When Land Rent Comes Due: Long Island Homeowners Face a Hidden Foreclosure Crisis That Could Leave Them Homeless and Broke
Long Island homeowners living in ground lease properties face a unique and potentially devastating financial crisis that most property owners never see coming. Unlike traditional foreclosures that stem from mortgage defaults, ground lease foreclosures occur when homeowners can’t afford the escalating land rent payments on property they thought they owned outright. A land-lease – also known as a lease-hold or a ground-lease – is an unusual arrangement in which a cooperative or condominium owns its building but pays rent on the land it sits on. In New York City, while most buildings possess the land they’re built on, approximately 100 properties operate under a land or ground lease agreement.
The Hidden Time Bomb in Your Property Deed
Ground lease arrangements create a ticking time bomb for homeowners. When a co-op’s long-term ground lease is set to expire, landowners have often demanded a significant increase in rent correlating with the often higher market value of the building. This rent hike can make it difficult for residential and commercial co-op unit owners to sell their apartments near the end of a ground lease, and the purchase prices of these apartments are generally 20-30% below market value due to the foreseeability of these hikes and likely higher maintenance fees.
The consequences can be catastrophic for homeowners. A number of cooperative buildings with ground leases coming up for renewal in the coming years face default due to the rent increases being demanded; this would leave the longtime shareholders without their homes or any equity while still owning mortgages on units that no longer exist. This creates a nightmare scenario where homeowners lose their homes but remain responsible for mortgage payments on properties they can no longer occupy.
2024 Legislative Developments and Ongoing Challenges
New York lawmakers have recognized the severity of this crisis. The more limited bill sponsored by Senator Toby Ann Stavisky and Assembly member Linda Rosenthal (the “SR Bill”) that relaxes contractual limitations on extensions and renewals, was successfully passed. The SR Bill enables ground lease residential co-ops to extend or renew their leases at any point, provided their leases allow such extensions or renewals at the sole option of the tenant co-ops.
However, more comprehensive protection remains elusive. Supporters of the failed KR Bill argued that it would have helped protect homeowners from extreme rent increases and prevented them from facing foreclosure and possible bankruptcy. The ongoing legislative battles highlight the urgent need for homeowner protection in ground lease situations.
The Foreclosure Process and Lender Protections
Ground lease foreclosures present unique challenges compared to traditional mortgage foreclosures. A loan secured by a ground lease has more inherent risk than a loan secured by a fee simple interest in the same real property. The reason is simple; a ground lease can be terminated, whereas fee simple ownership is typically not terminable. If a ground lease is terminated, a lender’s lien is also terminated, and the lender then becomes an unsecured creditor of the ground lessee.
The complexity increases when lenders need to foreclose. If leasehold lender had to foreclose on its collateral, the marketability of a leasehold interest in a property is significantly less than a fee interest. Assignability and subletting rights for ground tenant (and leasehold lender) that provide a leasehold lender the opportunity to sell or sublease the leasehold position under the ground lease after a foreclosure.
Warning Signs and Protective Measures
Homeowners should be alert to several red flags. Many owners of the land under ground lease cooperatives have also refused to allow buildings to borrow money required to perform critical repairs and/or capital improvements. Numerous ground leases contain language explicitly prohibiting cooperatives from taking on debt over certain levels regardless of the circumstances. These restrictions can prevent buildings from maintaining themselves properly or making necessary improvements.
The investment strategy behind some ground leases is particularly troubling. In certain cases, the land under ground lease cooperatives has even been explicitly marketed to prospective investors as an opportunity to obtain a prime development site for a new luxury building once the existing residential cooperative is unable to pay the rent demanded up on lease renewal, goes into default, and is eventually demolished.
Legal Solutions and Professional Assistance
When facing ground lease default and potential foreclosure, homeowners need experienced legal representation. Professional legal assistance can help navigate the complex intersection of real estate law, bankruptcy protection, and foreclosure defense. If the defendants are represented by attorneys, like the Law Office of Ronald D. Weiss, P.C., which is able to represent them in several possible foreclosure solutions, including litigation, modification, negotiation, real estate, and/or bankruptcy solutions, the defendants increase their time at the property, potential options for a resolution and ending of the foreclosure. Our firm is particularly adept in defending the foreclosure, as well as seeking out alternative solutions.
For Long Island homeowners facing ground lease complications, working with a qualified Foreclosure Lawyer Long Island can provide crucial protection. Our office is centrally located for easy access throughout Long Island. Six (6) veteran attorneys with many years of combined legal experience. With over 30 legal professionals on our team, we have the resources to handle your important legal matter.
Immediate Steps for Homeowners at Risk
If you suspect your property operates under a ground lease or are facing escalating land rent payments, take immediate action. If you believe that you many need an Order to Show Cause, especially if there is a scheduled foreclosure sale date, then time is of the essence and you should contact us immediately to review your options. Stopping foreclosure sales with a bankruptcy case or an emergency Order to Show Cause requires knowledge, experience and assertiveness.
Emergency legal remedies are available to stop foreclosure proceedings. There are two main ways to stop a foreclosure proceeding: a) by filing a bankruptcy case the automatic stay of the bankruptcy would stop the sale, and b) by filing an emergency Order to Show Cause, the stay of the Order to Show, cause if granted, would also stop the sale. A bankruptcy case has the advantage of providing a sense of certainty by immediately stopping a foreclosure process and any possible actions within the foreclosure litigation such as a foreclosure sale.
Ground lease foreclosures represent a growing threat to Long Island homeowners who may not even realize their vulnerability. As property values continue to rise and ground lease renewal dates approach, more families face the devastating prospect of losing their homes while remaining liable for mortgage payments. Understanding your rights, recognizing warning signs, and securing experienced legal representation can make the difference between financial ruin and successful resolution of ground lease challenges.