Klass to Speak at the 2021 New York State Bar Association Annual Meeting

Richard A. Klass, Esq. is scheduled to speak about “Obtaining Surplus Funds in Foreclosure Proceedings” on opening day of the New York State Bar Association’s 2021 Annual Meeting. This is a two-week virtual conference, running from January 19th to the 29th.

Obtaining Surplus Funds in Foreclosure Proceedings

At 12:50pm, on Jan. 19, Klass will speak in the General Practice Section on the topic “Tips for Obtaining Surplus Funds in Foreclosure Proceedings during the Age of COVID-19.

This talk will be moderated by Sarah E. Gold, Esq., of the Gold Law Firm in Albany, NY.

Several more luminaries of the New York State legal community are also scheduled to speak that day. The day’s schedule includes the following topics and speakers.

General Practice Section Welcome


  • Domenick Napoletano, Esq. | Law Office of Domenick Napoletano, Brooklyn, NY
  • Elisa S. Rosenthal, Esq. | Of Counsel, Franchina Law Group, LLC., Garden City, NY

Update on Cannabis Law

This program will discuss the history and background of the cannabis law, its legalization status nationwide, hemp vs. MJ, legal ethics, notable litigation, and consultants to licensed operators. It will also provide practical knowledge for attorneys regarding the cannabis industry, and cannabis business strategy. In addition, hot topic issues like advertising, M&A, and ethics all within the cannabis industry will be discussed.


  • John Nichols, Esq. | Counsel, Barclay Damon, LLP., Syracuse, NY
  • Shanita Penny M.B.A. | CEO, Founder and Principal, Budding Solutions; Immediate Past President, Minority Cannabis Business Association (MCBA), Baltimore, MD

Committee on Professional Discipline Welcome and Introductions


  • Richard M. Maltz, Esq. | Frankfurt Kurnit Klein & Selz, PC., New York, NY
  • Martin Minkowitz, Esq. | Stroock & Stroock & Lavan, LLP., New York, NY

Ethics of Accepting a Frivolous or Questionable Representation

This distinguished panel will address the specific ethical obligations that attorneys face when confronted with a frivolous or questionable representation, along with many issues that arise in daily business. We will examine thorny ethical issues that are not expressly addressed by any model or state code of ethics, with an aim to impart user-friendly advice that will ultimately strengthen the ethical footing of your firm and your client.


  • Joel Cohen, Esq. | Stroock & Stroock & Lavan, LLP., New York, NY


  • Andrea Bonina, Esq. | Chair, Grievance Committee for the Second, Eleventh and Thirteenth Judicial Districts; Partner, Bonina & Bonina P.C., Brooklyn, New York
  • Michael S. Ross, Esq. | Law Offices of Michael S. Ross, New York, NY
  • Douglas H. Wigdor, Esq. | Founding Partner Wigdor Law, LLP.

CPLR Update: What’s New in New York Civil Practice Law and Rules

Burt Lipshie provides his indispensable review of changes to the New York Civil Practice. Widely regarded as an expert on New York procedure, Burt has served as an educator to, and an advocate on behalf of, the New York State Court System. This program is essential for all litigators.


  • Burton N. Lipshie, Esq. | Stroock & Stroock & Lavan, LLP., New York, NY

Tips for Obtaining Surplus Fund in Foreclosure Proceedings during the Age of COVID-19

In the age of COVID-19 and the many financial uncertainties being faced, Richard A. Klass, Esq., a former Chair of the General Practice Section shares his knowledge and expertise on how to navigate the obstacles presented by the pandemic in obtaining surplus funds in foreclosure proceedings.


  • Sarah E. Gold, Esq. | Gold Law Firm, Albany, NY


Virtual Notary During the Pandemic

Faced with the challenges of having Wills, Health Care Proxies, Deeds and like instruments notarized during these difficult and trying times, you will learn how to navigate the waters and service your clients during a time they needed us the most.


