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 embraced in 2006 to deal with the growing nationwide issue of deed theft, home equity theft and foreclosure rescue rip-offs in which third party investors, generally representing themselves as foreclosure professionals, strongly pursued struggling house owners by guaranteeing to "conserve" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was intended to attend to "2 primary types of deceptive and violent practices in the purchase or transfer of distressed residential or commercial properties." In the very first situation, the homeowner was "misinformed or tricked into finalizing over the deed" in the belief that they "were simply getting a loan or refinancing. In the second, "the house owner intentionally indications over the deed, with the expectation of momentarily leasing the residential or commercial property and then being able to purchase it back, however quickly finds that the deal is structured in such a way that the house owner can not manage it. The outcome is that the property owner is evicted, loses the right to buy the residential or commercial property back and loses all of the equity that had been developed up in your house."

Section 265-an includes a variety of protections versus home equity theft of a "house in foreclosure", including providing property owners with information needed to make an informed choice relating to the sale or transfer of the residential or commercial property, prohibition against unreasonable agreement terms and deceit; and, most significantly, where the equity sale remains in material offense of § 265-a, the opportunity to rescind the deal within 2 years of the date of the recording of the conveyance.

It has actually concerned 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 approved by the mortgagor to the holder of the mortgage (i.e. the individual whose foreclosure action makes the mortgagor's residential or commercial property a "home in foreclosure" within the significance of § 265-a) and thus restricts their ability to provide deeds in lieu to house 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 believes that these analyses are misguided.

It is an essential guideline of statutory building and construction to provide 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 neighborhood 1 of the area, explains 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 monetary distress, specifically bad, senior, and economically unsophisticated homeowners, are susceptible to aggressive "equity buyers" who cause homeowners to offer their homes for a small fraction of their fair market values, or in some cases even sign away their homes, through making use of schemes which typically involve oral and written misrepresentations, deceit, intimidation, and other unreasonable business practices.

In contrast to the costs's clearly stated purpose of attending to "the growing problem of deed theft, home equity theft and foreclosure rescue scams," there is no indication 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 customer to the lender or subsequent holder of the mortgage note when the home is at danger of foreclosure. A deed in lieu of foreclosure is a typical approach to avoid lengthy foreclosure procedures, which might allow the mortgagor to get a number of benefits, as detailed listed below. Consequently, in the opinion 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 individual accepts accept a deed to the mortgaged residential or commercial property in full or partial fulfillment of the mortgage financial obligation, as long as there is no agreement to reconvey the residential or commercial property to the borrower and the present market price of the home is less than the amount owing under the mortgage. That reality might be demonstrated by an appraisal or a broker price opinion from an independent appraiser or broker.

A deed in lieu is an instrument in which the mortgagor communicates to the loan provider, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage debt. While the loan provider is anticipated to pursue home retention loss mitigation alternatives, such as a loan modification, with a delinquent customer who wishes to remain in the home, a deed in lieu can be useful to the borrower in specific circumstances. For instance, a deed in lieu may be advantageous for the customer where the quantity owing under the mortgage surpasses the current market value of the mortgaged residential or commercial property, and the debtor may for that reason be lawfully responsible for the shortage, or where the borrower's scenarios have actually changed and he or she is no longer able to manage to pay of principal, interest, taxes and insurance coverage, and the loan does not receive an adjustment under available programs. The DIL launches the borrower from all or the majority of the personal insolvency 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 consent to waive any deficiency judgment and also will contribute to the customer's moving costs. It likewise stops the accrual of interest and penalties on the financial obligation, prevents the high legal expenses associated with foreclosure and may be less harmful to the house owner's credit than a foreclosure.

In reality, DILs are well-accepted loss mitigation options to foreclosure and have actually been included into many servicing standards. Fannie Mae and HUD both recognize that DILs might be beneficial for borrowers in default who do not receive other loss mitigation options. The federal Home Affordable Mortgage Program ("HAMP") needs participating lenders and mortgage servicers to consider a customer figured out to be qualified for a HAMP modification or other home retention choice for other foreclosure alternatives, consisting of short sales and DILs. Likewise, as part of the Helping Families Save Their Homes Act of 2009, Congress established a safe harbor for particular competent loss mitigation plans, consisting of brief 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 "house in foreclosure," in the viewpoint 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 treatment of foreclosure. Although a buyer of a DIL is not specifically omitted 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, our company believe such omission does not show an intention to cover a purchaser of a DIL, however rather indicates that the drafters considered that § 265-an applied just to the fraudsters and deceitful entities who stole a house owner's equity and to bona fide purchasers who might purchase the residential or commercial property from them. We do not think that a statute that was intended to "afford greater defenses to house owners faced with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), ought to be construed to deprive house owners of an essential option to foreclosure. Nor do we believe an interpretation that requires mortgagees who have the unassailable right to foreclose to pursue the more expensive and lengthy judicial foreclosure procedure is affordable. Such an analysis violates a fundamental guideline of statutory building and construction that statutes be "offered a reasonable construction, it being presumed that the Legislature meant an affordable result." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have discovered no New York case law that supports the proposal that DILs are covered by § 265-a, or that even discuss DILs in the context of § 265-a. The vast majority of cases that mention HETPA include other areas of law, such as RPAPL § § 1302 and 1304, and CPLR Rule 3408. The citations to HETPA often 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).