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 adopted in 2006 to handle the growing nationwide problem of deed theft, home equity theft and foreclosure rescue frauds in which 3rd party investors, normally representing themselves as foreclosure professionals, aggressively pursued troubled house owners by assuring to "conserve" their home. As kept in mind in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was planned to deal with "2 main kinds of deceptive and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the first scenario, the property owner was "misinformed or fooled into signing over the deed" in the belief that they "were just obtaining a loan or refinancing. In the 2nd, "the house owner purposefully transfer the deed, with the expectation of briefly renting the residential or commercial property and after that having the ability to buy it back, but soon finds that the offer is structured in such a way that the homeowner can not afford it. The outcome is that the homeowner is evicted, loses the right to purchase the residential or commercial property back and loses all of the equity that had been developed in your house."

Section 265-a contains a number of securities versus home equity theft of a "residence in foreclosure", including offering property owners with details essential to make an informed decision regarding the sale or transfer of the residential or commercial property, prohibition against unfair contract terms and deceit; and, most importantly, where the equity sale remains in material infraction of § 265-a, the opportunity to rescind the transaction within 2 years of the date of the recording of the conveyance.

It has pertained to the attention of the Banking Department that certain banking institutions, foreclosure counsel and title insurance companies are worried 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 individual whose foreclosure action makes the mortgagor's residential or commercial property a "home in foreclosure" within the meaning of § 265-a) and thus restricts their ability to offer 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 interpretations are misdirected.

It is a fundamental guideline of statutory construction to provide impact 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 section, makes clear the target of the brand-new area:

During the time period in between the default on the mortgage and the arranged foreclosure sale date, homeowners in financial distress, specifically poor, senior, and financially unsophisticated homeowners, are vulnerable to aggressive "equity purchasers" who cause house owners to sell their homes for a small portion of their reasonable market price, or in some cases even sign away their homes, through making use of plans which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.

In contrast to the bill's clearly specified function of dealing with "the growing problem of deed theft, home equity theft and foreclosure rescue frauds," there is no indicator that the drafters anticipated that the expense would cover deeds in lieu of foreclosure (also known as a "deed in lieu" or "DIL") offered by a customer to the lending institution or subsequent holder of the mortgage note when the home is at threat of foreclosure. A deed in lieu of foreclosure is a typical approach to prevent lengthy foreclosure procedures, which may enable the mortgagor to get a variety of advantages, as detailed below. Consequently, in the opinion 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 participated in, when such person accepts accept a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage debt, as long as there is no contract to reconvey the residential or commercial property to the customer and the current market price of the home is less than the quantity owing under the mortgage. That reality 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 communicates to the lending institution, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage financial obligation. While the lender is expected to pursue home retention loss mitigation alternatives, such as a loan modification, with a delinquent borrower who wishes to stay in the home, a deed in lieu can be advantageous to the borrower in certain situations. For example, a deed in lieu might be helpful for the borrower where the amount owing under the mortgage goes beyond the current market worth of the mortgaged residential or commercial property, and the debtor may therefore be lawfully liable for the deficiency, or where the borrower's situations have altered and he or she is no longer able to pay for to make payments of principal, interest, taxes and insurance, and the loan does not qualify for a modification under readily available programs. The DIL releases the debtor from all or the majority of the personal 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 shortage judgment and likewise will contribute to the customer's moving costs. It likewise stops the accrual of interest and charges on the financial obligation, prevents the high legal expenses associated with foreclosure and may be less destructive to the house owner's credit than a foreclosure.

In truth, DILs are well-accepted loss mitigation alternatives to foreclosure and have been integrated into the majority of maintenance standards. Fannie Mae and HUD both recognize that DILs may be beneficial for customers in default who do not qualify for other loss mitigation alternatives. The federal Home Affordable Mortgage Program ("HAMP") requires participating lenders and mortgage servicers to consider a debtor identified to be qualified for a HAMP modification 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 certified loss mitigation strategies, including short sales and deeds in lieu provided under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an uses to a transaction with respect 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 treatment of foreclosure. Although a purchaser of a DIL is not particularly omitted 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 intent to cover a purchaser of a DIL, but rather shows that the drafters considered that § 265-an applied just to the scammers and unscrupulous entities who took a homeowner's equity and to bona fide purchasers who may purchase the residential or commercial property from them. We do not believe that a statute that was intended to "afford higher protections to house owners challenged with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), ought to be construed to deprive property 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 lengthy judicial foreclosure procedure is sensible. Such an interpretation breaches an essential rule of statutory construction that statutes be "provided a reasonable construction, it being presumed that the Legislature meant a sensible outcome." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have found no New York case law that supports the proposition that DILs are covered by § 265-a, or that even discuss 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 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 few cases that do not involve other foreclosure requirements include fraudulent deed transactions 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).