I had an instant messenger conversation last night with a excellent mortgage broker friend of mine who was very upset. Her client’s home was due to be auctioned shortly, even though there was a loan modification in progress. The consultants, retained by the homeowner to help in filing an Order to Show Cause to stop the sale, refused to supply any documents without a $500 weekly payment (they had already collected a decent sum up front). After a heated discussion with the consultants, my friend threatened to file a complaint with the authorities to which the consultant promptly answered that he had a lawyer, he didn’t do anything incorrect and he wasn’t concerned. I realized at this moment that this gentleman had no thought that he was violating the law but he most certainly was and there are serious consequences involved. New York enacted the “Foreclosure Prevention and Responsible Lending Act of 2008 effective September 1, 2008 but utterly failed to properly educate members of the real estate industry in its application and proper compliance. To obtain the pertinent provisions of the law, I did a quick google search but failed to turn up the actual statutes themselves (This Act amended NY’s Banking Law, Real Property Law (RPL) and Real Property and Proceedings Law (RPAPL). I was only able to find interpretations of the Act which did not fully provide the definitions and rules pertaining to Real Property Consultants. As a member of the New York State Bar Association, Real Property Section, I am subscribed to their email listserve. Anyone who knows me can attest to my practice of keeping every email so I was able to do a quick search and find the text of the law. In this post, I will provide the tools to help you in understanding and complying with the law so that you don’t end up with a visit from the NY Attorney General’s office.
Those who have really heard of the Act reckon it only applies to loan modification companies. The statute is far broader in its definition of Distressed Property Consultants and the services they provide. The Act amended NY’s Real Property Law by adding Section 265-b which defines certain terms including “distressed homeowners”, “distressed property consultants”, and “distressed home loans” among others.
Distressed Home Owners
The Act defines in Sec 265-b(1)(a) the “Distressed Home Owner” as a natural person who is the mortgagor with respect to a distressed home loan or who is in danger of losing a home for nonpayment of taxes. Therefore, if your client is a corporation, LLC, Trust etc., they are not natural persons and therefore not Distressed Home Owners under this Act. In conjunction with this definition, it is imperative to view same in light of the definition of “distressed home loan” in subsection (d) which defines it as a home loan that is in danger of being foreclosed because the homeowner has one or more defaults under the mortgage that entitle the lender to accelerate full payment of the mortgage and repossess the property, or a home loan where the lender has
commenced a foreclosure action. To be a Distressed Home Owner, your client must be in default under the terms of their Note and Mortgage which entitles the Lender to accelerate the loan. You must examine the Mortgage, discern the acts that constitute a default as well as under what circumstances allow the Lender to accelerate the loan. Further, the act defines a “home loan” as a loan in which the debt is incurred by the homeowner primarily for personal, family or household purposes, and the loan is secured by a mortgage or deed of trust on property upon which there is located or there is to be located a structure or structures intended principally for occupancy of from one to four families which is or will be occupied by the homeowner as the homeowner’s principal dwelling. The loan must be secured by your client’s principal residence and have been originated as a residential loan to be covered by this Act.
Distressed Property Consultants & Consulting Services
Section 265-b(1)(c) Defines the nature of the consulting services covered by the statute. Such definition is very broad and encompasses far more than loan modification:
(c) “Consulting services” means services provided by a distressed property consultant to a homeowner that the consultant represents will help to achieve any of the following:
(i) stop, enjoin, delay, void, set aside, annul, stay or postpone foreclosure filing, a foreclosure sale or the loss of a home for nonpayment of taxes;
(ii) obtain forbearance from any servicer, beneficiary or mortgagee or relief with respect to the potential loss of the home for nonpayment of taxes;
(iii) help the homeowner to exercise a right of reinstatement or similar right provided in the mortgage documents or any law or to refinance a distressed home loan;
(iv) obtain any extension of the period within which the homeowner may reinstate or otherwise restore his or her rights with respect to the property;
(v) obtain a waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a property in foreclosure;
(vi) help the homeowner to obtain a loan or advance of funds;
(vii) help the homeowner in answering or responding to a summons and complaint, or otherwise providing information regarding the foreclosure complaint and process;
(viii) avoid or ameliorate the impairment of the homeowner’s credit resulting from the commencement of a foreclosure proceeding or tax sale;
or
(ix) save the homeowner’s property from foreclosure or loss for non-payment of taxes.
Therefore, if you perform loan modifications and/or workouts, small sales, credit repair your services are covered. If you help a distressed home owner with obtaining financing, including refinancing or any type of loan or advance, your services are covered (Note exception below for licensed mortgage bankers & brokers). If you provide “consulting” services wherein you help a distressed home owner in defending a foreclosure defense action, your serviced are covered. Or, if you do anything whatsoever that will result in “saving” the home owner’s property from foreclosure or loss from non-payment of taxes, your services are covered. Paragraph (ix) is extremely broad and ambiguous – what constitutes “saving”? That will require clarification by the courts in the future.
What is a Distressed Property Consultant?
While you may have determined that your client is a distressed homeowner who has a distressed home loan and your services are covered by the Act, but the question remains – are you a Distressed Property Consultant?
The Act defines “Distressed Property Consultants” as an individual or a corporation, partnership, limited liability company or other business entity that, directly or indirectly, solicits or undertakes employment to provide consulting services to a homeowner
for compensation or promise of compensation with respect to a
distressed home loan or a potential loss of the home for nonpayment of taxes.
Note: A consultant does not include the following:
(i) an attorney admitted to practice in the state of New York;
(ii) a person or entity who holds or is owed an obligation secured by a lien on any property in foreclosure while the person or entity performs services in connection with the obligation or lien;
(iii) a bank, trust company, private banker, bank holding company,savings bank, savings and loan association, thrift holding company, credit union or insurance company organized under the laws of this state, another state or the United States, or a
subsidiary or affiliate of such entity or a foreign banking corporation licensed
by the superintendent of banks or the comptroller of the currency;
(iv) a federal Department of Housing and Urban Development approved mortgagee and any subsidiary or affiliate of such mortgagee, and any agent or employee of these persons while engaged in the business of such mortgagee;
(v) a judgment creditor of the homeowner, if the judgment creditor’s claim accrued before the written notice of foreclosure sale is sent;
(vi) a title insurer authorized to do business in this state, while performing title insurance and settlement services;
(vii) a person licensed as a mortgage banker or registered as a mortgage broker or registered as a mortgage loan servicer as defined in article twelve-D of the banking law;
(viii) a bona fide not-for-profit organization that offers counseling or advice to homeowners in foreclosure or loan default;
or
(ix) a person licensed or registered in the state to engage in the practice of other professions that the superintendent of banks has determined should not be subject to this section.
Therefore, a Distressed Property Consultant does not necessarily have to be a natural person. Further, if you are an attorney, a Lender, Servicer, Mortgage Banker, Mortgage Broker, Judgment Creditor, Title Insurer, or a Non-Profit you are exempt.
In my next post, I’ll discuss Distressed Property Consultant compliance, proscribed activities and more. Stay tuned!
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If you are providing one of the covered services for which you are seeking compensation directly from the homeowner and you do not fall within one of the exempt categories, you are a distressed property consultant.
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