Governor Patterson signed Governor’s Program Bill #44 into law today as it was passed by the NY Assembly (A.10817-A) and Senate (S.8143-A). The law affects notice provisions in foreclosure actions including extending a “grace period” by adding a 90 Day Pre-Foreclosure Notice. It also extends restrictions and prohibitions to “subprime mortgages”, mortgage brokers, prohibits prepayment penalties on high-cost and subprime mortgages, and criminalizes residential mortgage fraud. Lastly, it institutes certain requirements and restrictions on “Distressed Property Consultants” (those who seek to negotiate short sales, loan modifications etc.) including numerous strict requirements such as requiring written, notarized contracts with a right to cancel, prohibiting collection of upfront fees or collecting Powers of Attorney from distressed homeowners etc. Attorneys, non-profit organizations, and lenders are exempt from these requirements. , The NY legislative site contains the following summary:
SUMMARY:
FARLEY, MALTESE, PADAVAN, FLANAGAN, GOLDEN, LANZA, MORAHAN, RATH, TRUNZO
Amd SS1303 & 1302, add S1304, RPAP L; add R3408, CPLR; amd Bank L, generally; amd S5-501, Gen Ob L; add Art 187 SS187.00 - 187.25, amd S460.10, Pen L; amd S700.05, CP L; add S265-b, RP L
Requires lender and mortgage loan servicers to give borrowers with high-cost home loans or higher-priced home loans ninety days notice before certain actions are taken; establishes all home loans shall be subject to certain standards and limitations; creates the crimes of residential mortgage fraud in the first, second, third, fourth and fifth degrees; relates to distressed property consulting contracts.
CRIMINAL SANCTION IMPACT.
Governor's Program
The bill provides new protections for foreclosures of high cost loans. subprime home loans and non-traditional home loans. See new RPAPL 1304, and definition of Lender in(5)(g) which seems to exclude the occasional private lender. However , the bill would also amend the form of notice currently required to be issued in the foreclosure of 1-4 family owner occupied residential properties per RPAPL 1303 and it adds a new Rule 3408 re mandatory judicial conferences in certain foreclosure actions. You would need to look at the definitions in each of these provisions to see if private lenders are " exempt."
The following is a link to the legislative web site where you can obtain a copy of the bill and the memorandum in support :
http://public.leginfo.state.ny.us/menugetf.cgi (enter in the bill number: A.10817-A).
The Empire Justice Center, which advocates on behalf of New Yorkers, has provided a preliminary summary of the pertinent parts of the new law and provides an excellent starting point for digesting the contents of this sweeping change to our real property laws:
Phone 518.462.6831 ¿ Fax 518.462.6687
Foreclosure Prevention and Responsible Lending Act of 2008
Summary of Program Bill #44 (A.10817-A/S.8143-A)
Sec. 1 - Amendment to Notice Required Under the Home Equity Theft Prevention Act (amends RPAPL § 1303)
Amends the notice required under the Home Equity Theft Prevention Act (RPAPL § 1303) to include language advising the homeowner to immediately contact a lawyer or legal aid office upon receipt of the summons and complaint to obtain advice on how to protect themselves. Language also is added to warn homeowners about a broader array of foreclosure rescue scams. The amended notice must be included with the foreclosure summons and complaint starting September 1, 2008.
Sec. 2 - Ninety-Day Pre-Foreclosure Notice (adds RPAPL § 1304)
Starting September 1, 2008, lenders or mortgage loan servicers will be required to send homeowners with high-cost,[i] subprime,[ii] and non-traditional[iii] home loans a notice at least 90 days prior to the commencement of a legal action. Notices must be sent to the borrower by registered or certified mail and by first-class mail, to the last known address of the borrower.
Notice language is set forth in the Act and must be in fourteen-point font. The notice must state the number of days in default, the amount owed and the telephone number of the lender or servicer. If the matter is not resolved in 90 days the lender can take action against the homeowner. The lender or servicer must attach a list of at least five government approved housing counseling agencies in the homeowner’s geographic region that provide free or low-cost counseling.[iv] The notice directs the homeowner to call the Banking Department’s Toll-Free Helpline or go to their website for more information.