  • Michael Markowitz, Esq. | Michael A. Markowitz, PC., Hewlett, NY

R. A. Klass
Your Court Street Lawyer

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#CourtStreetLawyer #COVID19 #nysba

Scales of justice

New book by Richard Klass!

Cover of new book by Richard Klass: Killing the “Zombies”: Recent Changes to New York State’s Foreclosure Laws

Killing the “Zombies”

Recent Changes to New York State’s Foreclosure Laws:
· Eliminating vacant and abandoned properties
· Streamlining foreclosure settlement conference part
· PreForeclosure Notices
· Getting Foreclosed Houses to Market Quicker

Free E-Book! Download it here.

39 pages/3,028 KB. PDF format.
Includes illustrations and sample forms.
by Richard A. Klass, Esq.




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New York foreclosure cases nearing 6 year statute of limitations

As reported today in the New York Times, there are increasing numbers of foreclosure cases in New York State where lenders may be unable to seize homes. Why? Because the State’s statute of limitations on foreclosure cases may be exceeded.

If you have a foreclosure case that has been dragging on for nearly six years, there may be relief on the horizon.

Does this sound similar to your situation? If so, and if you require legal representation, call my office for more information.

The full New York Times article is available here.

— by Richard A. Klass, Esq.

copyr. 2015 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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The Producer: overselling available interests

Cropped version of the painting named " Rehearsal Onstage " by Edgar Degas. Shows dancers in white ballet costumes, directed by a man in dark suit with two other men in suits, in chairs, in very relaxed poses, observing.
Mel Brooks’ movie and musical The Producers may have been a fictional story of fraudsters selling more shares in the production of their Broadway show “Springtime for Hitler” than actually existed, but such fraudsters exist in real life, overselling available interests not only in Broadway productions, but in every type of investment, including real estate.
In this modern day The Producers story, a particular real estate broker (we’ll give him the name “Bob”) had a plan. The idea behind this particular investment was simple: purchase a house in Passaic, New Jersey; fix it up; and then resell it for a profit—the classic real estate “flip.” This broker solicited a number of investors. Each investor would purchase a membership interest in a limited liability company [LLC]. With the funds provided by the members, the LLC would buy the house. A contractor-partner would be hired to renovate the house. Each investor was promised a certain percentage of the net proceeds from the ultimate sale of the house. Unfortunately, the real estate market tanked, construction costs soared and the investment became a huge loss before construction was ever completed.

New Jersey state court action

One of the investors (we’ll call him “John”) brought a lawsuit in the Superior Court in New Jersey for breach of contract, misappropriation of funds, and fraud. In that case, the judge appointed a special fiscal agent (similar to a court-appointed receiver) to manage the operations of the house, list the house for sale, and take all steps necessary to sell the house and distribute the net proceeds to the LLC’s investors.

Real estate broker files for bankruptcy

Bob filed for personal bankruptcy in the New Jersey Bankruptcy Court to avoid his liability to the investors. John filed a lawsuit (known as an adversary proceeding) against Bob in the New Jersey bankruptcy case to have Bob’s liability in this house-investment-gone-wrong declared “nondischargeable.” (The adversary proceeding here was a mini-lawsuit inside of the bankruptcy case, intended to have the effect that Bob would remain liable to John for the collapse of the real estate deal.) In the adversary proceeding, John alleged that Bob brought too many investors into the deal without telling the other investors. A settlement was reached between John and Bob in the “adversary proceeding” and John negotiated with the bankruptcy trustee to purchase the house directly from the trustee to recoup some of his (John’s) losses. Another investor (we’ll call her “Sally”) who lost money in the same Passaic real estate deal then sued John (now the owner of the Passaic real estate) in New York City’s Civil Court, claiming that John defrauded Sally by not including her in the buy-out of the house. This is when John sought help from Richard A. Klass, Your Court Street Lawyer. The aim was to have Sally’s lawsuit, brought in New York, dismissed.

