This page explains New York law. KOR Law LLP's foreclosure defense practice handles both commercial and residential foreclosures, and the first question in either is which set of rules governs the loan. The answer is not always what the loan papers say. Our article The LLC Trap looks closely at homes held through an LLC; this page sets out, statute by statute, who gets which protection.
Which protections depend on the type of loan or property?
| Protection | Who it covers | Rule |
|---|---|---|
| 90-day pre-foreclosure notice | Borrowers on a home loan | RPAPL 1304 |
| Filing with the Superintendent of Financial Services, alleged in the complaint | Cases where the 90-day notice was required | RPAPL 1306 |
| Certificate of merit with the complaint | Home loan cases where the defendant lives in the property | CPLR 3012-b |
| Mandatory settlement conference | Home loan cases where the defendant lives in the property | CPLR 3408 |
| Standing defense not waived if left out of the answer | Home loan cases | RPAPL 1302-a |
| "Help for Homeowners in Foreclosure" notice with the summons | Mortgagors of an owner-occupied one to four family dwelling | RPAPL 1303(1)(a) |
| "YOU ARE IN DANGER OF LOSING YOUR HOME" notice on the summons | Residential property with no more than three units | RPAPL 1320 |
| Notice to tenants of the foreclosure | Tenants of dwelling units in residential real property | RPAPL 1303(1)(b), (4) |
| Tenant's right to stay after the sale | Tenants of residential real property, with rules for regulated units | RPAPL 1305 |
| High-cost home loan limits and remedies | Home loans as defined in Banking Law 6-l | Banking Law 6-l |
Two of these turn on the property rather than the loan. The summons warning in RPAPL 1320 depends on the number of units, and the tenant notices in RPAPL 1303 and 1305 depend on the building having tenants. An investor-owned two family house may therefore get the summons warning and tenant notices even though the loan is not a home loan. For RPAPL 1305, "residential real property" also includes a building used for both residential and commercial purposes (RPAPL 1305(1)(a)).
What makes a loan a "home loan"?
Under RPAPL 1304(6), a home loan has four features: the borrower is a natural person; the debt was taken on primarily for personal, family or household purposes; the loan is secured by a one to four family dwelling or a condominium unit that is or will be the borrower's principal dwelling; and the property is in New York. Every protection in the first five rows of the table relies on that definition. The same definition counts a reverse mortgage that meets those four tests (RPAPL 1304(6)(a)(2)). For the notice itself, see New York's 90-day foreclosure notice and what happens if the lender got it wrong.
Banking Law 6-l, which limits high-cost home loans, uses its own definition, and the two do not match. Its version also covers a loan secured by co-op shares and a proprietary lease, but only if the principal amount at origination did not exceed the conforming loan size limit set by the Federal National Mortgage Association, and it excludes reverse mortgages and loans made or backed by the State of New York Mortgage Agency (Banking Law 6-l(1)(e)). A loan can therefore be a home loan under one statute and not the other, which is why the analysis has to be done statute by statute. Its limits apply only to a "high-cost" home loan, one whose rate or up-front charges exceed thresholds the statute sets (Banking Law 6-l(1)(d), (g)).
How does a commercial foreclosure move through the court?
Both tracks run through the same court: the New York State Supreme Court in the county where the property is located (CPLR 507). The answer is due within 20 days if the papers were handed to you, or 30 days after service is complete if they were served another way (CPLR 320). One more rule matters for entities: if the summons was delivered to a state official authorized to receive service on the defendant's behalf, the 30-day period applies (CPLR 320(a)). Otherwise the clock is the same for an LLC as for a homeowner; see how long you have to answer a New York foreclosure complaint.
The middle of the case is where the tracks split. On the residential track, the court must hold a mandatory conference within 60 days after proof of service is filed, and both sides must negotiate in good faith (CPLR 3408(a), (f)). Our page on what happens at a New York foreclosure settlement conference explains that step. A commercial case has no such conference and moves straight into ordinary motions and discovery.
Where the mortgage contains a receiver covenant, the lender may ask early for a receiver of the rents, and Real Property Law 254(10) entitles it to one "without notice and without regard to adequacy of any security of the debt," with the rents assigned to the lender after a default. If the mortgage allows appointment without notice, no notice of the motion is required (RPAPL 1325(1)). The order appointing the receiver must direct the owner to turn over all tenant security deposits to the receiver (RPAPL 1325(2-a)). In a city of one million or more people, a receiver of a multiple dwelling must register with the city as the law requires and must give priority to correcting hazardous housing violations (RPAPL 1325(3)). The rest of the receivership rules are in whether a lender can take over a building's rents with a receiver.
