What happens when a bank begins to foreclose on a property, then changes its mind?

Arthur and Brenda Ray returned to the lot on Goodyear Avenue during a blustery February snow storm. There was nothing but a sheet of clean, white snow where their house once stood.

“I had a nice porch to sit on,” Arthur said, “and I had a garage. My own garage.”

The couple bought the house in 1995 and lived there until 1999. In August of that year, Arthur came down with walking pneumonia and was hospitalized for three weeks. Arthur was being paid hourly as a property manager and fell behind on his bills while in the hospital.

When he got out, representatives from M&T Bank began calling him telling him that if he couldn’t come up with two payments—the one he’d missed and the one that was due—he would have to move out.

“All I know is that I didn’t want to violate their wishes,” Arthur said. “They said pay up or vacate, so I vacated. I didn’t want no trouble.”

For more than a decade, the house on Goodyear Avenue was nothing more than a memory. Then, in 2009, the Rays were told to appear in Buffalo’s housing court. The house had been demolished, and because the bank had never completed the foreclosure, the city wants to hold the couple responsible for the cost of demolition: $16,105.

After property taxes had gone unpaid for five years, during which time the Rays believed that they no longer owned the home, the city seized the house, adding it to a long list of vacant homes and lots the city owns. That was in 2004. It was entered into the city’s In Rem system, under which the city takes tax delinquent properties and auctions them off once a year. Nobody bought the house, which deteriorated and finally came down in May 2009, according to the Department of Permits and Inspections’ most recent demolition list.

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Judge Patrick Carney, a 17-year veteran of city court, was appointed to housing court at the beginning of the year. Already he has seen multiple cases like that of the Rays.

When a bank assesses a property and decides that the money that they might recover through foreclosure and sale is less than what it will cost the bank to complete the foreclosure, they often will stop the process, effectively returning ownership to the mortgagor. After two or three Buffalo winters with no maintenance, the house begins to fall into disrepair. Whether on regular routes or in response to community complaints, a city housing inspector will cite a property for a housing code violation. Because the foreclosure has not been completed, the original owner of the home is summoned to housing court and made responsible for the repairs.

“These situations are problematic for the court,” Carney said. “It is up to them to try to determine who was in ownership of the house as it was falling into disrepair. The court must deal with these situations on a case-by-case basis.”

The New York State Property Maintanence Code defines an owner as “any person, agent, operator, firm or corporation having a legal or equitable interest in the property, or recorded in the official records of the state, county or municipality as holding title to the property or otherwise; or otherwise having control of the property, including the guardian of the estate of any such person, and the executor or administrator of the estate of such a person if ordered to take possession of the real property by such a court.”

It is Carney’s job to use this definition and legal precedents to determine who owned the property as it deteriorated. And Carney can’t even begin to try to determine who was responsible for the house as it fell apart until he can get the parties involved into court.

It can be difficult for a court working with limited resources to track down homeowners who sometimes move out of town or out of state, Carney said. And his court doesn’t have the power to get the banks into court. That’s up to the city’s law department, which has not responded to requests for comment.

“Courts are reactive,” Carney said. “It’s up to the city to cite the banks and get the bank in here. We will certainly help to facilitate, only on an informational basis, as to what we have in our old files, but, as a court, I can’t go out and cite the banks.”

Even if he gets a bank’s representative into court, Carney has a difficult time pinning responsibility on the bank. The mortgage divisions of banks have teams of lawyers well versed in property law who will fight to deny responsibility for housing court violations or demolition costs, he said.

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In the four years that the Rays lived on Goodyear they put a lot of work into the home. They laid tile on all of the floors, replaced many of the light fixtures, painted and kept a garden, Arthur said.

“I had a rose bush, I had a pine tree, I had tulips,” Arthur said. “I had all kinds of flowers planted out there.”

Arthur and Brenda were proud of the only home that they had ever owned.

“We did everything we could to keep the house looking good,” Brenda said. “That was the best-looking house on the whole street, to tell you the truth.”

Prior to Arthur falling ill, the city had cited the Rays’ home for having lead paint on the window trim and a porch that was structurally unsound. The couple didn’t have the money to make the repairs so they took out a $20,000 construction loan with an interest rate of 10.75 percent and duration of 30 years. By the time the loan is paid back the repairs will have cost the Rays $48,729.60, according to the loan agreement between the Rays and Proline Construction, the company that did the work.

After being told to vacate by M&T Bank, the Rays moved a few miles away to a house on Floss Avenue owned by Arthur’s employer. Two days after moving to Floss Avenue, Arthur returned to check on the house on Goodyear Avenue. The back door had been kicked in and the home into which he and Brenda had put so much work and money was torn to pieces. Thieves had taken anything and everything of value: light fixtures, metal handrails, the boiler, the stove, even the Rays’ family photo albums. It was all gone.

“They just destroyed the place,” Arthur said. “They even went upstairs and took the doors off of the closets. They took the paneling off of the walls.”

Arthur suspects that he knew the thieves, neighbors who had been watching as the Rays gathered their things to be moved to Floss Avenue. After that day the Rays left Goodyear Avenue for good.

