Pt II: So You're a Distressed Property Consultant: How to Stay Compliant with NY's Foreclosure Prevention & Responsible Lending Act of 2008

Back on July 29, 2009, I authored a discussion on what activities and/or circumstances would cause a service provider to be labeled a Distressed Property Consultant under New York's Foreclosure Prevention & Responsible Lending Act of 2008.  Please review that discussion and keep in mind the exceptions when it comes to the Homeowner as well as the Consultant. I promised a Part II to review compliance if you are a Distressed Property Consultant and, well, better late than never! If you know me personally, you are aware of the circumstances of the past few months and as such, I am sure understand the delay.

Section 265-b enumerates which activities are forbidden to Distressed Property Consultants:

1. Providing services without a written, fully signed contract with a homeowner;

2. Charging or collecting payment from a homeowner before completion of services;

3. Taking a Power of Attorney from a homeowner;

4. Keeping any original Loan Documents or any original documents relating to the distressed home loan;and

5. Inducing a Homeowner to executing a Contract that does not comply with the provisions of the Act.

The Contract

Section 265-b lists very specific requirements when it comes to the Contract for Distressed Consultant Services.  First, it must be in writing and must contain the entire agreement of the parties.  Therefore, oral agreements pre- and post-contract are not enforceable and the agreement is enforceable only as to those provisions contained within the four corners of the written Contract.  Also, the proposed Contract must be provided to the homeowner, in advance, for his review. 

Content & Form

The NY legislature laid out very specific requirements as to the form and content of the Distressed Consultant Contract.  First, as to the font, it must be in at least 12 point type and in the same language that was used between the Consultant and the Homeowner to discuss the Consultant's services.  For example, if the parties conversed in Spanish about the proposed services, then the resulting written contract must be in Spanish.

The Contract must provide full disclosure.  It must include:

1. the exact nature of the services to be provided by the Consultant and anyone who is associated with the consultant;

2. the total amount and terms of compensation for such services;

3. the name, business address, and telephone number of the distressed property consultant and the address (if different), phone & fax number or email address of the distressed property consultant where the homeowner can send communications to the consultant;

4. it must be dated and personally signed by the homeowner and the distressed property consultant before a Notary Public;

5. It cannot limit the liability of the Distressed Property Consultant nor waive any provisions under this Statute and cannot require arbitration of any dispute arising under the Contract;

6. it must contain a specific Right to Cancel:

    a. 14 point boldface type;

    b. Containing the following language with the Distressed Property Consultant accurately entering the date the right to cancel ends and his name -

NOTICE REQUIRED BY LAW

YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION AT ANYTIME BEFORE MIDNIGHT OF _________________________ (FIFTH BUSINESS DAY AFTER EXECUTION).

_______________________________________ (THE"CONSULTANT") OR ANYONE WORKING FOR THE CONSULTANT, MAY NOT TAKE ANY MONEY FROM YOU OR ASK YOU FOR MONEY UNTIL THE CONSULTANT HAS COMPLETELY FINISHED DOING EVERYTHING THIS CONTRACT SAYS THE CONSULTANT WILL DO.

YOU SHOULD CONSIDER CONSULTING AN ATTORNEY OR A GOVERNMENT-APPROVED HOUSING COUNSELOR BEFORE SIGNING ANY LEGAL DOCUMENT CONCERNING YOUR HOME. IT IS ADVISABLE THAT YOU FIND YOUR OWN ATTORNEY, AND NOT CONSULT WITH AN ATTORNEY RECOMMENDED OR PROVIDED TO YOU BY THE CONSULTANT. A LIST OF HOUSING COUNSELORS MAY BE FOUND ON A THE WEBSITE OF THE NEW YORK STATE BANKING DEPARTMENT, www.banking.state.ny.us OR BY CALLING THE BANKING DEPARTMENT TOLL FREE AT 1-877-BANK-NYS (1-877-226-5697).  THE LAW REQUIRES THAT THIS CONTRACT CONTAIN THE ENTIRE AGREEMENT BETWEEN YOU AND THE CONSULTANT. YOU SHOULD NOT RELY ON ANY ORAL AGREEMENT OR PROMISE.

    c. The date for the Right to Cancel: it is midnight of the 5th business day following the day the Contract was executed by both parties.

    d. Notice of Cancellation:

        1. must be in writing and delivered by the homeowner or the homeowner's representative, to the Property Consultant to the address, fax or email address specified in the notice.

        2. The Contract must include (2) copies of a Notice of Cancellation in the following form:

NOTICE OF CANCELLATION

YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE MIDNIGHT OF _____________________________ (ENTER DATE).

TO CANCEL THIS CONTRACT, SIGN AND DATE BOTH COPIES OF THIS CANCELLATION NOTICE AND PERSONALLY DELIVER ONE COPY OR SEND IT BY FACSIMILE, UNITED STATES MAIL OR ANY ESTABLISHED COMMERCIAL LETTER DELIVERY SERVICE, INDICATING CANCELLATION TO THE DISTRESSED PROPERTY CONSULTANT AT ONE OF THE FOLLOWING:

NAME OF CONTRACTOR: ________________________________
STREET ADDRESS:______________________________________
CITY, STATE, ZIP:______________________________________
FACSIMILE:___________________________________________

I HEREBY CANCEL THIS CONTRACT

Name of Homeowner: ___________________________________________

Signature of Homeowner:________________________________________

Date:_________________________________________________________

    e. Compliance with Notice of Cancellation: If a Distressed Property Consultant receives the Notice of Cancellation within the proscribed time frame, the Consultant must, within (10) days, return the original Contract and any other documents signed by the Homeowner to the Homeowner.  Cancellation, of course, releases the homeowner from any obligation to pay the Distressed Property Consultant.

PENALTIES FOR VIOLATION

If a Distressed Property Consultant violates this Statute, the legislature has crafted the following penalties:

1. Court can declare Contract to be null and void;

2. If the homeowner incurs damages because of the violation, the homeowner can recover actual and consequential damages, as well as costs, from the Consultant;

3. If the Consultant intentionally or recklessly violates the provisions of this Statute, the Court can award to the homeowner treble (3x) damages, attorney's fees and costs;

4. An application can be made by the Attorney General to issue an injunction forcing the Consultant to cease and desist from engaging in future distressed consulting activities without requiring proof that any person has been injured or damaged and also can require restitution; and

5. The court can fine the Consultant not more than $10,000 for each violation.

There you have it - if you are offering any type of services to a Homeowner who is behind on their mortgage, real estate taxes etc., first determine if you are a Distressed Property Consultant (and not a member of an exempt category) and if your Homeowner and their financial distress is covered by the Statute.  If so, make sure you are in compliance by following the tenets outlined above.  The penalties can be severe but at least now, you have an outline for a plan of compliance.

Comments

[Cecil]

Hey Kathy,

For those who may not know, what is their definition of a "Distressed Property Consultant"?

[Kathleen Scanlon]

I'm sorry Cecil if I didn't make this as clear as I should have - I discussed what constituted a Distressed Property Consultant in my July 29, 2009 post - here is the permalink: http://realestatelaw.typepad.com/where_is_blackacre_anyway/2009/07/are-you-a-distressed-property-consultant-dont-run-afoul-of-nys-foreclosure-prevention-and-responsibl.html.html