This assistance 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 handle the growing nationwide issue of deed theft, home equity theft and foreclosure rescue rip-offs in which third party investors, typically representing themselves as foreclosure professionals, aggressively pursued troubled homeowners by assuring to "conserve" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was meant to address "2 main types of fraudulent and violent practices in the purchase or transfer of distressed residential or commercial properties." In the very first situation, the homeowner was "misled or tricked into finalizing over the deed" in the belief that they "were merely obtaining a loan or refinancing. In the 2nd, "the property owner purposefully transfer the deed, with the expectation of momentarily renting the residential or commercial property and after that being able to buy it back, however quickly finds that the deal is structured in a way that the house owner can not manage 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 actually been constructed up in the house."

Section 265-an includes a number of protections versus home equity theft of a "home in foreclosure", including supplying house owners with info required to make a notified decision concerning the sale or transfer of the residential or commercial property, prohibition against unreasonable agreement terms and deceit; and, most significantly, where the equity sale is in product violation of § 265-a, the chance to rescind the transaction within 2 years of the date of the recording of the conveyance.

It has actually come to the attention of the Banking Department that specific banking institutions, foreclosure counsel and title insurance providers are concerned that § 265-a can be checked out as applying to a deed in lieu of foreclosure granted 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 provide 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 believes that these interpretations are misdirected.

It is a fundamental guideline of statutory building to give 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 legal finding supporting § 265-a, which appears in subdivision 1 of the area, makes clear the target of the new area:

During the time period between the default on the mortgage and the set up foreclosure sale date, property owners in monetary distress, particularly bad, senior, and economically unsophisticated house owners, are vulnerable to aggressive "equity buyers" who cause property owners to offer their homes for a small portion of their reasonable market price, or in some cases even sign away their homes, through using schemes which typically include oral and written misstatements, deceit, intimidation, and other unreasonable industrial practices.

In contrast to the expense's plainly mentioned function of resolving "the growing issue of deed theft, home equity theft and foreclosure rescue rip-offs," there is no indication that the drafters anticipated that the costs would cover deeds in lieu of foreclosure (likewise referred to as a "deed in lieu" or "DIL") given by a customer to the lender or subsequent holder of the mortgage note when the home is at risk of foreclosure. A deed in lieu of foreclosure is a typical technique to prevent prolonged foreclosure procedures, which may allow the mortgagor to get a variety of advantages, as detailed listed below. Consequently, in the viewpoint 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 individual) at the time the deed in lieu of foreclosure was gotten in into, when such individual accepts accept a deed to the mortgaged residential or commercial property in full or partial satisfaction of the mortgage financial obligation, as long as there is no arrangement to reconvey the residential or commercial property to the borrower and the current market value of the home is less than the amount owing under the mortgage. That reality might be demonstrated by an appraisal or a broker price viewpoint 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 satisfaction of the mortgage debt. While the lender is anticipated to pursue home retention loss mitigation choices, such as a loan adjustment, with an overdue customer who wishes to remain in the home, a deed in lieu can be beneficial to the customer in particular circumstances. For example, a deed in lieu might be advantageous for the debtor 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 accountable for the shortage, or where the customer's situations have actually changed and he or she is no longer able to afford to make payments of principal, interest, taxes and insurance, and the loan does not qualify for an adjustment under available programs. The DIL releases the borrower from all or the majority of the individual 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 likewise will contribute to the debtor's moving expenses. It likewise stops the accrual of interest and charges on the financial obligation, avoids the high legal costs connected with foreclosure and may be less damaging to the house owner's credit than a foreclosure.

In reality, DILs are well-accepted loss mitigation alternatives to foreclosure and have actually been integrated into a lot of maintenance standards. Fannie Mae and HUD both acknowledge that DILs may be advantageous for customers in default who do not receive other loss mitigation choices. The federal Home Affordable Mortgage Program ("HAMP") requires getting involved lending institutions and mortgage servicers to think about a customer identified to be qualified for a HAMP adjustment or other home retention choice for other foreclosure alternatives, including brief 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 brief sales and deeds in lieu offered under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an uses to a transaction with regard to a "residence in foreclosure," in the opinion 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 particularly excluded from the meaning 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, our company believe such omission does not indicate an intention to cover a purchaser of a DIL, but rather suggests that the drafters pondered that § 265-a used just to the scammers and dishonest entities who stole a homeowner's equity and to bona fide buyers who may purchase the residential or commercial property from them. We do not think that a statute that was intended to "afford higher 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 house owners of a crucial option to foreclosure. Nor do we believe an analysis that forces mortgagees who have the indisputable right to foreclose to pursue the more pricey and time-consuming judicial foreclosure process is reasonable. Such an analysis breaks an essential guideline of statutory construction that statutes be "given a reasonable building and construction, it being presumed that the Legislature intended an affordable result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have found 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 large bulk of cases that cite HETPA include other areas 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 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).