Lack of jurisdiction in the New York Civil Court

There is a basic concept involving any court system that a particular court maintains the authority (“jurisdiction”) to make decisions and orders over a particular controversy. According to New York’s Civil Practice Law and Rules [CPLR] Section 302, New York State courts may exercise jurisdiction over nonresidents under certain circumstances, when the defendant:
1. Transacts any business within the state or contracts anywhere to supply goods or services in the state; or 2. Commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or 3. Commits a tortious act without the state causing injury to person or property within the state.
There is a separate rule as to when New York City’s Civil Court may exercise jurisdiction over cases because it is considered a court of “limited” jurisdiction (See Civil Court Act Section 202). In asking the judge to dismiss the New York Civil Court case, Richard A. Klass argued that any action that could be brought by Sally must be brought in the State of New Jersey, and not in New York. The project-house was located in New Jersey; the LLC was a New Jersey entity; both the New Jersey Superior Court and New Jersey Bankruptcy Court had pending cases involving the house and the LLC; and all of the events transpired in New Jersey. It was urged that New York was the wrong forum for Sally to bring this dispute, citing to Epstein v. Sirivejkul, 48 NY2d 728 [1979]; Irrigation and Industrial Development Corp. v. Indag S.A., 37 NY2d 522 [1975]. The Civil Court judge agreed with the arguments of Richard A. Klass and determined that the New York Civil Court lacked jurisdiction over the case. The judge specifically found that the transaction in dispute occurred in New Jersey and the plaintiff presented no allegations that there was tortious conduct within New York State; also, the fact that there were existing proceedings in New Jersey courts confirmed the conclusion that New Jersey was the proper forum for any dispute. The court then dismissed the plaintiff’s case.
by Richard A. Klass, Esq.
———– copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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“Then I’ll huff and I’ll puff, and I’ll blow your house in!”

Illustration of straw house from "Three Little Pigs" for page about Real Estate Litigation.
Those famous words were said by the Wolf in the fairy tale Three Little Pigs. Sometimes, municipalities have to say those same words to homeowners whose buildings become so damaged that they have become “unsafe.”

The “unsafe structures” law

There is a common recognition that an unsafe or dangerous structure constitutes a threat to the public’s health, safety and welfare, and the sealing or removal of the structure is an exercise of a municipality’s police powers to protect the public. For this reason, municipalities enact building codes to ensure that owners keep and maintain their buildings. In New York City, Administrative Code Section 26-236 provides that, immediately upon receipt of a report by an officer or building department employee that a structure is unsafe or dangerous, the Department of Buildings is to make a formal report, which triggers quick action. The next step is to notify the building owner within 24 hours of the duty to remedy the unsafe or dangerous condition. If no action by the owner is immediately taken, then the Buildings Department must order a survey of the unsafe structure, which survey (together with a report) acts as the basis of a law suit in the Supreme Court. So important to the public is the remediation of an unsafe structure, that Administrative Code Section 26-239 states that the “determination of the issue in an unsafe structure proceeding shall have precedence over every other business” of the court. Once the trial has taken place (“without delay”), the court then issues a “precept” directed to the Superintendent of Buildings to repair or secure the unsafe structure.

Knock-down of the client’s building

The client bought a building in Brooklyn from a bank that had recently foreclosed on the property and took back the building (what is commonly referred to as an “REO” – real estate owned property in a bank’s inventory). At about the same time that the client bought the building, the City of New York determined that the building was an unsafe structure and notified the bank. The notice informed that a court proceeding would be held in the Supreme Court, Kings County on April 22nd to determine the building to be an “unsafe structure” pursuant to the New York City Administrative Code. When the client bought the building, he had the intention of renovating it. The client hired an architect who drew up plans to utilize the skeleton of the building and its basic plumbing and heating systems. The plans filed with the Buildings Department provided for the rehabilitation and renovation of the building. The architect’s plans were allegedly approved by the Department. The architect then met with the Buildings Department’s Borough Commissioner on April 10th; assurance was allegedly made to the architect that a work permit based upon the approved plans would be issued, allowing the “rehab” of the building to start. Allegedly, the Buildings Department noted the approval of plans with the City’s Department of Housing Preservation and Development. Unfortunately, on April 15th, prior to the upcoming court date, the City demolished the building. To add insult to injury, the City placed a lien on the building for the demolition costs.

