On December 15, 2020, New York State enacted legislation amending the New York Real Property Law that would have placed various restrictions and requirements on the servicing of Home Equity Conversion Mortgages secured by New York properties effective as of April 14, 2021 (the “Foreclosure Law”). The new law would significantly hinder a servicer’s ability to foreclose on a defaulted HECM, and could conflict with existing default procedures promulgated by the Department of Housing and Urban Development (“HUD”) relating to the foreclosure of HECMs.
On January 6, 2021, legislation was introduced in the New York State Senate to eliminate certain of these burdensome provisions (the “Revised Law”). Both the Senate and the New York State General Assembly have approved this measure, and it currently awaits Governor Cuomo’s signature.
The Foreclosure Law as Enacted
As enacted, the Foreclosure Law would impose a series of requirements on foreclosures comments on or after April 14, 2021.
First, the law would, among other things, upon the commencement of a foreclosure proceeding of a HECM secured by real property in New York State, require transmission to the New York Department of Financial Services (“NYDFS”) of
- proof that HUD has granted prior approval to accelerate the loan,
- proof of the default leading to the foreclosure action and notice to the mortgagor, and
- any other information required by the NYDFS.
Second, the Foreclosure Law would require mortgagees to engage in mandatory loss mitigation activities to be specified in regulations promulgated by the NYDFS before commencing a foreclosure action.
Third, the Foreclosure Law would prohibit the making of advance payments for any obligation arising from the related Mortgaged Property and provide that payments by the Servicer for insurance premiums and taxes may only be made when they are in arrears.
The Revised Foreclosure Law
The Revised Law would eliminate many of these burdensome provisions. Specifically, the Revised Law would:
- require lenders to send a notice to consumers that will be promulgated by the NYDFS relating to the borrower’s rights in foreclosure,
- authorize the NYDFS to regulate the notice of such rights,
- require lenders to send the NYDFS proof that they received permission from HUD to foreclose on a reverse mortgage,
- require lenders to maintain policies on loss mitigation to ensure compliance with all applicable law, and
- require lenders to maintain certain loss mitigation and foreclosure records.
If signed by Governor Cuomo, the Revised Law would take effect 120 days after enactment.
Significant Penalties for Failure to Comply
Under both the Foreclosure Law and the Revised Law, consumers “injured” by a violation of the law are entitled to recover treble damages in a private right of action. Further, adherence to the requirements of the law is a condition precedent to filing the foreclosure in New York State, and failure to comply with these provisions constitutes a complete defense to such foreclosure.
Even as amended, the legislation is cumbersome and creates additional hurdles for servicers foreclosing on delinquent HECMs in New York State. Arguably, the existing HUD HECM pre-foreclosure procedures provide ample consumer protection. Nevertheless, with many consumers struggling financially during the COVID pandemic, New York State seeks to provide additional consumer protections to elderly New Yorkers who have HECMs.