From there the endgame is the same on both tracks: an order of reference to compute the amount due (RPAPL 1321), a judgment of foreclosure and sale (RPAPL 1351) and a public auction. Our overview of what happens after you are served with a foreclosure summons in New York walks through those steps. The borough sale calendars are on our page about where and when foreclosure auctions are held in New York City.
| Stage | Home loan, owner lives there | Commercial or investor loan |
|---|---|---|
| Before suit | 90-day notice and state filing (RPAPL 1304, 1306) | No RPAPL 1304 notice |
| Summons | Homeowner notice on colored paper (RPAPL 1303); warning if three units or fewer (RPAPL 1320) | RPAPL 1320 warning still applies to residential property with three units or fewer |
| Complaint | Certificate of merit with loan papers attached (CPLR 3012-b) | No certificate of merit |
| Answer | 20 or 30 days (CPLR 320); standing defense not waived (RPAPL 1302-a) | Same deadline; standing and similar defenses can be waived if left out (CPLR 3211(e)) |
| Early case | Mandatory settlement conference within 60 days of proof of service (CPLR 3408) | Possible receiver of rents (Real Property Law 254(10); RPAPL 1325) |
| Tenants | Tenant notice within 10 days of service (RPAPL 1303(4)) | Same, including mixed-use buildings (RPAPL 1305(1)(a)) |
| Judgment and sale | Order of reference and judgment of sale (RPAPL 1321, 1351) | Same |
| After the sale | Deficiency motion within 90 days of the deed (RPAPL 1371) | Same; leftover receiver money goes toward any shortfall (RPAPL 1371(4)) |
What changes when the loan is commercial?
- Ordinary waiver rules. Without RPAPL 1302-a, defenses are subject to CPLR 3211(e), so standing and similar defenses should be raised in the answer or the first motion to dismiss. See whether a New York foreclosure can be dismissed because the lender lacked standing.
- Guarantors. As our LLC article notes, commercial loans frequently require the principal of the borrowing entity to sign a personal guaranty, which can expose personal assets even when the property is titled in an LLC. Our debtor and creditor practice covers personal guaranty and deficiency judgment disputes. The defenses that survive a typical guaranty are set out in what defenses a personal guarantor has when a New York lender sues.
- Deficiency. On both tracks, if the sale does not cover the debt, the lender may move for a deficiency judgment within 90 days after the deed is delivered; without a timely motion, the sale proceeds are deemed to satisfy the debt in full (RPAPL 1371(2), (3)). A deficiency judgment is a money judgment, so the collection steps in what happens after a money judgment is entered against you can follow.
What if the lender labeled a home loan as commercial?
The statutory definitions turn on facts: who borrowed, why, and whether the borrower lives or will live in the property. A label in the loan documents does not decide those facts on its own, which is the point our LLC article develops for owners who took title through an entity. The stakes can be high. Under Banking Law 6-l(10), if a court finds an intentional violation of the high-cost home loan rules, the loan agreement is void, the lender may not collect principal, interest or other charges, and the borrower may recover payments made. Under 6-l(11), a borrower can raise rescission of a high-cost home loan that violates the section as a defense without any time limit.
The statute also reaches anyone who in bad faith tries to avoid it "by any subterfuge," such as splitting a loan into parts (Banking Law 6-l(3)). In a foreclosure brought by an assignee, the borrower may raise the section's defenses without time limit, as against the original lender (6-l(13)).
What changes the answer for your loan?
- Who signed as borrower. Both home loan definitions require a natural person as the borrower (RPAPL 1304(6)(a)(1)(i); Banking Law 6-l(1)(e)(ii)). Who signed the note, and in what capacity, is the first fact to pin down.
- Why the money was borrowed. The debt must be incurred primarily for personal, family or household purposes (RPAPL 1304(6)(a)(1)(ii)).
- Whether you live there. The property must be or become the borrower's principal dwelling (RPAPL 1304(6)), and the conference and certificate of merit require a defendant who lives there (CPLR 3408(a), 3012-b(a)). If the borrower moves out or files for bankruptcy, the 90-day waiting period stops applying, but the notice must still be sent (RPAPL 1304(3)).
- How many units. The home loan definition and the homeowner notice stop at four units (RPAPL 1304(6), 1303(1)(a)); the summons warning stops at three (RPAPL 1320).
- A receiver covenant. Whether the mortgage contains one decides whether the lender can seek a receiver of rents without notice (Real Property Law 254(10); RPAPL 1325(1)).
