In the November 2010 press release, FTC Chairman Jon Leibowitz said, “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

The MARS rule has a three-prong approach – it bans advance fees, requires certain disclosures and prohibits certain claims:

Advance Fees

Mortgage Relief companies may not collect any fee until they have provided the homeowner with:

• a written offer from their lender or servicer that the consumer decides is acceptable; and
• a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

Required Disclosures

In any advertising and in communications directed at individual consumers (such as telemarketing calls), the mortgage relief companies must make the following disclosures:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
• the lender may not agree to change the consumer’s loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Further, these companies must also disclose in their communications to consumers that

• they can stop doing business with the company at any time,
• can accept or reject any offer the company obtains from the lender or servicer, and
• if they reject the offer, they don’t have to pay the company’s fee – said fee must also be disclosed

Prohibited Claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

In addition, the rule prohibits mortgage relief companies from telling homeowners to stop communicating with their lenders or their representatives.   Further, these companies must also have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Lastly, it is a violation of the MARS Rule for any person to provide substantial assistance or support to a MARS Provider when that person knows or consciously avoids knowing that the MARS Provider is engaged in any act or practice that violates this Final Rule. (16 CFR Section 322.6).

Q&A:

What Exactly Are Mortgage Relief Services?

Mortgage Assistance Relief Services (MARS) are services offered or provided to a Consumer for consideration that are intended directly or indirectly to assist the Consumer with regard to:

1. Stopping or postponing a foreclosure sale;
2. Negotiating or arranging a Modification of a Dwelling Loan;
3. Obtaining a forbearance in the timing of payments due on a Dwelling Loan;
4. Negotiating or arranging any extension of the time period for curing a default or reinstating the Dwelling Loan;
5. Obtaining a waiver of an acceleration clause or balloon payment in a Dwelling Loan;
6. Negotiating or arranging a short sale, deed-in-lieu of foreclosure, title reconveyance, sale/leaseback or any other disposition of the Dwelling other than a sale to a third-party purchaser;
7. Offering or conducting a Forensic Loan Audit which is a legal analysis of mortgage loan documents for the purpose of finding compliance violations under federal and/or state law or regulation for the alleged purpose of helping Consumers acquire leverage over their Servicers;
8. Marketing of services to assist consumers in selling a   Dwelling to a third party if the intent of the sale is to enable the Consumer to avoid foreclosure; and
9. Marketing of refinancing options by Mortgage Brokers if offered to avoid a foreclosure.

Does MARS Apply to Attorneys?

Attorneys are fully exempt if they:

1. Provide mortgage assistance relief as part of the practice of law;
2. Are licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumer’s dwelling is located;
3. Comply with state laws and regulations that cover the same type of conduct the rule requires;
4. Deposit any funds received from the consumer prior to performing legal services in a client trust account and withdraw fees only as they are earned; and
5. Comply with all state laws and regulations, including licensing regulations, applicable to client trust accounts.

Does MARS Apply to Real Estate Agents?

It appears from examination of the language contained in the Supplementary Information in the Federal Register that the intent was to avoid including real estate brokers and agents handling sales of real property in the definition of MARS.  However, it is certainly clear that real estate agents and brokers handling short sales, title re-conveyance or any other sale or endeavor undertaken in an effort to stop a foreclosure sale would be covered by the MARS definition.

The Supplementary Information states that the FTC does not consider the typical functions of real estate brokers, including showing homes, finding homes for Borrowers and listing homes for sale, to be MARS functions.  Nonetheless, any endeavor undertaken by a real estate agent or broker in an effort to prevent a foreclosure other than these typical functions, such as negotiating with a Servicer the terms of a short sale,WILL be considered a MARS activity.

The MARS rule is something with which everyone involved in, either directly or indirectly, assisting consumers avoid foreclosure will need to understand and be in compliance with.  It is broad and far reaching. The penalties for non-compliance with the FTC’s new MARS rule are $11,000 a day.

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

It is not light reading by a long stretch. Understanding the securitization process from the originator to the Trustee, locating and understanding the governing document, the Pooling & Servicing Agreement (PSA), is no simple matter. But we have done just that and analyzed numerous defective Assignments of Mortgage for New York City properties.  These banks and their respective attorneys flagrantly ignore the rule of law, routinely perjury themselves, do documents without authority, and directly violate the terms of the PSA.  These banks have also been paid over and over for the same loan because of the over-collateralization of these mortgage securities, but seek to enrich themselves further by availing themselves of the remedy of foreclosure.  And yet, the tax payer pays them yet again, via the Obama Administration, instead of taking that same money to make jobs to bolster our sagging economy.

