Bulletin: NY000162

Date:
July 15, 1998
To:
All New York State Office Counsel, Managers and Agents
RE:
New Statute Authorizing Foreclosure of Certain Mortgages by Power of Sale

Dear Associates:

Pursuant to Chapter 231 of the Laws of 1998, Article 14 of the New York Real Property Actions and Proceedings Law was repealed and replaced by a new Article 14 which authorizes the foreclosure of certain mortgages by power of sale. Effective July 7, 1998, where a mortgage contains a provision that the mortgagee has the right to sell the mortgaged property upon the occurrence of a default under the mortgage (or the note or obligation which the mortgage secures), such mortgage may be foreclosed in a non-judicial procedure through a power of sale.

The new statue is applicable only to non-residential properties and residential properties having more than 5 dwelling units. It does not apply to mortgages on

(1) residential condominium units,

(2) residential buildings owned by a cooperative apartment corporation,

(3) residential buildings having less than 6 dwelling units, or

(4) a building having 65% or more residential tenants located in a city having a population of one million or more (i.e. the City of New York).

The new procedure is also not available on property containing residential units where the mortgagee seeks, pursuant to the non-judicial foreclosure, to foreclose, terminate, modify or impair the tenants' interests in any leases in the property or their right of possession pursuant to such leases.

Should you have any questions regarding this bulletin, please contact Company Counsel.

The following is intended to provide a brief summary of the key provisions of Article 14. A more detailed review can be obtained by reading through the new law, a copy of which is available through this office.

Section 1403 - Commencement of Non-Judicial Proceeding to Foreclose Mortgage

The foreclosure procedure under the new statute is commenced by the purchase of an index number (in the Office of the County Clerk in the County where the sale is to take place) and the filing of a Notice of Pendency in the Office of the County Clerk where the mortgaged property is located. The Notice must comply with the provisions of Article 65 of the Civil Practice Law and Rules (CPLR) other than those requiring service and filing of a summons, and must also contain certain additional information (i.e., date of the mortgage, parties thereto, time and place of mortgage recording, etc.) all of which is set forth in Section 1403. If the Notice of Pendency is filed in more than one County, It must also designate the County in which the sale is to take place.

The filing of the Notice of Pendency is deemed to be conclusive record notice to a tenant or occupant who takes possession of the mortgaged property or to any person or entity who acquires an interest in or lien upon such property after the filing. All such persons or entities are deemed bound by the non-judicial proceeding.

Section 1402 - Notice of Intention to Foreclose

Within 10 days after the filing of the Notice of Pendency, a Notice of Intention to Foreclose, together with a copy of the Notice of Pendency, must be sent to the mortgagor, the obligor on the note or bond or other obligation secured by the mortgage, the record owner (if any of these persons are not the mortgagor and to any person or entity having a lien of record or interest in the property which is subordinate to the mortgage which the mortgagee seeks to foreclose at the time of the filing of the Notice of Pendency. The Notice of Intention to Foreclose must be sent both by registered or certified mail and by ordinary first class mail or by personal service in the same manner as service of a summons. Section 1402 described in detail the place where the Notice is to be sent.

Similar to the requirements of a judicial foreclosure proceeding, where the United State of America, the State of New York or any municipality, agency or instrumentality of any of them, is entitled to Notice, the Notice must state with particularity the nature of the interest or lien held by the governmental entity.

Affidavits of service or mailing upon each person or party entitled to Notice must be filed with the County Clerk in the County where the sale is to take place prior to the date of sale.

Section 1405 - Notice of Sale - Date, Time & Place - How Given

Notice of the sale must be given to the same persons entitled to the Notice of Intention to Foreclose (and to any other party designated in the mortgage to receive Notice) in the manner described in Section 1406 below, and by publishing the Notice, (which must provide that the mortgage will be foreclosed by sale of the property and must specify the time and place of the sale) at least once each week for 5 successive weeks immediately preceding the date of sale or at least twice in each week for 4 successive weeks immediately preceding the sale in a newspaper of general circulation distributed in the County in which the property to be sold is situated, (or if there is no such newspaper), then in such newspaper in a an adjoining County. If the mortgaged property is located in a City having a population of a million or more, i.e., the City of New York, then Notice of Sale must be published in the same manner as a notice of judicial proceeding in a newspaper distributed within the County to be designated by the County Clerk.

A copy of the Notice of Sale must be field with the County Clerk of each County in which the mortgaged property is located, on or before the date of the first publication of sale.

Section 1406 - Notice of Sale - How Served

The Notice of Sale must be served upon the same parties described in Section 1405 above, at least 30 days prior to the date of sale in the manner prescribed under Article 3 of the CPLR for Personal service of a summons in a civil action, and by mailing a copy of the Notice by first class mail in an envelope marked "personal and confidential". The outside of the envelope must not indicate, by return address or otherwise, that the notice is from an attorney or that it concerns an action against the person or entity to be served. If the person or entity is a foreign corporation or a non-resident, the service may be made outside the State at least 40 days prior to the date of sale.

