Foreclosures & Failure to Prosecute

Once a residential foreclosure matter is released from the Foreclosure Settlement Conference the Plaintiff is expected to file a motion requesting a Court order appointing a Referee to compute the total amount due the Plaintiff on the underlying debt. While you'd expect a the bank and their attorneys to file the motion quickly, more times then not there is an extensive delay. 

Prior to filing a motion the Plaintiff attorney must receive an OCA Affidavit from their client and then sign an OCA Affirmation. If the Plaintiff attorney experiences a delay in receiving that affidavit or if there is an issue with standing or the bank's paperwork that precludes the attorney from signing the OCA Affirmation the attorney is unable to file the motion. 

When a motion isn't filed it remains in the foreclosure part and therefore in that part's inventory. Over the past 18 months or so these parts have received pressure to clean up their inventory. As a result, these parts have started to dismiss cases for failure to prosecute pursuant to CPLR 3215 (if an answer was not filed) or CPLR 3216 (if an answer was filed). Every county differs slightly in their approach. Some hold foreclosure status conferences whereby a Judge or Referee will question a bank attorney on the status of the case and pressure them to move their case along. Other counties (most notably Westchester County) schedule dismissal calendars where Plaintiff attorneys that cannot represent on the record that they have received the OCA Affidavit have their cases dismissed. 

As you can imagine this process drives bank firms crazy and creates numerous additional court appearances. While it may provide some temporary assistance to homeowners 99% of the time the action will eventually be restarted. The only party that really benefits if the Court which can remove their cases from inventory.

Why Banks Don't Deal on Foreclosed Homes

My friend Laurel, who is currently renting a house, was told about a foreclosed home in a neighboring community. She did some investigating on Zillow and found out the home was valued at $240,000 and through a network of friends determined the mortgage owed on the home was $350,000.

Being a determined potential homeowner and strong personality, she reached the bank that held the title prepared to offer them $200,000 in hopes that they would gladly want the asset off their hands. Not only did she receive a strong rebuff from the asset manager, but she was told they were not willing to consider less than $270,000 for it! She was flabbergasted and scratched her head when she came out of the bank.

As she was describing the scenario to myself and another friend over dinner, her main questions were:

"Why wouldn't the bank take my $200,000 and be done with it? Why wouldn't they make a deal?"

I didn't know the answer to these questions until I did a little investigative reporting of my own and spoke to a Foreclosure Legal Expert from Pulvers, Pulvers & Thompson. Here are the 3 major reasons banks don't conduct fire sales with foreclosed homes.

Reason #1: Foreclosed Homes are Assets on the Bank's Balance Sheet. 

The home is listed on their balance sheet at a value they have the property appraised at. Sometimes these appraisals may be outdated and tens of thousands of dollars off. If they dumped these properties onto the market in a big way, they could have lending problems because they would have less assets. However, it is not unreasonable to ask for a 20-30% discount on the appraised value, especially if the home has been sitting vacant for a long period of time.

Reason #2: If Thousands of Foreclosed Homes Hit the Market for Purchase, All Home Prices Would Fall. 

Think of supply and demand. According to Trulia, currently there are 13,744 homes for sale in New York City. Of which 353 (or 3%) are in foreclosure. Think if all 353 were sold tomorrow at a fraction of their value. What do you think would happen to the other 13,391 housing units? You got it! Their value would diminish, having a trickle down effect on your home, even if it is not currently for sale.

Reason #3: Banks are Trickling the Foreclosed Homes onto the Market in Order to Keep Market Prices High. 

It is estimated that only 10-15% of all foreclosed properties are on the market.

When it looks like there are not too many foreclosed properties available in an area, it helps stabilize housing values. When housing values are stabilized, market prices have the opportunity to go up. When market prices go up, the foreclosed values are higher. All of this benefits the seller and the bank when they decide to dispose of the property.

So there you have it. The banks don't deal because it is good for you, me, and them. Buying a foreclosed home is still a good idea. Just don't automatically expect a huge price reduction.



Pulvers, Pulvers & Thompson, LLP has been practicing law for over 70 years and is dedicated to providing high quality legal services to the Greater New York City Area. They assist purchasers and sellers in Residential and Commercial transactions and represent various clients in a wide range of real estate litigation matters. Contact their legal team for a FREE consultation at (212) 471-5129.