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In 2008 former New York State Governor David Paterson passed into law the Mortgage Lending Reform Bill, which set forth new rules and regulations about how a bank must inform a homeowner that they are in danger of foreclosure. In addition, the bill requires that lenders include information on homeowners’ rights and contact information for agencies that can advise them during the foreclosure process, such as the US Department of Housing and Urban Development.

Paterson also passed his Governor’s Proposal Bill No. 46 in 2009, affording homeowners and tenants additional protections. One of the provisions listed in that law requires “plaintiffs in a foreclosure action who obtain a judgment of foreclosure or sale to maintain the foreclosed property,” according to a press release put out by Paterson’s office.

While these laws help the city and the court hold banks accountable for the maintenance of vacant houses, they don’t get to the root of the problem. When houses are left vacant, they are subject to thieves and vandals who can greatly devalue a home in a matter of hours.

The only way to get people to stay in the homes is to pass legislation that regulates the language that the banks use in the initial letters and phone calls. Most people in danger of losing their homes disregard the informational documents that come in the same envelope as a threatening letter, Carney said.

“They pack up and leave because they are good, hard-working people and they are trying not to get in more trouble,” Carney said.

In the letters and phone calls, banks tell homeowners that if they can’t catch up on payments in a certain time frame that they have to leave the house.

“It’s really not a true statement,” Carney said. “They don’t have to vacate the house. They can go to court. They can file a stay. They can do a lot of things.”

Often the foreclosure process is initiated computer systems that send up red flags. Threatening letters and phone calls come before the bank ever considers whether it will be fruitful to foreclose on a particular property. Only after foreclosing will the bank send out a team to inspect the property, Carney said.

“Do it before you foreclose,” Carney said. “Go out and see if the house is really worth it.”

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There are cases in which banks have completed a foreclosure and then had the foreclosure reversed years later. A bank can file motions to vacate a judgment of foreclosure in county court. The courts send notices out to the mortgagor’s last known address and nobody shows up to fight the reversal, Carney said.

“So the banks have a default to undo any foreclosure that they’ve already done,” Carney said.

For example, 111 Miller Avenue, which now sits boarded up with missing porch railings and peeling paint, was taken in a foreclosure proceeding in May 2005. Unable to pay back taxes, Jacquline Knowles lost the house to the State of New York Municipal Bond Banking Agency, a subsidiary of the Empire State Development Corporation created to help municipalities provide affordable housing.

After failing to sell the house in an auction, the MBBA filed a motion to vacate the judgment of foreclosure, reverting control of the property to Knowles.

But Knowles never knew that she had regained control of the house. Records indicate that Knowles was not present in court for any of the proceedings in the vacation of the judgment of foreclosure and her signature doesn’t appear in any of that paperwork. She now faces a long list of violations in housing court and will have to pay for the demolition of the house if the Office of Permits and Inspections decides to take it down.

The Miller Avenue home is not on the most recent demolition list, but if neither party works to fix the house it will likely end up in a landfill and Knowles will be stuck with the bill.

The MBBA should be the one to fix the house or pay the demolition costs, said Lester Sconiers, an attorney representing Knowles in housing court.

“She was told by a representative of MBBA that they had purchased it and that she was not to collect any more rent from tenants, and so she didn’t,” Sconiers said.

The MBBA knew what they were doing when they requested a vacation of the judgment of foreclosure, Sconiers said.

When a bank begins a foreclosure they appoint a referee, an attorney, picked by the bank (or in this case by MBBA) to be an objective third party throughout the process. The referee signs necessary paperwork and holds onto important documents—most importantly the deed to the house.

The referee doesn’t deliver the deed to the bank until the bank decides whether to take ownership of a property. This allows the bank to claim that it never took ownership of the house, a move that allows them to vacate a judgment of foreclosure.

“It’s been my experience that in a foreclosure action, the plaintiff’s lawyer prepares all the documents, including the referee’s deed,” Sconiers said. “It’s been disingenuous because they know to control the paperwork is what they are obligated to do.”

The MBBA should not have been able to vacate ownership of the property when they did because the agency took too long to file a motion after filing the judgment of foreclosure, Sconiers said.

“The kicker here is that expressly in the statute it bars reopening default judgments past one month, and in the Knowles case it was something like 17 months,” Sconiers said.

As part of a sworn affidavit provided in the paperwork to vacate the foreclosure, the MBBA writes that they never received the deed from the referee, and that this is grounds for the judgment of foreclosure to be vacated.

State Supreme Court Judge Frank Sedita Jr. granted the vacation of foreclosure to the MBBA. This case was not as cut-and-dry as most of the motions to vacate a foreclosure that he has seen over the years, Sedita said. The transcripts from the proceedings have since been discarded. But Sedita believes that this was a case of the MBBA forgiving the tax liens against the house and giving Knowles her property back.

However, Sedita has seen many cases where a bank will motion to vacate a foreclosure after deciding that they don’t want a property, he said.

“What some of the judges have done here, including me, [is] insist that the corporation counsel and the attorney general’s office be notified,” Sedita said.