Claim and law suit

The building owner came to Richard A. Klass, Your Court Street Lawyer, for help. Now that the entire building was demolished, there was tremendous added expense to the rehab of the building, given that all new building systems would have to be installed and the shell was no longer there. Notices of claim were filed with the City of New York and its agencies. Once the requisite period of time for the City to act on those notices passed, a law suit was filed against the City. The action listed several causes of action including negligence, trespass to property, interference with quiet enjoyment of property and violation of due process rights since the building was demolished before the court proceeding. The City agreed to settle the law suit by payment for the loss of the building (based upon the difference in fair market values for the property pre-demolition and post-demolition) along with cancellation of the demolition lien.
by Richard A. Klass, Esq.
———– copyr. 2013 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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Right to Surplus Moneys

In certain cases, the Referee in the foreclosure action conducted a sale of the subject real property generates surplus moneys after an auction sale, which are then deposited with the court. After filing of the Referee’s Oath and Report of Sale after foreclosure auction sale, a party can move for confirmation of the Report of Sale more than 3 months but not later than 4 months after the filing of the Report of Sale. RPAPL Section 1355. Further, upon confirmation of the Report of Sale, and on motion of any party prior to or within 3 months of confirmation of the Report and Sale claiming the surplus moneys which have arisen from the foreclosure auction sale, the Supreme Court shall determine the priorities in such surplus moneys and order distributions thereof. RPAPL Section 1361. The Second Department has held that the failure to move to appoint a Referee in a Surplus Money Proceeding following foreclosure of a mortgage within the time prescribed by statute is a mere irregularity which, in the absence of prejudice of any substantial right of a party, may be disregarded. Associated Financial Services, Inc. v. Davis, 183 AD2d 686, 583 NYS2d 274 (2d Dept. 1992). The potential issue of a defendant or claimant not having filed an Answer or Notice of Appearance in the foreclosure action is not relevant as to whether that party may pursue recovery of surplus moneys. It is well settled that a defendant who defaulted in answering the foreclosure action is not precluded from proving its lien in Surplus Money Proceeding. Riverhead Savings Bank v. Garone 183 AD2d 760, 583 NYS2d 483 (2d Dept. 1992), citing to The Dime Savings Bank of Brooklyn v. Pine Drive Associates, Inc., 28 Misc.2d 648, 212 NYS2d 111 (Sup. Ct., Nassau Co. 1961). Further, a second mortgagee/lienor, as a party named in the foreclosure action, is not required to file a Notice of Claim to Surplus Moneys in order to preserve its right to satisfaction of its lien from surplus proceeds of a foreclosure sale. Federal Home Loan Mortgage Corp. v. Grant, 224 AD2d 656, 639 NYS2d 72 (2d Dept. 1996) (“As a party to the foreclosure action, the respondent, secondary mortgagee Marine Midland Bank, was not required to file a notice of claim to the surplus moneys in order to preserve its right to the satisfaction of its lien from the surplus proceeds of the foreclosure sale.”). Where, under a mortgage foreclosure sale, a surplus is realized, and the premises are at the time of such sale subject to a second mortgage, the respective rights of the parties will be determined as of the date of the foreclosure sale. Elsworth v. Woolsey, 19 AD 385, 46 NYS 486 (1st Dept. 1897), affirmed, 154 NY 748, 49 NE 1096 (1897). New York courts have held that those respective rights in the surplus moneys, as enunciated by Elsworth, transfer from the “res” of the action, to wit: the land, to the surplus moneys. In Roosevelt Savings Bank v. Goldberg, 118 Misc.2d 220, 459 NYS2d 988 (Sup. Ct., Nassau Co. 1983), the court held:
“Surplus money realized upon a foreclosure sale is not a general asset of the owner of the equity of redemption, but stands in the place of the land for all purposes of distribution among persons having vested interests or liens upon the land. Surplus money takes the place of the equity of redemption, and only one who had a vested estate or interest in the land sold under foreclosure which was cut off by the foreclosure sale, is entitled to share in the surplus money, with priority in each creditor determined by the filing date of his lien or judgment.”
by Richard A. Klass
———– copyr. 2012 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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Seminar: Mortgage Foreclosure: Process, Defenses and Options

