This guidance interprets § 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 deal with the growing nationwide problem of deed theft, home equity theft and foreclosure rescue scams in which 3rd party financiers, normally representing themselves as foreclosure professionals, 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 intended to address "2 main kinds of deceitful and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the first circumstance, the homeowner was "deceived or fooled into signing over the deed" in the belief that they "were just getting a loan or refinancing. In the 2nd, "the property owner intentionally signs over the deed, with the expectation of momentarily renting the residential or commercial property and after that being able to buy it back, however soon discovers that the offer is structured in a manner that the homeowner can not afford it. The result is that the homeowner is evicted, loses the right to buy the residential or commercial property back and loses all of the equity that had been developed in your house."
Section 265-an includes a variety of securities against home equity theft of a "residence in foreclosure", consisting of supplying property owners with details required to make a notified choice regarding the sale or transfer of the residential or commercial property, restriction versus unjust contract terms and deceit; and, most significantly, where the equity sale remains in product infraction of § 265-a, the opportunity to rescind the deal within 2 years of the date of the recording of the conveyance.
It has concerned the attention of the Banking Department that particular banking institutions, 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 therefore limits their capability to provide deeds in lieu to house 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 misdirected.
It is a fundamental rule of statutory building to provide 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 legal finding supporting § 265-a, which appears in subdivision 1 of the area, explains the target of the brand-new area:
During the time period in between the default on the mortgage and the arranged foreclosure sale date, property owners in financial distress, particularly bad, senior, and economically unsophisticated property owners, are vulnerable to aggressive "equity purchasers" who induce property owners to offer their homes for a little fraction of their fair market worths, or in many cases even sign away their homes, through using plans which often involve oral and written misstatements, deceit, intimidation, and other unreasonable business practices.
In contrast to the expense's clearly stated purpose of attending to "the growing issue of deed theft, home equity theft and foreclosure rescue scams," there is no indicator that the drafters anticipated that the expense would cover deeds in lieu of foreclosure (also referred to as a "deed in lieu" or "DIL") provided by a debtor to the lending institution or subsequent holder of the mortgage note when the home is at danger of foreclosure. A deed in lieu of foreclosure is a typical method to avoid lengthy foreclosure proceedings, which may make it possible for the mortgagor to receive a variety of advantages, as detailed below. Consequently, in the opinion of the Department, § 265-a does not apply to the individual who was the holder of the mortgage or was otherwise entitled to foreclose on the mortgage (or any agent of such person) at the time the deed in lieu of foreclosure was participated in, when such individual concurs to accept a deed to the mortgaged residential or commercial property completely or partial fulfillment of the mortgage debt, as long as there is no agreement to reconvey the residential or commercial property to the customer and the current market value of the home is less than the quantity owing under the mortgage. That truth may be shown 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 loan provider, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property in full or partial fulfillment of the mortgage debt. While the lender is expected to pursue home retention loss mitigation choices, such as a loan modification, with an overdue customer who desires to remain in the home, a deed in lieu can be beneficial to the customer in certain scenarios. For instance, a deed in lieu may be beneficial for the borrower where the quantity owing under the mortgage surpasses the existing market value of the mortgaged residential or commercial property, and the debtor may for that reason be legally responsible for the shortage, or where the borrower's situations have altered and she or he is no longer able to manage to pay of principal, interest, taxes and insurance, and the loan does not get approved for an adjustment under readily available programs. The DIL launches the customer from all or the majority of the individual insolvency connected 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 consent to waive any deficiency judgment and also will add to the debtor's moving expenses. It also stops the accrual of interest and charges on the financial obligation, prevents the high legal costs associated with foreclosure and may be less harmful to the property owner's credit than a foreclosure.
In reality, DILs are well-accepted loss mitigation alternatives to foreclosure and have actually been integrated into most maintenance requirements. Fannie Mae and HUD both acknowledge that DILs may be beneficial for customers in default who do not receive other loss mitigation options. The federal Home Affordable Mortgage Program ("HAMP") requires taking part lending institutions and mortgage servicers to consider a borrower figured out to be eligible for a HAMP adjustment or other home retention option for other foreclosure options, including short sales and DILs. Likewise, as part of the Helping Families Save Their Homes Act of 2009, Congress developed a safe harbor for specific competent loss mitigation strategies, consisting of short sales and deeds in lieu used under the Home Affordable Foreclosure Alternatives ("HAFA") program.
Although § 265-an applies to a transaction with regard to a "residence in foreclosure," in the viewpoint of the Department, it does not apply 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 excluded 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 think such omission does not indicate an objective to cover a buyer of a DIL, however rather shows that the drafters pondered that § 265-a used only to the scammers and unscrupulous entities who stole a house 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 planned to "afford greater defenses to homeowners confronted 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 a crucial option to foreclosure. Nor do we think an interpretation that requires mortgagees who have the indisputable right to foreclose to pursue the more expensive and lengthy judicial foreclosure procedure is affordable. Such an analysis violates a basic rule of statutory construction that statutes be "provided a sensible building, it being presumed that the Legislature planned a reasonable result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).
We have discovered no New york city case law that supports the proposal that DILs are covered by § 265-a, or that even point out DILs in the context of § 265-a. The large bulk of cases that point out 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 couple of cases that do not include other foreclosure requirements include deceptive deed transactions 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).