The 90-day period generally does not apply to mortgagors in bankruptcy, or if the borrower does not occupy that residence as their principal dwelling. The notice and the ninety-day period must be provided once per year to the same borrower for the same loan.
Remedies: A defendant may raise a violation of this section as a defense to a foreclosure action.
Sec. 3 - Mandatory Settlement Conferences (amends CPLR Rule 3408)
Effective September 1, 2008, for residential foreclosure actions involving a high-cost home loan created between January 1, 2003 and September 1, 2008, or a subprime,[v] or a nontraditional[vi] loan where the defendant is a resident of the property, there must be a mandatory conference held by the court, within sixty days after the date proof of service of the foreclosure is filed with the county clerk, or on an adjourned date agreed to by the parties. If the defendant appears pro se at the conference, the court may assign counsel. The plaintiff may appear in person or by counsel, but if appearing by counsel the representative must be fully authorized to dispose of the case. The court may allow the plaintiff’s representative to participate by telephone or video conference.
For foreclosure actions which began prior to September 1, 2008, but where there is no final order of judgment, the defendant has a right to request a settlement conference. The court shall request the plaintiff to identify if the loan is a high-cost or subprime loan and will send a notice to the defendant. When requested, the conference must be held as soon as practicable.
Sec. 4 - High-Cost Home Loans (amends Banking Law § 6-1)
Additional prohibitions on “high-cost home loans”[vii] are added to Banking Law § 6-l, effective September 1, 2008, including a ban on payment option loans, prepayment penalties, teaser rates with a duration less than six months, and yield spread premiums (unless properly disclosed and used to offset up front costs). Lenders also are required to disclose the taxes and insurance payment when they first present a potential monthly payment. Starting July 1, 2010, lenders will be required to escrow for taxes and insurance.[viii]
Remedies: Remedies for violations of Banking Law § 6-l remain the same. These include actual, consequential and incidental damages, statutory damages, rescission, injunctive, declaratory or other equitable relief, and attorneys’ fees, depending on the nature of the violation. Defendants may raise violations as a defense to a foreclosure action, as well. The Attorney General and Superintendent of the Banking Department (“Superintendent”) are authorized to enforce the law.
Sec. 5 - Subprime Home Loans (adds Banking Law § 6-m)
Prohibitions and regulations are extended to “subprime home loans,”[ix] effective September 1, 2008. Generally the prohibitions and regulations are the same as set forth for “high-cost home loans” including: no negatively amortizing loans, including payment option loans; no financing insurance or other products unrelated to loan; no refinancing special mortgages; no loan flipping; no kickbacks or other payments to mortgage brokers for services not rendered, or not reasonably related to the value of good or services; no yield spread premiums that do not offset up front costs and are not properly disclosed; no prepayment penalties; and no teaser rates with a duration of less than six months. Additional prohibitions are set forth in the Act.
Lenders making subprime loans must verify that the borrower has the ability to repay the loan, taking into account escrow payments, current and expected income, credit history, current obligations, employment status and other financial resources apart from the home. If the loan is an adjustable rate mortgage (ARM), payment ability must be based on the monthly payment calculated at the fully indexed rate.[x]
Lenders must provide borrowers a counseling notice with a list of counselors, similar to the notice provided for “high-cost” loans and must disclose the taxes and insurance payment amount the first time borrower is informed of monthly payment amount. Starting July 1, 2010, lenders will be required to escrow for taxes and insurance. Subprime home loans must include a legend at the top that the mortgage is a subprime home loan subject to Banking Law § 6-m. Lenders are also explicitly prohibited from splitting loans or otherwise attempting in bad faith to avoid coverage under the act.
Remedies: Borrowers are entitled to actual damages for violations of Banking Law § 6-m, and may also be awarded injunctive, declaratory and such other equitable relief the court deems appropriate in an action to enforce compliance with this the law. Borrowers may raise violations as a defense to a foreclosure action and the court may award, in addition to other damages, attorneys’ fees to the defendant. The Attorney General and Superintendent also may bring enforcement actions.
