In The Second
This guidance 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 embraced in 2006 to handle the growing nationwide problem of deed theft, home equity theft and foreclosure rescue frauds in which third party financiers, generally representing themselves as foreclosure specialists, aggressively pursued struggling homeowners by promising to "save" their home. As kept in mind in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was to deal with "2 main kinds of deceptive and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the first circumstance, the house owner was "misguided or deceived into signing over the deed" in the belief that they "were just obtaining a loan or refinancing. In the second, "the property owner intentionally indications over the deed, with the expectation of momentarily leasing the residential or commercial property and after that being able to buy it back, however quickly discovers that the deal is structured in such a way that the homeowner can not manage it. The result is that the homeowner is evicted, loses the right to purchase the residential or commercial property back and loses all of the equity that had actually been built up in your home."
Section 265-an includes a variety of defenses against home equity theft of a "house in foreclosure", including supplying house owners with details required to make a notified choice regarding the sale or transfer of the residential or commercial property, restriction versus unfair agreement terms and deceit; and, most significantly, where the equity sale is in material offense of § 265-a, the chance to rescind the deal within two years of the date of the recording of the conveyance.
It has concerned the attention of the Banking Department that particular banking organizations, foreclosure counsel and title insurance companies are worried that § 265-a can be checked out as using to a deed in lieu of foreclosure given 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 "home in foreclosure" within the significance of § 265-a) and thus restricts their ability to offer deeds in lieu to property owners in proper 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 interpretations are misguided.
It is a basic rule of statutory building and construction to give effect 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, makes clear the target of the new section:
During the time duration between the default on the mortgage and the scheduled foreclosure sale date, property owners in financial distress, specifically poor, elderly, and economically unsophisticated house owners, are vulnerable to aggressive "equity buyers" who induce property owners to offer their homes for a little portion of their reasonable market worths, or sometimes even sign away their homes, through the use of plans which often include oral and written misrepresentations, deceit, intimidation, and other unreasonable business practices.
In contrast to the bill's plainly mentioned purpose of addressing "the growing problem of deed theft, home equity theft and foreclosure rescue frauds," there is no indication that the drafters prepared for that the expense would cover deeds in lieu of foreclosure (also called a "deed in lieu" or "DIL") offered by a borrower to the lender or subsequent holder of the mortgage note when the home is at danger of foreclosure. A deed in lieu of foreclosure is a typical approach to prevent lengthy foreclosure proceedings, which may make it possible for the mortgagor to receive a number of advantages, 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 agent of such individual) at the time the deed in lieu of foreclosure was gotten in into, when such individual consents to 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 contract to reconvey the residential or commercial property to the borrower and the existing market price of the home is less than the quantity owing under the mortgage. That truth may be shown by an appraisal or a broker cost opinion from an independent appraiser or broker.
A deed in lieu is an instrument in which the mortgagor communicates to the loan provider, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage debt. While the lender is expected to pursue home retention loss mitigation alternatives, such as a loan adjustment, with an overdue debtor who wishes to stay in the home, a deed in lieu can be advantageous to the borrower in specific circumstances. For example, a deed in lieu may be helpful for the borrower where the quantity owing under the mortgage exceeds the current market price of the mortgaged residential or commercial property, and the debtor may therefore be legally liable for the deficiency, or where the customer's circumstances have actually altered and she or he is no longer able to pay for to pay of principal, interest, taxes and insurance coverage, and the loan does not qualify for a modification under available programs. The DIL launches the debtor from all or the majority of the individual insolvency associated with the defaulted loan. Often, in return for conserving the mortgagee the time and effort to foreclose on the residential or commercial property, the mortgagee will accept waive any deficiency judgment and likewise will contribute to the customer's moving expenses. It also stops the accrual of interest and charges on the debt, prevents the high legal costs associated with foreclosure and might be less harmful to the house owner's credit than a foreclosure.
In truth, DILs are well-accepted loss mitigation alternatives to foreclosure and have actually been included into the majority of servicing requirements. Fannie Mae and HUD both acknowledge that DILs might be useful for borrowers in default who do not receive other loss mitigation options. The federal Home Affordable Mortgage Program ("HAMP") requires getting involved loan providers and mortgage servicers to think about a customer identified to be eligible for a HAMP adjustment or other home retention option for other foreclosure options, including brief sales and DILs. Likewise, as part of the Helping Families Save Their Homes Act of 2009, Congress developed a safe harbor for particular qualified loss mitigation strategies, consisting of short sales and deeds in lieu provided under the Home Affordable Foreclosure Alternatives ("HAFA") program.
Although § 265-an applies to a deal with respect to a "residence in foreclosure," in the opinion of the Department, it does not apply to a DIL offered 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 particularly left out from the meaning of "equity purchaser," 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, our company believe such omission does not suggest an intention to cover a buyer of a DIL, but rather indicates that the drafters considered that § 265-an applied just to the fraudsters and unscrupulous entities who took a house owner's equity and to authentic buyers who may purchase the residential or commercial property from them. We do not believe that a statute that was planned to "afford higher securities to property owners faced with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), should be construed to deprive house owners of an essential option to foreclosure. Nor do we think an interpretation that forces mortgagees who have the unassailable right to foreclose to pursue the more expensive and lengthy judicial foreclosure process is reasonable. Such an analysis violates a fundamental guideline of statutory building that statutes be "given an affordable building, it being presumed that the Legislature planned a sensible result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).
We have actually found no New York case law that supports the proposition 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 involve other areas of law, such as RPAPL § § 1302 and 1304, and CPLR Rule 3408. The citations to HETPA typically 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 include fraudulent deed deals that clearly 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).