It is a good idea to get all parties with an interest in a case—the city’s lawyers, the housing court judge, the county judge—to look at a case before granting a vacation of foreclosure, Sedita said.

Knowles continues to be listed as the owner of 111 Miller Avenue on the city’s property information database. So while she and the MBBA battle in court over responsibility for the property and its liabilities, the house falls further into disrepair, with the wrecking ball looming.

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M&T does investigate a property before starting a foreclosure process, said Mike Zabel, a spokesman for the bank.

“We are very committed to making sure that we do not initiate a foreclosure unless we are ready and prepared to complete that process and, throughout it all, really take a sense of responsibility for that property,” Zabel said.

M&T makes a point of working with mortgagors to keep them in their homes, particularly since the mortgage crisis started taking hold, Zabel said.

“The world has changed a lot since 1999, and what we know today may not be exactly what we knew then,” Zabel said.

Zabel stressed that keeping homeowners in their homes was the best possible outcome for both the borrower and the bank. “We’ve spent a lot of time training and working with our team of people to make that connection and to get them to communicate,” Zabel said. “If you’re building a line of communication, you have a chance to work something out and keep somebody in their home.”

M&T has been working with the courts and the city to try to remedy this problem, Zabel said.

“We’ve got a team of folks who work pretty hard on these issues with folks who are having issues with their mortgage payments, Zabel said. “Our problems in that area are far smaller than some of the other big companies.”

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The Upper Room Church of God and Christ, a small church made of large, grey stones, sits on the corner of Jefferson Street and Florida Street. Reverend Daniel Benning, who runs the church, has been worshiping there for the last 30 years and has been Reverend for the last 12.

Benning plays another important role in his community. He has been serving as a Masten District housing court liaison for eight years. As a liaison he is charged with the task of being an intermediary between the court and the community.

Benning has seen first-hand what happens to vacant homes in poorer areas of the city when they are not properly secured or watched over. East of the church on Florida Street Benning has been in a house that looks normal on the outside. He was astonished by what he found after walking through the door, he said.

“We went into the house and it was just a shell,” Benning said. “The house was stripped down to the rafters in the attic and down to the insulation. It was incredible.”

Thieves will take anything that might get them a buck. “People go in and take the pipes, the copper, whatever,” Benning said. “A kitchen sink, a bathroom sink, a tub, boilers, windows, furnaces.”

What concerns Benning the most is that he has such a hard time getting people to come forward with information about the people doing the stripping.

“Nobody sees this?” Benning asked. “Nobody hears this? Really? Are you kidding me?”

A large part of preventing homes from ever becoming vacant is getting the right information in the hands of people facing foreclosure, Benning said.

There is little incentive for people who have seen the beginning of a foreclosure to invest more money on their home. If they make all of the repairs, but are unable to catch up with their mortgage payments in a time frame that satisfies the bank, then the bank still has every right to take the home.

Benning has seen cases where a homeowner made repairs to satisfy housing court violations only to be padlocked out again. One solution that Benning works toward is for foreclosed homes to be put in the hands of first-time buyers. But there are problems there, too. Some of the younger members of Benning’s community have trouble getting a loan, he said.

“What I’ve found is that some of the new generation are well qualified but they have no history of credit,” Benning said.

Benning admits that not everyone can afford a home. He looks long and hard at prospective owners before helping them through the application process.

“I will not suggest or recommend anyone who cannot afford it,” Benning said. “We do screening, very in-depth screening. I want to know: Can you handle this?”

Benning will continue to look for homeowners for the vacant buildings in the Masten district, he said.

“It’s quite frustrating at times, but it’s worth the fight,” Benning said. “Because if you just give up on the communities, what are you going to have after a while? A desolate city.”

Employees at the Western New York Law Center, a not-for-profit group that provides representation and legal advice to low-income residents, deal with people being threatened with foreclosure daily.

Joy McDuffie, the manager of the center’s Mortgage Delinquency and Default Resolution Program and a member of the city’s Anti-Flipping Task Force, finds that people facing foreclosure are often scared.

“Their whole purpose of their letter is to put some fear of god in you so that you will pay,” McDuffie said. She has had to convince people to open letters from the bank so that she could help them, McDuffie said. One woman refused to open a letter from her bank even while being asked to do so over the phone.

The Western New York Law Center has started sending out postcards instead of letters to people facing foreclosure so that they won’t have to open an envelope to see the information regarding their options.

Foreclosures in areas with a high demand are quickly bought up. Foreclosures in distressed neighborhoods are often abandoned.

“It’s not the foreclosure itself,” McDuffie said. “It’s the foreclosure in a distressed community. Because when a foreclosure happens in a healthy community, someone is buying up the property. They’re eager to buy it. They’re getting a bargain on it.”

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Back at their Main Street apartment, the Rays worry about having to go downtown to the courthouse again. Going downtown exacerbates Arthur’s emphysema.

Both he and Brenda said that, even if they had the means, they would never become homeowners again. They look back on their only home-owning experience with regret.

“I didn’t get to enjoy none of it,” Arthur said. “But I’m still paying for it.”