Secs. 6, 13 - Restrictions on Mortgage Brokers (adds Banking Law § 590-b)
Mortgage brokers must act in the borrower’s interest, with reasonable skill, care and diligence and in good faith and with fair dealing. Brokers are prohibited from directly or indirectly accepting, giving or charging any undisclosed compensation, and must clearly disclose to the borrower within three days of the loan application all material information that could affect the borrower’s ability to get the loan. Brokers must present borrowers with a range of potential appropriate loan products. Mortgage brokers and lenders, are prohibited from improperly influencing or attempting to influence the appraisal process relating to a home loan.
Remedies: Borrowers are entitled to actual damages, injunctive, declaratory and other equitable relief deemed appropriate by a court for violations of these duties by the broker, or for violations by a lender of the appraisal provisions. The law allows for a prevailing defendant in a foreclosure action to be awarded attorneys’ fees, implying a right to raise violations as part of a foreclosure defense. The Attorney General and the Superintendent may bring enforcement actions.
Secs. 7 – 12, and 14-16 - Regulation of Mortgage Loan Servicers.
Mortgage loan servicers must be registered with the Superintendent, effective July 1, 2009. The Superintendent must set up registration procedures, and is authorized to promulgate regulations for servicers including requirements for disclosures to homeowners regarding interest rate resets; requirements regarding pay-off statements time frames for which servicers must apply payments; and requirements for servicers to file reports with the Banking Department. Also, the right of the Superintendent to examine the business records of licensees, and related provisions regarding business practice, are extended to cover servicers.
Remedies: The Banking Board may prescribe regulations, as well, including grounds for the imposition of fines or other penalty. Other remedies are available to the Superintendent and the Banking Board already available in law for violations by other registered entities including an additional penalty to be paid to the people of
Sec. 17 - Affirmative Allegation of Standing (amends RPAPL § 1302)
Foreclosure complaints filed on or after September 1, 2008 for high-cost and subprime home loans must include an affirmative allegation that at the time the proceeding was commenced, the plaintiff was the owner and holder of the subject mortgage and note, or has authority to institute the foreclosure lawsuit. The plaintiff also must aver that they have complied with Banking Law Section 595-a and its regulations, Banking Law § 6-1 and § 6-m, and with the 90 day notice provision (RPAPL Sec. 1304).
Sec. 18 – Prepayment Penalties (amends General Obligations Law, § 5-501(3)(b))
Amends current prohibition on prepayment penalties on home loans that are prepaid after one year from the date of loan origination, to specify that “high-cost” and “subprime” loans cannot contain any prepayment penalties, pursuant to Banking Law § 6-l or § 6-m.
Secs. 19–25 - Criminalization of “Residential Mortgage Fraud” (Penal Law Article § 187)
“Residential mortgage fraud” becomes a new criminal action for fraudulent loans originated on or after November 1, 2008. The crime is committed by any person who prepares or provides materially false information for purposes of getting a loan, or in filing documents containing false information with a county clerk.[xi] Borrowers applying for a residential mortgage loan who intend to live in the property are exempted from the definition, unless they act as an accessory.
Penalties: Penalties vary based on the compensation received by the offender and range from a Class A misdemeanor to a Class B felony. Various sections of Criminal Procedure Law, Penal Law and the Banking Law are amended to include “residential mortgage fraud” within their coverage.
Sec. 26 - Requirements for “Distressed Property Consultants” (adds Real Property Law § 265-b)
“Distressed property consultants” solicit homeowners in default and promise to help them with a work-out, responding to a complaint, or other activities regarding negotiating with the lender. The definition does not include attorneys, lenders generally, and bona fide not-for-profits such as housing counseling and legal services agencies.
Effective September 1, 2008, there must be a written contract between the consultant and the homeowner that sets forth the nature of the service, compensation expected and contact information for the consultant. The homeowner has a right to cancel the contract within five days and must be given a notice of their right to rescind, referrals to non-profit and government agencies, along with two copies of a “Notice of Cancellation” form that the homeowner may use to cancel the contract (language for the notice and form is set forth in the bill). Consultants are prohibited from receiving payment for services before the full completion of such services, taking power of attorney from the homeowner and retaining original loan documents of the homeowner, among other things.
Remedies: Violation may result in voidance of the contract, as well as actual and consequential damages and costs should the homeowner be harmed. If the violation was intentional or reckless, a court may award treble damages and attorneys’ fees. The Attorney General also may bring an action, including an action to enjoin the offender.
