This guidance 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 across the country issue of deed theft, home equity theft and foreclosure rescue frauds in which 3rd party financiers, generally representing themselves as foreclosure experts, aggressively pursued troubled homeowners by promising to "save" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was meant to address "2 primary types of deceitful and violent practices in the purchase or transfer of distressed residential or commercial properties." In the first situation, the house owner was "deceived or fooled into finalizing over the deed" in the belief that they "were just getting a loan or refinancing. In the second, "the house owner intentionally signs over the deed, with the expectation of momentarily renting the residential or commercial property and after that having the ability to buy it back, but soon discovers that the offer is structured in a way that the property owner can not manage it. The result is that the house owner is evicted, 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-an includes a number of protections versus home equity theft of a "residence in foreclosure", consisting of offering homeowners with details required to make a notified decision regarding the sale or transfer of the residential or commercial property, restriction against unreasonable agreement terms and deceit; and, most importantly, where the equity sale remains in product violation 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 specific banking institutions, foreclosure counsel and title insurance providers are concerned that § 265-a can be read 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 "residence in foreclosure" within the meaning of § 265-a) and therefore limits their capability to provide deeds in lieu to property owners in appropriate 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 misguided.

It is a basic guideline of statutory building 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 legislative finding supporting § 265-a, which appears in neighborhood 1 of the section, makes clear the target of the brand-new area:

During the time duration in between the default on the mortgage and the arranged foreclosure sale date, homeowners in monetary distress, particularly poor, elderly, and financially unsophisticated property owners, are vulnerable to aggressive "equity purchasers" who cause property owners to sell their homes for a small portion of their reasonable market worths, or in some cases even sign away their homes, through the usage of schemes which typically involve oral and written misrepresentations, deceit, intimidation, and other unreasonable business practices.

In contrast to the bill's plainly stated function of addressing "the growing issue of deed theft, home equity theft and foreclosure rescue frauds," there is no sign that the drafters prepared for that the bill would cover deeds in lieu of foreclosure (likewise called a "deed in lieu" or "DIL") offered by a debtor 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 common method to prevent prolonged foreclosure proceedings, which may allow the mortgagor to get a number of benefits, 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 representative of such person) 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 complete or partial satisfaction of the mortgage debt, as long as there is no arrangement to reconvey the residential or commercial property to the customer and the current market price of the home is less than the amount owing under the mortgage. That fact might be demonstrated by an appraisal or a broker rate viewpoint 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 completely or partial complete satisfaction of the mortgage financial obligation. While the lending institution is expected to pursue home retention loss mitigation choices, such as a loan modification, with a delinquent customer who wants to remain in the home, a deed in lieu can be useful to the debtor in certain circumstances. For example, a deed in lieu might be helpful for the borrower where the quantity owing under the mortgage exceeds the existing market worth of the mortgaged residential or commercial property, and the customer may for that reason be lawfully accountable for the deficiency, or where the customer's circumstances have changed and she or he is no longer able to pay for to pay of principal, interest, taxes and insurance coverage, and the loan does not get approved for a modification under readily available programs. The DIL launches the debtor from all or most of the individual insolvency related to the defaulted loan. Often, in return for conserving 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 add to the customer's moving expenses. It also 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 many maintenance requirements. Fannie Mae and HUD both acknowledge that DILs might be advantageous for debtors in default who do not certify for other loss mitigation choices. The federal Home Affordable Mortgage Program ("HAMP") needs getting involved lending institutions and mortgage servicers to consider a customer identified to be qualified for a HAMP adjustment or other home retention option 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 brief sales and deeds in lieu offered under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an uses to a deal with regard to a "home in foreclosure," in the opinion of the Department, it does not apply 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 left out from the definition 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, we think such omission does not show an intention to cover a purchaser of a DIL, but rather shows that the drafters contemplated that § 265-a used only to the fraudsters and deceitful entities who stole a property owner's equity and to bona fide buyers who may buy the residential or commercial property from them. We do not believe that a statute that was planned to "manage higher securities to house owners confronted 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 alternative to foreclosure. Nor do we believe an interpretation that requires mortgagees who have the unassailable right to foreclose to pursue the more costly and lengthy judicial foreclosure process is reasonable. Such an analysis breaks a basic guideline of statutory building and construction that statutes be "offered a sensible construction, it being presumed that the Legislature intended a reasonable outcome." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have actually discovered 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 mention HETPA include other sections 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 few cases that do not include other foreclosure requirements include fraudulent 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).