This assistance analyzes § 265-a of the Real Residential Or Commercial Property Law (" § 265-a"), which was adopted as part of the Home Equity Theft Prevention Act ("HETPA"). Section 265-a was adopted in 2006 to handle the growing nationwide problem of deed theft, home equity theft and foreclosure rescue scams in which third celebration financiers, typically representing themselves as foreclosure experts, aggressively pursued distressed homeowners by assuring to "save" their home. As kept in mind in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was meant to address "2 main kinds of deceptive and violent practices in the purchase or transfer of distressed residential or commercial properties." In the very first scenario, the homeowner was "misinformed or fooled into finalizing over the deed" in the belief that they "were simply obtaining a loan or refinancing. In the 2nd, "the property owner purposefully signs over the deed, with the expectation of momentarily renting the residential or commercial property and after that having the ability to buy it back, but soon finds that the deal is structured in a manner that the house owner can not manage it. The result is that the house owner is evicted, loses the right to buy the residential or commercial property back and loses all of the equity that had actually been developed up in your house."
Section 265-an includes a number of securities versus home equity theft of a "home in foreclosure", including providing house owners with details essential to make a notified choice concerning the sale or transfer of the residential or commercial property, restriction versus unreasonable contract terms and deceit; and, most notably, where the equity sale remains in product offense of § 265-a, the opportunity to rescind the deal within 2 years of the date of the recording of the conveyance.
It has pertained to the attention of the Banking Department that specific banking organizations, foreclosure counsel and title insurance providers are worried that § 265-a can be checked out as applying to a deed in lieu of foreclosure approved by the mortgagor to the holder of the mortgage (i.e. the person whose foreclosure action makes the mortgagor's residential or commercial property a "house in foreclosure" within the significance of § 265-a) and hence restricts their capability to use deeds in lieu to house owners in appropriate cases. See, e.g., Bruce J. Bergman, "Home Equity Theft Prevention Act: Measures May Apply to Deeds-in-Lieu of Foreclosure, NYLJ, June 13, 2007.
The Banking Department thinks that these analyses are misdirected.
It is an essential rule of statutory building and construction to provide result to the legislature's intent. See, e.g., Mowczan v. Bacon, 92 N.Y. 2d 281, 285 (1998 ); Riley v. County of Broome, 263 A.D. 2d 267, 270 (3d Dep't 2000). The legislative finding supporting § 265-a, which appears in subdivision 1 of the section, explains the target of the brand-new area:
During the time duration between the default on the mortgage and the scheduled foreclosure sale date, property owners in financial distress, specifically bad, elderly, and financially unsophisticated house owners, are susceptible to aggressive "equity purchasers" who induce homeowners to sell their homes for a little portion of their fair market worths, or in many cases even sign away their homes, through making use of schemes which typically involve oral and written misrepresentations, deceit, intimidation, and other unreasonable industrial practices.
In contrast to the costs's plainly stated purpose of addressing "the growing problem of deed theft, home equity theft and foreclosure rescue rip-offs," there is no sign that the drafters anticipated that the bill would cover deeds in lieu of foreclosure (likewise referred to as a "deed in lieu" or "DIL") provided by a debtor to the lender or subsequent holder of the mortgage note when the home is at threat of foreclosure. A deed in lieu of foreclosure is a typical approach to avoid prolonged foreclosure procedures, which might make it possible for the mortgagor to receive a variety of benefits, as detailed below. Consequently, in the opinion of the Department, § 265-a does not apply to the person who was the holder of the mortgage or was otherwise entitled to foreclose on the mortgage (or any representative of such person) at the time the deed in lieu of foreclosure was participated in, when such individual accepts accept a deed to the mortgaged residential or commercial property in full or partial complete satisfaction of the mortgage financial obligation, as long as there is no agreement to reconvey the residential or commercial property to the borrower and the present market price of the home is less than the amount owing under the mortgage. That truth might be demonstrated by an appraisal or a broker rate opinion from an independent appraiser or broker.