[i] “High cost home loan” is defined in Banking Law 6-l as a loan incurred for personal, family or household purposes, secured by a mortgage or deed of trust on real estate upon which there is located or there is to be located a one to four family home or the borrower’s principal dwelling. The property must be located in NY and the principal balance cannot exceed the lesser of the conforming loan size limit for a comparable dwelling as established by the federal national mortgage association, or $300,000. The terms of the loan must exceed one or more thresholds to be considered “high-cost”: (1) for first lien loans, the annual percentage rate (APR) exceeds 8 percentage points over the yield on treasury securities having comparable periods of maturity to the loan, measured as the fifteenth day of the month immediately preceding the month in which the application for the loan is made; for subordinate lien loans, the APR exceeds 9 percentage points; and/or (2) total points and fees, as defined by the law, exceed 5% of the loan for conventional loans, or 6% of FHA or VA loans if the loan is $50,000 or more; or total points and fees exceed the greater of 6% of the loan or $1,500 for loans less than $50,000. Open-end credit plans are included though reverse mortgages are excluded.
[ii] For purposes of this section, “subprime home loan” is defined as a home loan originated between January 1, 2003 and September 1, 2008 where the terms of the loan are in excess of the threshold. Excluded from the definition are construction loans, temporary loans with a term of twelve months or less, and home equity lines of credit. The threshold for a first lien mortgage loan is when the annual percentage rate (APR) of the home loan when originated, exceeds 3 percentage points over the yield on treasury securities which have similar periods of maturity to the loan maturity on the fifteenth day of the month that the loan was created consummated, or exceeds 5 percentage points for subordinate lien loans. If the APR will rise after an introductory period (such as in the typical case of subprime adjustable rate mortgages), the APR to be considered is the one that applies after the introductory period ends. The threshold will be determined based on the listing of constant maturity yields for U.S. Treasury securities, published on the Banking Department’s website. (The listing will include the securities for all months between January 1, 2003 and September 1, 2008.)
[iii] “Non-traditional home loan” is defined as a payment option adjustable rate mortgage or interest only loan created between January 1, 2003 and September 1, 2008.
[iv] Agencies will include U.S. Dept of Housing and Urban Dev. Approved Housing Counseling Agencies or other such agencies as designated by the division of Housing and Community Renewal (DHCR). The list will be provided to lenders by the NYS Banking Department and/or DHCR.
[v] See supra note ii for definition of “subprime home loan” for purposes of this section.
[vi] See supra note iii for definition of “non-traditional home loan” for purposes of this section.
[vii] See supra note i for definition of “high-cost home loan.”
[viii] At that time, the notice already required by Banking Law § 6-1, given to borrowers at least ten days prior to closing cautioning them that they are being sold a high-cost home loan, will be amended to delete current language that tells borrowers that they may be separately responsible for tax and insurance payments.[viii]
[ix] For purposes of this section, “subprime home loan” is defined as a home loan in which the fully indexed annual percentage rate exceeds more than one and three-quarters (1.75) percentage points for first-lien loans, and three and three-quarters percentage points (3.75) for subordinate lien loans, the average commitment rate for loans in the northeast region with a comparable duration (as published by the Federal Home Loan Mortgage Corporation (Freddie Mac) in its weekly primary mortgage market survey (PMMS), as posted the week prior to the week the lender receives the loan application. Subprime home loans do not include construction, bridge loans with a term of twelve months or less, or home equity lines of credit. The “fully indexed rate” applies to adjustable rate mortgages that have an initial fixed interest rate that adjusts, based on a market index, after a period of time. The “fully indexed rate” is calculated by determining the index at the time of loan origination and adding the margin, set forth in the Note.
[x] See supra note ix for explanation of “fully indexed rate.”
[xi] “Residential mortgage fraud” is defined as “knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be used in soliciting an application for a residential mortgage loan, or in applying for, the underwriting of, or closing of a residential mortgage loan, or in documents filed with a county clerk of any county in the state arising out of and related to the closing of a residential mortgage loan, any written statement which he or she knows to: (A) contain materially false information concerning any fact material thereto; or (B) conceal, for the purpose of misleading, information concerning any fact material thereto.”
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