THE FORECLOSURE AND AUCTION PROCESS

Condo Foreclosures
A condominium is valued as real property rather than as shares in a cooperative corporation, and so property law applies. In a typical condo scenario, says Ryan Slack, CEO of the real estate information site PropertyShark.com, "someone's in over their head and stops paying the mortgage. After three months of delinquency, they go into default, and the bank sues them. In New York State, you have to go through the courts to foreclose, so a case gets filed at the supreme court and there's a series of notices and affidavits that usually take six to eighteen months."
If the judge finds in favor of the plaintiff, he assigns a referee to conduct a foreclosure auction. "It's published that there's going to be an auction," Slack says, "and four to five weeks later there is, and highest bidder gets the property. They have to put 10 percent down and close within 30 days."
That time frame is a best case scenario, says attorney James Samson, a partner at Samson Fink & Dubow. "With a condo, even an uncontested foreclosure can take four or five years," he says, "during which time they're not paying common charges or real-estate taxes. Although," he notes, "you can petition for the actual cost of maintaining the property — paying for the heat, keeping it insured, things like that."
Another problem is that with condos, the mortgage-holder gets first crack at the proceeds. Only if there's anything left can the condo association recoup its common-charge arrears. The solution, says veteran real estate attorney Stuart Saft, a partner at Dewey & LeBoeuf, is for the condo to "file a lien against the unit for unpaid common charges, commence a lien foreclosure, and ask the court to appoint a receiver and have the receiver rent out the apartment and use that rent to pay the common charges while waiting for the bank foreclosure to be over."
Co-op Foreclosures
With co-ops, what is colloquially called a mortgage is actually a home loan under the Universal Commercial Code (UCC). A shareholder lives in the co-op unit as, technically, a tenant under the building's overall proprietary lease. Since a co-op doesn't fall under real property law, this means you can do a "non-judicial foreclosure," which, says Samson, takes only about six months.
Co-op foreclosure auctions, which generally don't need to be arranged by a court, use a traditional auctioneer.

— Frank Lovece