Dear Readers, You may be interested in this seminar that I have organized with the Brooklyn Bar Association. Best, Richard Mortgage Foreclosure: Process, Defenses and Options May 14, 2012, 6 – 8:00 PM Richard A. Klass, Esq., Chair, Mentoring Committee Program Organizer and Moderator The Brooklyn Bar Association’s Meeting Hall 123 Remsen Street Brooklyn Heights, New York 11201 All members of the public are invited to attend an informational lecture outlining the process of a typical mortgage foreclosure proceeding; defenses available to the homeowner; and other options To reserve a seat or for information, contact: Avery Eli Okin, Esq., CAE e-mail: aokin@brooklynbar.org This Brooklyn Bar Association Foundation Law Committee program is a joint presentation with the Brooklyn Bar Association, the Brooklyn Bar Association Volunteer Lawyer’s Project, Inc., and the Brooklyn Bar Association Lawyer Referral Service.
———– copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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Feeling a Million Bucks Better!

Painting by Gerrit van Honthorst showing a man with a broad smile, possibly drunk, with wine glass in one hand and a violin in the other.
Bad economic times over the past few years have seen the foreclosure of tens of thousands of properties across New York State (as well as around the country). One corporate landlord had two commercial rental buildings located in Brooklyn. Spread across those two buildings was a ‘blanket’ mortgage of $1.1 million (the term ‘blanket mortgage’ refers to one mortgage recorded against two or more properties). The buildings fell into foreclosure as a result of the landlord’s inability to pay the mortgage loan and the general economic downturn in the area. The corporation that owned the buildings and the individual owner who signed a personal guaranty of the mortgage loan were sued in the mortgage foreclosure proceeding. On September 30, 2010, the two buildings were sold at the foreclosure auction sale by the court-appointed Referee as one combined lot for $574,000. The mortgage lender’s attorneys prepared the Referee’s Report of Sale and Statement of the balance due to the lender on the mortgage loan after the auction sale (the “deficiency”), which was computed as follows: Total due Plaintiff: $1,408,111.61. Amount of Bid: $574,000. Deficiency: $834,111.61. After the foreclosure auction sale, the plaintiff-mortgage lender filed a motion with the court, asking the judge to grant a Deficiency Judgment against the corporation and the individual owner based upon his personal guaranty. The defendants did not receive notice of the motion. The motion was granted and the court entered a Deficiency Judgment against them for $902,506.17. The individual guarantor (and now judgment debtor), came to Richard A. Klass, Your Court Street Lawyer, for legal advice to challenge the Deficiency Judgment. Deficiency Judgment: Mortgage foreclosures in New York are governed by Article 13 of the Real Property Actions and Proceedings Law (RPAPL). The normal flow of a mortgage foreclosure proceeding is: (a) filing and serving the Summons and Complaint; (b) having the court appoint a referee to determine how much is due to the lender on the mortgage loan; (c) granting the Judgment of Foreclosure and Sale, allowing the mortgage lender to “foreclose” the mortgage upon its collateral (security for the loan) – the house; and then (d) conduct an auction sale of the house to satisfy the debt owed. Many times, the foreclosure auction sale of the property does not sell for enough money to pay off the debt due to the mortgage lender/bank. When a property is worth less than the amount due on the mortgage, the property is considered “underwater.” If, after the sale, the lender is still due money for its debt under the Judgment of Foreclosure and Sale, the lender may bring a request for the judge to award a judgment for the balance of the money due for its debt – it is asking for a Deficiency Judgment to be entered against the person or people liable under the mortgage note (the term “deficiency” referring to the remaining shortage