These banks are posting record profits for 2010 as our country fails to recover for lack of not only jobs but of credit.  The purpose of the TARP funds was to give an incentive to the banks to extend credit but they failed to do so and really decreased lending.  Congress, in their haste, failed to include any strings in that gift package.  The Wall Street Journal indicated that such failure was the reason for the decreased lending:

The fact that loan portfolios are shrinking at many of the largest TARP recipients underscores how few strings Treasury Department officials attached to the infusions. That has made it hard to prevent banks from using the money to pay dividends, make acquisitions and fund bonuses for top executives.

Pioneers saw what the banks were doing – getting rich from tax payers’ monies and then enriching themselves further through foreclosure of these overcollateralized securities or peoples’ homes. They fought the banks in court by going back to the basics and not just blinding accepting the banks’ right to foreclose on their “security”.  It started with “produce the note” because the whole mortgage industry had gotten sloppy and couldn’t locate their documents.  But then it went further, questioning whether the bank really owned the Note and if you could foreclose on a mortgage once it had morphed into a security. MERS‘ role was being investigated and foreclosure defense lawyers questioned whether or not it could bring a foreclosure action as plaintiff, because it did not really own the Note as well as failed to maintain a proper chain of assignment.

These very foreclosure defense attorneys and judges, inundated with millions of foreclosure actions, started to see an hideous pattern and the same names over and over again, executing assignments, affidavits of merit etc.  Brooklyn’s own Judge Schack has been on the forefront of demanding legal compliance from the banks and making them account for their failure to adhere to the law as well as outright committing fraud.  Our courts have been on the forefront of insuring that homeowners’ rights are not trampled – that the banks act in excellent faith and when they don’t – holding them liable for it.  The banks and their attorneys step very carefully into our courts these days for dread of the ultimate punishment – dismissal of their action with prejudice.

I reckon 2011 is the year we take back our country from Wall Street and the banks. The tide is turning.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

In the highly publicized choice, Judge Spinner had not only vacated the Judgment of Foreclosure, but ordered that the mortgage and note be cancelled in their entirety. Spinner blisteringly castigated the plaintiff and characterized its course of conduct as “wholly unsupportable at law or in equity, greatly egregious and so completely devoid of excellent faith that equity cannot be permitted to intervene on its behalf. Indeed, plaintiff’s actions toward defendant in this matter have been harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned”.

The Appellate Division held that the such a severe sanction was “not authorized by statute or rule” and the bank was not given “honest warning that such a sanction was even under consideration”.  Further, the court held that the trial court’s equity powers did not include the “authority to cancel the note and mortgage since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank” noting that a judgement had already been entered in the bank’s favor.  The court’s opinion can be found here.

Judge Spinner has gotten the attention of the banks in a huge way – his three recent decisions, Indymac Bank v. Yano-Horoski (cancelling note and mortgage), Wells Fargo v. Tyson (awarded $155,000 in hurts to the homeowner) and Emigrant Mortgage v. Corcione (awarded $100,000 in hurts to the homeowner) has made him the hero of the foreclosure defense community and a fearsome figure to the foreclosure plaintiffs.  Spinner just issued another crushing choice on December 1st in U.S. Bank v. Mathon 2010 NY Slip Op 52082(U) granting Defendant’s Order to Show Cause, staying all proceedings and scheduling a hearing for possible sanctions against the Plaintiff and other possible remedial relief based on the bank’s appalling terrible faith dealings on a loan modification.  The Banks’ attorneys no longer entrust their cases to junior associate,s when appearing in his courtroom at mandatory settlement conferences, because apparently, the risks are too fantastic.

Am I shocked at the Appellate Division’s reversal? Not at all – I really predicted this would be the outcome.  As you get higher up the food chain, it gets to be more about policy than law sometimes.  The Yano-Horoski trial court choice would have set a perilous precedent and sent shock waves through the mortgage credit industry.  A mortgage is a debt security and should a judge just cancel such a debt based upon broad powers of equity, what bank would lend on a home in such a climate?  And if the bank were willing to risk it, at what cost to the consumer?  The banks would need to insulate themselves against the risk of mortgage cancellation and the way they do that is by increasing the profit margin dramatically.  Also, lets look to the every day people who are paying their mortgage every day, even if their house is underwater – what would be their reaction if all of sudden, homeowners left and right were given free houses? The outrage would start to build (if it hasn’t already) – and they would start to wonder why should they pay their mortgages?