Section 1407 - Postponement of Sale

The mortgagee may postpone a non-judicial foreclosure sale for a period of up to 5 weeks. A Notice of Postponement must be published at least once not less than 5 days prior to the new date of sale in the same newspaper where the original notice of sale was published, and served upon each person upon whom the original notice was served in the manner described in Section 1406 above. The statute also provides that the sale may be postponed where the person designated to conduct the sale does not appear on the sale date or where the sale is stayed by application of any other law.

Section 1408 - Conduct of Sale

The sale must take place at public auction by a licensed auctioneer, sheriff, marshal or official appointed by the Court for such purposes, during reasonable business hours on any day other than Saturday, Sunday or a holiday in the county where the mortgaged property is located, at any courthouse located in that county, or if within a County in the City of New York, at the courthouse of the Supreme Court in such County.

If the publication of the notice of sale is for 4 weeks, than the sale must take place on any day on or after the 28th day or before the 35th day after the date of the first publication.

If the publication is for 5 weeks, than the sale must take place on or after the 35th day and on or before the 42nd day after the date of the first publication.

Once a bid of the sale has been accepted, the bidder must deposit with the auctioneer 10% of the bid price. A memorandum of sale which incorporates the terms of sale must be executed between the auctioneer, successful bidder, and the mortgagee. If the successful bidder fails to make the deposit on acceptance, or to complete the transaction within 30 days after acceptance, then the mortgagee can resell the property, and the deposit can be retained or recovered by the mortgagee as liquidated damages.

Section 1410 - Right to Redeem

At any time prior to the commencement of bidding at the sale, the mortgagor, the record owner or the holder of any subordinate lien or interest in the property may redeem the mortgaged property by payment to the mortgagee of all sums due under the mortgage including accrued interest, together with the costs of the sale and reasonable attorneys' fees.

Section 1411 - Effect of Sale

If the sale is conducted in accordance with the provisions of new Article 14, it is deemed to be the equivalent of a judicial foreclosure, and all claims or equity of redemption of the mortgagor, owner and all subordinate holders or lienors of an interest in the property are barred except the interest of the United States of America and residential tenants whose interest can not be foreclosed under this Article. Where the United States holds a subordinate lien or interest in the property and is entitled to Notice under this Article, the mortgagee must obtain a court order foreclosing such interest, which will still be subject to the right of the Untied States to redeem pursuant to applicable statutes.

A sale may be set aside within one year (but not thereafter) of the recording of the deed for failure to substantially comply with the provisions of new Article 14.

If the sale was made to a bona fide purchaser other than the mortgagee (or its nominee), it will not be set aside without restitution of the amount paid by such purchaser.

Section 1412 - Instrument of Conveyance

The deed to be executed in connection with the non-judicial foreclosure proceeding is called a "Power of Sale" Deed. Section 1412 contains a detailed description of the form and substance of such deed. Provided that the sale was conducted in accordance with the provisions of Article 14, the purchaser of the property obtains marketable title in the same manner as a purchaser in the judicial foreclosure.

Section 1413 - Distribution of Proceeds of Sale

The sale proceeds are to be distributed by the person conducting the sale in the following order of priority:

(a) payment of taxes, water, sewer rents and assessments that are liens on the property sold and any liens or encumbrance of a municipality or agency thereof that have priority over the mortgage;

(b) payment of costs of the sale;

(c) payment of mortgage indebtedness to the mortgagee;

(d) form the remaining proceeds, payment to the holders of subordinate liens or to the owner of the equity of redemption or other person who filed a notice of claim against the property.

Section 1414 - Report of Sale

The person conduction the sale is required to make a Report of Sale within 15 days after its completion and the execution of the conveyance to the purchaser. Section 1414 sets forth in detail the information which must be contained in the Report of Sale. Section 1415 provides that the Report must be filed with the County Clerk in the County where the sale took place within 30 days of the sale and conveyance.

Section 1421 - Right to Judicial Intervention

If an Article 14 non-judicial foreclosure proceeding was commenced to foreclose a mortgage executed prior to July 7, 1998, the mortgagor has the right to demand that further proceedings be conducted judicially. If such non-judicial proceeding was commenced to foreclose a mortgage executed after July 7, 1998, the mortgagor may apply for an order to show cause directing the foreclosure to be conducted judicially and for a temporary restraining order pending a hearing on the motion.

The statute also provides that any person who is entitled to receive Notice of the Intention to Foreclose may recover damages caused by the mortgagee's failure to comply with the provisions of this Article.

As mentioned earlier, the statute becomes effective on July 7, 1998. It will remain in force and effect until July 1, 2001, when Article 14 will be deemed repealed. However, it will still apply to a non-judicial proceeding in which a Notice of Pendency was filed on or before July 1, 2001.

If you have any questions, please contact Company Counsel.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None