due to the bank). The procedure for requesting the Deficiency Judgment is laid out in RPAPL Section 1371, and it must be strictly followed. Attacking the Validity of the Deficiency Judgment: At the stage that the client retained Richard A. Klass, Your Court Street Lawyer, to help, a game plan to attack the Deficiency Judgment had to be formulated and put into action. The entire file in the mortgage foreclosure proceedings, including all of the pleadings, motions, and court orders had to be obtained from court and reviewed to see whether every step taken by the mortgage lender was proper – in other words, did the mortgage lender cross every “t” and dot every “i”? 1. Motion made after 90-day time limit. The Referee’s Deed from the auction sale was dated October 9, 2010. The date that the motion was served upon the defendants, January 11, 2011, exceeded the 90-day time limit specified in RPAPL 1371(2) by four days. New York case law has held that the 90-day time period in which to request that a deficiency be granted is considered a “statute of limitations” and, if not made within this period, it is time-barred. Thus, it was argued that the plaintiff-mortgage lender made the motion too late. 2. Improper calculation of the deficiency. In RPAPL 1371(2), it states that the deficiency is the amount owing less “the market value determined by the court or the sale price of the property whichever shall be the higher.” The plaintiff calculated the deficiency based upon the lower sale price ($574,000) instead of the higher appraised fair market value ($675,000), which would have resulted in a lower deficiency amount (by over $100,000). 3. Both properties were sold together as one combined lot. For some reason, the plaintiff opted to lump together two separate and distinct properties into one foreclosure sale. By conducting the sale of both properties at the same time, it was argued the plaintiff waived the right to claim a deficiency against the defendant. In Sanders v. Palmer, 68 NY2d 180 [1986], the Court of Appeals held that “there shall be separate sales of the security in such order as the court may fix, and an application after each sale and before the next occurs for determination of the deficiency resulting from the sale, for otherwise what remains due and payable from the additional security provided cannot be known.” Here, the plaintiff decided to sell both properties as a “package deal” without selling each property separately; therefore, the proper deficiency could not have been determined. 4. The personal guaranty was “limited” to $55,000. But, perhaps, the most glaring mistake in the foreclosure proceedings was that the personal guaranty of the individual owner (attached to the Complaint) stated on its face that it was limited to only $55,000 of the mortgage debt plus the legal expenses and costs associated with protecting the collateral. This was not brought to the attention of the judge when the plaintiff made the motion for the deficiency. Based upon the several errors in the motion and procedures taken to obtain the Deficiency Judgment, the plaintiff-mortgage lender agreed to vacate and dismiss the Deficiency Judgment against the individual guarantor. Instead of owing the bank close to $1 million, he wound up owing $0!
Richard A. Klass, Esq.
———– copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome. Credits: Photo of Richard Klass by Robert Matson, copyr. Richard A. Klass, 2011. Newsletter marketing by The Innovation Works, Inc. www.TheInnovationWorks.com Image at top: The Merry Fiddler, 1623, by Gerard van Honthorst (1590-1656). This image is in the public domain because its copyright has expired. This applies to Australia, the European Union and those countries with a copyright term of life of the author plus 70 years. This image is in the public domain in the United States. This applies to U.S. works where the copyright has expired, often because its first publication occurred prior to January 1, 1923.

R. A. Klass Your Court Street Lawyer

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$401,452.59 Surplus Moneys: The Extra Bit Left Over!

