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 adopted in 2006 to deal with the growing across the country problem of deed theft, home equity theft and foreclosure rescue frauds in which 3rd party investors, typically representing themselves as foreclosure experts, aggressively pursued troubled house owners by guaranteeing to "save" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was intended to resolve "2 main kinds of deceitful and violent practices in the purchase or transfer of distressed residential or commercial properties." In the very first scenario, the homeowner was "misled or deceived into signing over the deed" in the belief that they "were merely obtaining a loan or refinancing. In the 2nd, "the house owner knowingly indications over the deed, with the expectation of briefly leasing the residential or commercial property and after that having the ability to purchase it back, however quickly finds that the deal is structured in a method that the house owner can not manage it. The result is that the property owner is evicted, loses the right to purchase the residential or commercial property back and loses all of the equity that had been built up in the house."

Section 265-a contains a variety of protections versus home equity theft of a "residence in foreclosure", consisting of providing property owners with info required to make an informed choice relating to the sale or transfer of the residential or commercial property, prohibition versus unjust contract terms and deceit; and, most significantly, where the equity sale is in material infraction of § 265-a, the opportunity to rescind the deal within two years of the date of the recording of the conveyance.

It has actually come to the attention of the Banking Department that particular banking organizations, foreclosure counsel and title insurance providers are concerned that § 265-a can be read as using 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 "home in foreclosure" within the significance of § 265-a) and therefore restricts their ability to use deeds in lieu to property owners in suitable 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 a basic guideline of statutory building and construction 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 neighborhood 1 of the area, makes clear the target of the new section:

During the time duration between the default on the mortgage and the set up foreclosure sale date, house owners in financial distress, specifically poor, senior, and financially unsophisticated house owners, are vulnerable to aggressive "equity purchasers" who cause homeowners to sell their homes for a little fraction of their reasonable market worths, or in some cases even sign away their homes, through making use of schemes which frequently involve oral and written misrepresentations, deceit, intimidation, and other unreasonable business practices.

In contrast to the bill's clearly mentioned purpose of resolving "the growing problem of deed theft, home equity theft and foreclosure rescue rip-offs," there is no indication 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 borrower to the loan provider or subsequent holder of the mortgage note when the home is at threat of foreclosure. A deed in lieu of foreclosure is a common method to avoid prolonged foreclosure procedures, which might enable the mortgagor to get a variety of advantages, as detailed listed 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 agent of such person) 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 complete or partial complete satisfaction of the mortgage debt, as long as there is no agreement 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 truth may 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 lender, 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 lending institution is expected to pursue home retention loss mitigation options, such as a loan modification, with an overdue debtor who wants to remain in the home, a deed in lieu can be advantageous to the customer in particular circumstances. For instance, a deed in lieu might be useful for the customer where the amount owing under the mortgage exceeds the present market value of the mortgaged residential or commercial property, and the debtor might therefore be lawfully accountable for the deficiency, or where the debtor's circumstances have changed and she or he is no longer able to pay for to make payments of principal, interest, taxes and insurance, and the loan does not get approved for a modification under available programs. The DIL releases the debtor from all or most of the personal insolvency 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 agree to waive any shortage judgment and likewise will contribute to the customer's moving expenses. It likewise stops the accrual of interest and penalties on the debt, avoids the high legal expenses connected with foreclosure and may 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 included into most servicing requirements. Fannie Mae and HUD both recognize that DILs may be advantageous for customers in default who do not qualify for other loss mitigation alternatives. The federal Home Affordable Mortgage Program ("HAMP") requires getting involved loan providers and mortgage servicers to consider a debtor determined to be qualified for a HAMP adjustment or other home retention choice 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 competent loss mitigation plans, consisting of short sales and deeds in lieu offered under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an applies to a deal with regard to a "home in foreclosure," in the opinion of the Department, it does not use to a DIL given to the holder of a defaulted mortgage who otherwise would be entitled to the remedy of foreclosure. Although a buyer of a DIL is not specifically omitted 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 purchaser of a DIL, however rather indicates that the drafters contemplated that § 265-an applied only to the scammers and deceitful entities who took a property owner's equity and to authentic buyers who might purchase the residential or commercial property from them. We do not believe that a statute that was meant to "manage greater protections to property owners confronted with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), need to be construed to deny homeowners of a crucial alternative to foreclosure. Nor do we think an interpretation that forces mortgagees who have the unassailable right to foreclose to pursue the more costly and lengthy judicial foreclosure procedure is reasonable. Such an interpretation breaches a fundamental guideline of statutory building that statutes be "offered a sensible construction, it being presumed that the Legislature meant a reasonable result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have actually found 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 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 couple of cases that do not include other foreclosure requirements include deceitful 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).