For example: an owner-occupied three-family house held in an LLC
For example, imagine a Brooklyn owner who bought a three-family house through her single-member LLC, lives in one unit and rents the other two. (This is a made-up illustration, not a real client or result.) The loan went to the LLC, labeled commercial, and she signed a personal guaranty. After a default, the lender sues the LLC and her, as guarantor, in the Supreme Court in Kings County without a 90-day notice, on the view that a loan to an LLC is not a home loan (RPAPL 1304(6)). On March 2, a process server hands her the papers.
The summons still carries the "YOU ARE IN DANGER OF LOSING YOUR HOME" warning, because the building has three units (RPAPL 1320). By March 12, ten days after service, the lender must deliver the tenant notice to each tenant by certified and first-class mail, since the building has fewer than five units (RPAPL 1303(4)). The mortgage has a receiver covenant, so the lender moves for a receiver, and the order directs the owner to turn over the security deposits (RPAPL 1325(2-a)).
Her own answer is due 20 days after March 2; the LLC's deadline depends on how the LLC was served (CPLR 320(a)). The answers raise standing, since outside the home loan rule that defense can be waived if left out (CPLR 3211(e)). She also gathers the origination file, the facts our LLC article says can matter under Banking Law 6-l. If the house later sells for less than the debt, the lender has 90 days after the deed to seek a deficiency, and the court credits the higher of the sale price or the market value it finds (RPAPL 1371(2)). The courthouse steps are on our page about what to expect at Kings County Supreme Court in a foreclosure case.
Common mistakes when the loan is called commercial
- Accepting the label. The statutory tests look at who borrowed, why and who lives there (RPAPL 1304(6)). The word "commercial" on the loan papers is where the analysis starts, not where it ends.
- Holding back a defense. Outside RPAPL 1302-a, a standing objection left out of the answer or the first motion to dismiss can be waived (CPLR 3211(e)).
- Keeping rents or deposits after a receiver is appointed. Under a receiver covenant the rents are assigned to the lender after a default (Real Property Law 254(10)), and the order must direct the owner to hand over tenant security deposits (RPAPL 1325(2-a)).
- Ignoring the deficiency motion. The court credits the higher of the sale price or the market value it finds (RPAPL 1371(2)), so evidence of value matters.
- Assuming the LLC can answer on its own. Our LLC article notes that an LLC cannot represent itself in New York court and must be represented by counsel.
What to do this week
- Find the note, the mortgage, any personal guaranty and the loan application, and note who signed each one and in what capacity.
- Write down when and how the summons reached you, and count the answer deadline under CPLR 320.
- Check whether a 90-day notice arrived, and keep any notice and its envelopes.
- List every tenant, lease, monthly rent and security deposit you hold.
- Read the mortgage for a clause about appointing a receiver.
- Pull together the papers on our foreclosure defense consultation checklist and arrange to speak with a lawyer before the answer deadline.
Frequently asked questions
Does the 90-day notice apply if my LLC owns the house?
RPAPL 1304 requires the notice for a "home loan," and the first test is that the borrower is a natural person, so a loan to an LLC does not fit on its face. Our LLC article explains why we still look at the facts of origination.
Can my LLC answer the foreclosure without a lawyer?
Our LLC article notes that an LLC cannot represent itself in New York court and must appear through counsel. The answer deadline under CPLR 320 runs anyway, so arrange counsel for the entity early. If the deadline has already passed, read what happens if you missed the deadline to answer a foreclosure in New York.
Is a co-op loan a "home loan"?
It depends on the statute. The RPAPL 1304 definition covers loans secured by a one to four family dwelling or a condominium unit and does not mention co-op shares. Banking Law 6-l's definition does include loans secured by co-op shares and a proprietary lease, up to the conforming loan limit.
Can the lender come after me personally for the shortfall?
A deficiency judgment can run only against a person liable for the debt who was made a defendant and appeared or was personally served (RPAPL 1371(1)). If you signed a personal guaranty, our LLC article explains how that guaranty can reach personal assets even when the property is in an LLC. What a lender can do once it declares a business loan in default is covered in what happens after a lender declares a commercial loan in default in New York.
Is the deadline to foreclose different for a commercial mortgage?
No. The six-year limit in CPLR 213(4) covers actions on a note or mortgage secured by real property, without separating home loans from commercial loans. We explain how that clock starts and stops in how long a lender has to foreclose in New York.
What happens to my tenants after the sale?
Under RPAPL 1305, a tenant of a unit that is not rent controlled or stabilized may stay for at least 90 days after the new owner's notice, or for the rest of a qualifying lease. The tenant notice required by RPAPL 1303 tells rent stabilized and rent controlled tenants that their protections are unaffected by the foreclosure.