Painting by August Macke in blocks of bold color showing a lone woman in foreground with two couples in background. Also shown are some trees and an area of blue, perhaps a pond.
In the typical mortgage foreclosure proceeding, the mortgage lender (or “mortgagee”) brings an action against the homeowner to foreclose on its mortgage against the real estate, generally because the homeowner (or “mortgagor”) failed to make payments on the loan. The mortgage is the legal document recorded by the mortgagee against the mortgagor property to provide the collateral for the making of the loan. In case of default in payment, the mortgagee has the right to sell the collateral to satisfy the remaining balance due on the loan (most foreclosure proceedings are judicial sales, where a court has authorized the sale, as opposed to ‘non-judicial’ sales in limited circumstances). Sometimes, in a foreclosure action, the plaintiff is not the holder of a mortgage but rather has another type of lien against the real estate, such as a tax lien for unpaid real estate taxes, mechanic’s lien (for building supplies or labor performed), or judgment lien. Once the mortgagee or lienor has obtained a Judgment of Foreclosure and Sale, it can then sell the real estate. The mortgage foreclosure proceeding culminates with the public auction of the mortgagor’s real estate to the highest bidder. At that point, the property is sold to the bidder, who pays the sale price to a court-appointed referee.

Definition of Surplus Moneys:

If the amount paid by the successful bidder at the auction sale exceeds the amount due to the mortgagee according to the Judgment of Foreclosure and Sale, then there is created a special fund of the left-over purchase price called the “Surplus Moneys.” For example, if the mortgagee is due $200,000 and the property sold for $300,000, the remaining sale price of $100,000 is the surplus. According to Article 13 of New York’s Real Property Actions and Proceedings Law (RPAPL), there is a procedure for the former homeowner (and other junior lienors, such as second mortgagees, judgment creditors or other lienholders) to petition the court for the release of the surplus moneys.

Fighting over $401,452.59 Surplus Moneys:

In 2005, the owner of a building in Brooklyn failed to pay his property taxes. A foreclosure proceeding was brought based on the tax lien, and the building was sold at auction. The referee paid off the tax lien and then deposited the remaining surplus moneys of $401,452.59 into court. The building owner died, leaving his second wife and children as his survivors. He had been married previously and, as part of his and his first wife’s divorce case, had agreed to pay her half of the value of the building. The first wife and one of the owner’s children retained Richard A. Klass, Your Court Street Lawyer, to pursue the payment of their respective shares of the surplus moneys. The various heirs to the estate of the owner, along with the first wife, filed motions in court to have a “surplus moneys referee” appointed to determine who would be entitled to what portion of the surplus moneys. The second wife alleged that the first wife was not entitled to any portion of the surplus moneys, claiming that she was previously paid by the decedent for her portion – but she could not find proof of the alleged payment. A hearing was held before the surplus moneys referee, who determined that the first wife should receive her half-share of the moneys of over $200,000, along with accrued interest. The balance of the surplus moneys were to be distributed according to New York’s Estates, Powers and Trusts Law (EPTL) Section 4-1.1, which comes into play when someone dies without a Will. (This is the reason that making a Last Will and Testament is very important!) According to the EPTL, the balance of the surplus moneys were to be distributed as follows: (a) the first $50,000 plus half of the remaining balance paid to the second wife; and (b) the other half of the remaining balance paid to the surviving children, evenly divided among them. After the completion of the hearing, the referee rendered a report, setting forth the manner of distribution. Then, an Order confirming the report and directing the distribution was signed by the Judge. At the conclusion, each of the clients received her fair share of the surplus moneys in full with interest.
Richard A. Klass, Esq.
———– copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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$73K Buys $200,000 House, Thanks to Debtor’s “Hat Trick” Screw-up.

Painting by artist Macke of a yellow house with red roof and a lawn and trees in front of it.
The foreclosure auction of the defendant’s Staten Island house came up on a Wednesday at 9:30AM. The courtroom was packed with people ready to bid on the house. The Referee announced the sale of the house, took bids, and struck down the sale at $73,000 to the successful bidder.
Moments later, the Referee informed the successful bidder that one of the two owners of the house had filed bankruptcy at 9:26AM; therefore, the foreclosure sale was invalid and the bidder should take back his bid deposit. At that moment, the successful bidder called Richard A. Klass, Your Court Street Lawyer about whether the sale was indeed invalid.

