This assistance translates § 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 issue of deed theft, home equity theft and foreclosure rescue rip-offs in which 3rd party financiers, normally representing themselves as foreclosure experts, aggressively pursued troubled homeowners by assuring to "save" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was meant to address "2 main kinds of deceitful and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the very first scenario, the homeowner was "misinformed or fooled into signing over the deed" in the belief that they "were merely acquiring a loan or refinancing. In the second, "the property owner intentionally transfer the deed, with the expectation of temporarily leasing the residential or commercial property and after that having the ability to purchase it back, but quickly discovers that the deal is structured in a method that the house owner can not afford it. The outcome is that the property owner is forced out, loses the right to buy the residential or commercial property back and loses all of the equity that had been built up in the home."
Section 265-a contains a number of securities against home equity theft of a "residence in foreclosure", including providing house owners with information essential to make a notified choice regarding the sale or transfer of the residential or commercial property, restriction against unfair contract terms and deceit; and, most importantly, where the equity sale remains in material offense of § 265-a, the opportunity to rescind the transaction 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 insurers are concerned that § 265-a can be checked out as using 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 meaning of § 265-a) and thus restricts their ability to use deeds in lieu to homeowners 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 analyses are misguided.
It is an essential guideline of statutory building to offer 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 neighborhood 1 of the area, makes clear the target of the new section:
During the time duration in between the default on the mortgage and the set up foreclosure sale date, homeowners in monetary distress, particularly bad, senior, and economically unsophisticated property owners, are susceptible to aggressive "equity buyers" who cause property owners to offer their homes for a small portion of their reasonable market values, or in some cases even sign away their homes, through the use of plans which frequently include oral and written misstatements, deceit, intimidation, and other unreasonable commercial practices.
In contrast to the bill's clearly mentioned purpose of resolving "the growing issue of deed theft, home equity theft and foreclosure rescue rip-offs," there is no indicator that the drafters prepared for that the bill would cover deeds in lieu of foreclosure (also called a "deed in lieu" or "DIL") provided by a borrower to the lending institution or subsequent holder of the mortgage note when the home is at risk of foreclosure. A deed in lieu of foreclosure is a common technique to avoid lengthy foreclosure proceedings, which may make it possible for the mortgagor to get a number of benefits, as detailed below. Consequently, in the viewpoint of the Department, § 265-a does not use to the individual who was the holder of the mortgage or was otherwise entitled to foreclose on the mortgage (or any representative of such individual) at the time the deed in lieu of foreclosure was participated in, when such person agrees to accept a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage financial obligation, as long as there is no contract to reconvey the residential or commercial property to the debtor and the existing 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 communicates to the lender, 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 debt. While the lender is expected to pursue home retention loss mitigation choices, such as a loan adjustment, with an overdue borrower who wishes to stay in the home, a deed in lieu can be beneficial to the customer in certain situations. For instance, a deed in lieu may be advantageous for the debtor where the amount owing under the mortgage surpasses the present market value of the mortgaged residential or commercial property, and the debtor may therefore be legally accountable for the shortage, or where the borrower's circumstances have actually altered and he or she is no longer able to pay for to make payments of principal, interest, taxes and insurance, and the loan does not get approved for an adjustment under offered programs. The DIL launches the customer from all or the majority of the individual indebtedness related to 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 concur to waive any deficiency judgment and also will contribute to the borrower's moving costs. It also stops the accrual of interest and charges on the financial obligation, avoids the high legal expenses associated with foreclosure and might be less destructive to the house owner's credit than a foreclosure.
In fact, DILs are well-accepted loss mitigation alternatives to foreclosure and have been integrated into many maintenance requirements. Fannie Mae and HUD both recognize that DILs may be useful for debtors in default who do not qualify for other loss mitigation choices. The federal Home Affordable Mortgage Program ("HAMP") requires participating loan providers 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, including 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 applies to a deal with respect to a "residence in foreclosure," in the viewpoint of the Department, it does not use 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 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 believe such omission does not indicate an objective to cover a purchaser of a DIL, but rather suggests that the drafters contemplated that § 265-a used only to the scammers and unethical entities who took a homeowner's equity and to bona fide purchasers who may buy the residential or commercial property from them. We do not think that a statute that was meant to "pay for greater defenses to homeowners challenged with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), ought to be interpreted to deprive property owners of an important 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 time-consuming judicial foreclosure procedure is sensible. Such an interpretation breaks a basic guideline of statutory building and construction that statutes be "provided an affordable building and construction, it being presumed that the Legislature meant a sensible outcome." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).
We have 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 bulk of cases that point out 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 deceptive deed deals 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).
