops a Foreclosure Sale

Filing a bankruptcy petition triggers the federal automatic stay under section 362. The stay is automatic, immediate, and applies to the foreclosure sale even if the auction is scheduled for that afternoon. A sale conducted in violation of the stay is voidable, and the foreclosing lender can be liable for damages and attorney's fees.

The right chapter depends on what you want to accomplish:

• Chapter 13 is the standard tool for saving a home. The arrears are folded into a three-to-five-year plan, regular mortgage payments resume going forward, and the case ends with the loan current. This is the option most New York homeowners want.
• Chapter 7 stops the sale but only temporarily — the lender will move for relief from stay, and if the arrears cannot be cured, the foreclosure resumes. Chapter 7 is the right tool when the goal is to surrender the property and discharge any deficiency.
• Chapter 11 handles foreclosures on investment properties or properties owned by an entity, and individual filings whose debts exceed the Chapter 13 ceilings.

Curing Arrears Through Chapter 13

The Chapter 13 cure process is straightforward in principle:

1. The petition is filed. The automatic stay halts the foreclosure sale.
2. The lender files a proof of claim showing the total arrears — missed principal and interest, escrow shortfall, late charges, attorney's fees, and foreclosure costs.
3. The Chapter 13 plan provides for the arrears to be paid over the plan period (up to five years), as a secured claim, with interest.
4. The debtor resumes regular monthly mortgage payments to the lender or the trustee, depending on local practice.
5. At the end of the plan, the arrears are paid, the regular payments are current, and the case discharges any unsecured deficiency.

In the U.S. Bankruptcy Courts for the Southern and Eastern Districts of New York, the standing Chapter 13 trustees handle thousands of these cases a year. The process works.

Lien Stripping

If your home's value has fallen below what you owe on the first mortgage, a wholly unsecured second mortgage or home equity line can be stripped off the property through Chapter 13. The junior lender is reclassified as an unsecured creditor and the lien is voided at discharge. We obtain a current appraisal as part of the planning and file a motion to value the secured claim at zero.

Loss Mitigation

The Southern and Eastern Districts of New York both run robust loss mitigation programs in Chapter 13 cases. Through loss mitigation, the debtor and the lender negotiate a loan modification — often with a reduced interest rate, capitalized arrears, and a longer amortization — while the case is pending. A successful modification often produces a lower combined monthly payment than the Chapter 13 plan alone would have required.

Defending the Foreclosure Action Itself

Apart from bankruptcy, there are state-court defenses worth raising in New York foreclosure actions:

• Standing. Whether the foreclosing plaintiff held the note at the commencement of the action.
• RPAPL 1304 notice. Strict compliance with the 90-day pre-foreclosure notice required by RPAPL 1304.
• Settlement conference. CPLR 3408 mandatory foreclosure settlement conferences in residential cases.
• Statute of limitations. Following Engel v. Freedom Mortgage and the FAPA legislation, statute-of-limitations defenses have become more potent in New York foreclosures.

State-court defenses can buy time and sometimes win the case outright. They do not, however, stop a scheduled sale on the eve of the auction — only a bankruptcy filing does that reliably.

Multiple Filings and Stay Relief

A second bankruptcy filing within a year of dismissal of a prior case results in a limited automatic stay (30 days, absent court order extending it). A third filing within a year results in no automatic stay at all, absent affirmative relief from the court. We have handled stay extension motions and "no stay" workarounds for clients with prior dismissals, but the analysis is fact-intensive and the windows are short.

The New York Foreclosure Timeline

A residential mortgage foreclosure in New York moves through a predictable sequence of stages, and the right defensive strategy depends on which stage you are in:

1. Default and acceleration. Once payments fall 30 to 60 days behind, most servicers issue a notice of default. After 90 days, the lender typically accelerates the loan, declaring the entire principal balance immediately due.
2. RPAPL § 1304 90-day notice. Before commencing a foreclosure action on a home loan, the lender must serve a statutorily detailed 90-day pre-foreclosure notice. Strict compliance with the form and service requirements is a condition precedent to the action.
3. Filing of the foreclosure complaint and lis pendens. The lender files a summons, complaint, and notice of pendency in the Supreme Court of the county where the property is located.
4. Mandatory settlement conference under CPLR 3408. In residential cases, the court schedules an early settlement conference. Both parties must appear and negotiate in good faith. The case is stayed for purposes of the foreclosure timeline while conferences are ongoing.
5. Order of reference and judgment of foreclosure and sale. After contested motions are resolved, the court appoints a referee to compute the amounts due and ultimately enters a judgment of foreclosure and sale, scheduling the public auction.
6. Auction and referee's deed. The property is auctioned. Title passes by referee's deed to the successful bidder, typically the foreclosing lender.

A bankruptcy petition filed at any point through the auction date stops the process. Once the auction is held and the referee's deed is delivered, the borrower's options narrow dramatically.

The Foreclosure Abuse Prevention Act

The Foreclosure Abuse Prevention Act, signed into law in late 2022, reversed a body of New York Court of Appeals case law that had allowed lenders to unilaterally reset the statute of limitations on foreclosure claims by voluntarily discontinuing a prior action. Under FAPA, once a foreclosure action commences and the loan is accelerated, the six-year statute of limitations under CPLR 213(4) runs from the date of acceleration and cannot be unilaterally reset by the lender. The result: many older defaulted mortgages in New York are now time-barred even though the lender attempted to restart the clock through prior discontinuances. We review every foreclosure case for FAPA exposure as part of the initial workup.

Loss Mitigation Outside Bankruptcy

For borrowers who can sustain a modified mortgage payment but cannot cure the current arrears, loss mitigation outside of bankruptcy is sometimes the right play. The most common options:

• Loan modification. Typically a Flex Modification (Fannie Mae / Freddie Mac), an FHA partial claim plus modification, or a portfolio modification depending on who owns the loan.
• Forbearance. A short-term suspension of payments, with repayment terms varying by program.
• Repayment plan. Spreading the arrears across an agreed number of months alongside the regular payment.
• Short sale. Selling the property for less than the loan balance, with lender consent and (depending on negotiation) a release of the deficiency.
• Deed in lieu of foreclosure. Conveying the property to the lender to avoid the foreclosure judgment.

For an urgent foreclosure consultation, call 212-233-1233.