A deed in lieu is an instrument in which the mortgagor conveys to the lending institution, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial complete satisfaction of the mortgage financial obligation. While the loan provider is anticipated to pursue home retention loss mitigation options, such as a loan adjustment, with a delinquent borrower who wants to remain in the home, a deed in lieu can be useful to the customer in particular circumstances. For instance, a deed in lieu might be beneficial for the borrower where the amount owing under the mortgage goes beyond the existing market price of the mortgaged residential or commercial property, and the borrower may therefore be legally responsible for the shortage, or where the borrower's situations have changed and he or she is no longer able to manage to make payments of principal, interest, taxes and insurance coverage, and the loan does not receive an adjustment under offered programs. The DIL launches the borrower from all or many of the personal indebtedness associated with the defaulted loan. Often, in return for saving the mortgagee the time and effort to foreclose on the residential or commercial property, the mortgagee will accept waive any deficiency judgment and also will add to the customer's moving costs. It likewise stops the accrual of interest and penalties on the debt, prevents the high legal costs connected with foreclosure and might be less harmful to the property owner's credit than a foreclosure.
In fact, DILs are well-accepted loss mitigation options to foreclosure and have been included into most maintenance requirements. Fannie Mae and HUD both recognize that DILs may be advantageous for debtors in default who do not receive other loss mitigation options. The federal Home Affordable Mortgage Program ("HAMP") requires taking part lenders and mortgage servicers to think about a borrower determined to be qualified for a HAMP modification or other home retention alternative for other foreclosure alternatives, consisting of short sales and DILs. Likewise, as part of the Helping Families Save Their Homes Act of 2009, Congress established a safe harbor for particular certified loss mitigation strategies, including short sales and deeds in lieu offered under the Home Affordable Foreclosure Alternatives ("HAFA") program.
Although § 265-an uses to a deal with respect to a "residence in foreclosure," in the viewpoint of the Department, it does not use to a DIL provided to the holder of a defaulted mortgage who otherwise would be entitled to the remedy of foreclosure. Although a purchaser of a DIL is not specifically omitted from the definition of "equity buyer," as is a deed from a referee in a foreclosure sale under Article 13 of the Real Residential Or Commercial Property Actions and Proceedings Law, we believe such omission does not indicate an intention to cover a buyer of a DIL, but rather suggests that the drafters contemplated that § 265-a used only to the fraudsters and deceitful entities who stole a property owner's equity and to bona fide buyers who may purchase the residential or commercial property from them. We do not believe that a statute that was meant to "pay for greater protections to property owners challenged with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), need to be interpreted to deprive house owners of an essential alternative to foreclosure. Nor do we think an interpretation that forces mortgagees who have the indisputable right to foreclose to pursue the more costly and lengthy judicial foreclosure procedure is affordable. Such an interpretation breaks a basic guideline of statutory building that statutes be "offered an affordable building and construction, it being presumed that the Legislature meant an affordable result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).
We have actually discovered no New york city case law that supports the proposal that DILs are covered by § 265-a, or that even mention DILs in the context of § 265-a. The vast majority of cases that cite HETPA include other sections of law, such as RPAPL § § 1302 and 1304, and CPLR Rule 3408. The citations to HETPA frequently are dicta. See, e.g., Deutsche Bank Nat'l Trust Co. v. McRae, 27 Misc.3 d 247, 894 N.Y.S. 2d 720 (2010 ). The few cases that do not involve other foreclosure requirements involve deceitful deed transactions that plainly are covered by § 265-a. See, e.g. Lucia v. Goldman, 68 A.D. 3d 1064, 893 N.Y.S. 2d 90 (2009 ), Dizazzo v. Capital Gains Plus Inc., 2009 N.Y. Misc. LEXIS 6122 (September 10, 2009).