Automatic Stay Operates as a “Stop” Sign

People normally file for bankruptcy protection for one or both of two reasons: (1) to discharge debt; and (2) to “stay” (or stop) proceedings against the debtor, such as foreclosures, lawsuits, repossessions, evictions, etc. Under Bankruptcy Code Section 362(a), the filing of a bankruptcy petition with the United States Bankruptcy Court imposes an automatic stay upon creditors from taking certain actions, including specifically auctioning off the debtor’s house (Note: there are exceptions which may apply). Generally, actions taken after the filing of the bankruptcy petition are null and void, as if they never occurred. In this particular situation, the foreclosure auction happened 4 minutes after the bankruptcy filing. Under normal circumstances, the automatic stay would have voided this sale and the successful bidder would have merely gotten back his bid deposit, without getting the house. Before the drastic changes to the Bankruptcy Code in 2005 (under the Bankruptcy Abuse Prevention and Consumer Protection Act [BAPCPA]), debtors would go in and out of bankruptcy to prevent their houses from being sold. Since BAPCPA, it has gotten more difficult for debtors to get the benefit of the “Stop” sign – the first filing will trigger a stay, the second filing a briefer stay, and the third filing no stay unless requested. These “Stop” signs begin to feel like a “Hat Trick,” where one player scores three times.

Searching for Details

The first step in trying to salvage the foreclosure sale for the successful bidder was reviewing every document filed in the bankruptcy case. This included the “bare bones” petition and the “Credit Counseling Certificate.” This Certificate states that the debtor completed a credit counseling course within six months before the bankruptcy filing, which must be done in order to be eligible to file bankruptcy. Upon very close review, it appeared that the debtor simply took the old, expired Certificate from her prior bankruptcy case the year before (more than 6 months old) and filed the same one again – a big but little-noticed “no-no.” Upon further digging, it appeared that the co-owner of the house had previously filed bankruptcy and there was an order terminating the stay a year earlier. Also, the debtor had both unsuccessfully filed a bankruptcy before and had filed the current one without complying with the rules, including paying the court’s filing fee.

Validation of Post-Petition Foreclosure Sale

The Court found that grounds existed to warrant the annulment or termination of the automatic stay and validation of the foreclosure sale. Citing to several cases, the court identified various factors that should be considered in determining whether to validate a post-petition foreclosure sale, including whether:
  1. the creditor had actual or constructive knowledge of the bankruptcy filing and, therefore, of the stay;
  2. the debtor has acted in bad faith;
  3. there is equity in the property of the estate;
  4. the property is necessary for an effective reorganization;
  5. grounds for relief from stay exist and a motion, if filed, would have been granted prior to the violation;
  6. failure to grant retroactive relief would cause unnecessary expense to the creditor;
  7. the creditor has detrimentally changed its position on the basis of the action taken;
  8. the creditor took some affirmative action post-petition to bring about the violation of the stay; and
  9. the creditor promptly seeks a retroactive lifting of the stay and approval of the action taken.

In re Campbell, 356 BR 722 (WD Mo.2006); In re Williams, 257 BR 297 (Bankr.WD Mo. 2001).

Reviewing the facts of the particular situation, the Court found “ample support” for annulling the stay retroactively and validating the post-petition foreclosure sale. These facts included the bare bones petition filed by the debtor with the expired Certificate, her case being filed on the same date as the auction sale, her significant prior experience in bankruptcy, and the negative effect to the successful bidder’s (an independent third party) rights. In granting the successful bidder’s motion, the Bankruptcy Judge determined that the “debtor’s failure to act in good faith in this case warrants the annulment of the automatic stay and the validation of the petition day foreclosure sale.” In re Annie Williams, US Bankruptcy Court, Eastern District of New York, Case No. 1-09-44856-dem [Decision dated January 27, 2010]. Since the Bankruptcy Court validated the foreclosure sale, the successful bidder achieved his desired result – the purchase of the Staten Island house, valued at more than $200,000, for $73,000.
by Richard A. Klass, Esq.
Credits: Staudacherhaus at the Tegernsee, by artist August Macke (1887-1914). Law firm marketing services provided by The Innovation Works, Inc.
copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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