I believe that the parties will quietly come to a settlement, probably sealed of course, and the Horoskis will receive a nicely, modified loan with a stout principal reduction and the bank has a stellar precedent on the appellate record.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Jack of All Trades and Master of None: Attorneys Wearing Multiple Hats in a Transaction
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

The New York Court of Appeal recently opined in NYCTL 1999-1 Trust v. 573 Jackson Avenue Realty Corp., 13.N.Y.3d 573 (December 15, 2009) that the definitive requirement for redeeming real property during foreclosure proceedings  is the “unconditional tender [to the foreclosing party] of the full amount due” before auction.  This general rule in mortgage foreclosure proceedings also applies to the foreclosure of a tax lien.

But, note that the Courts will exercise their broad equitable powers to void judgments and even set aside sales (extending the homeowner's right of redemption), where homeowners are seeking to modify or reinstate their mortgages while the lender continues with the foreclosure action. Jimmy Lathrop, Esq., the Director of Foreclosure Intervention at the Brooklyn Bar Association Volunteer Lawyers Project, recently discussed in his blog post,  three cases where the court found that the homeowner's excellent faith negotiations mandated an equitable solution and a possible complete bypass of RPAPL §1341 which defines the requirements and time frame of the borrower's right of redemption.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

Having recently issued a choice canceling an Indymac mortgage lien in another foreclosure action, Judge Spinner turns his attention to the outrageous actions of Wells Fargo and holds the mortgage behemoth liable for trespass, resulting in $155,092.00 judgment, in Wells Fargo v. Tyson. At the outset, the court pointed out that the Plaintiff sent a per diem attorney to the first  settlement conference who had no knowledge of the case so that any potential progress was thwarted.  It is a common problem and a recurring complaint that usually Plaintiff’s representative, at these settlement conferences, has no authority to negotiate, thus preventing any meaningful settlement and violating the spirit of the law. Having aroused the ire of numerous judges, you would reckon that these foreclosure mill law firms would figure out that they had better send counsel with authority to enter into some sort of settlement or at least have the ability to get someone on the phone who has it.

Certain facts were not disputed – that Wells Fargo had a representative enter the premises, without notice, not once but twice.  The representative changed the locks despite the fact that the premises were obviously not abandoned by the defendant.  Defendant had previously winterized the home, secured it, maintained the exterior of the premises and did not remove his furniture, clothing, food etc.  Defendant also visited the home at least once a week and had questioned a neighbor to keep an eye on the premises.

Plaintiff relies on certain language in the mortgage itself: “Lender, and others authorized by Lender may enter on and inspect the Property. They will do so in a reasonable manner and at reasonable times. If it has a reasonable purpose, Lender may inspect the inside of the home or other improvements on the Property. Before or at the time an inspection is made, Lender will give me notice stating a reasonable purpose for such interior inspection.” as well as the express provisions in another paragraph regarding abandonment: “If…I have abandoned the Property, then Lender may do and pay for whatever is reasonable and appropriate to protect Lender’s interest in the Property…Lender’s actions may include but are not limited to: (a) protecting and/or assessing the value of the Property; (b) securing and/or repairing the Property;…Lender can also enter the Property to make repairs, change locks…and take any other action to secure the Property.”

In its analysis, the court first noted that mortgage documents and their terms are not negotiable and as such, are contracts of adhesion.  Therefore, they are to be construed strictly against the drafter – the plaintiff herein.  Belt Painting Corp. v. TIG Insurance Company 100 NY2d 377 (2000). “Under the circumstances presented to this Court, it is appropriate and honest that the terms of the instrument be construed in favor of Defendant.”  Using a honest reading of the above language, it is apparent that the Lender’s actions must be reasonable and entry can only be upon adequate notice. Further, abandonment of the property is a condition-predicate to entry and the testimony of the defendant substantiated defendant’s claims that he had not abandoned the property.

Based upon the foregoing facts, Spinner declared that the Plaintiff  engaged in a Trespass on at least two occasions:

Distilled to its very essence, trespass is characterized by one’s intentional entry, with neither permission nor legal justification, upon the real property of another, Woodhull v. Town of Riverhead 46 AD3d 802, 849 NYS2d 79 (2nd Dept. 2007). The injury arising [*4]therefrom afflicts the owner’s right of exclusive possession of the property, Steinfeld v. Morris 258 AD 228, 16 NYS2d 155 (1st Dept. 1939), Kaplan v. Incorporated Village of Lynbrook 12 AD3d 410, 784 NYS2d 586 (2nd Dept. 2004). The elements of a claim for trespass are intent coupled with the entry upon the land that is in possession of another. In order for trespass to lie, general intent is legally insufficient. Instead, there must be a specific intent, either to enter the land or to engage in some act whereby it is substantially certain that such entry onto the land will result therefrom, Phillips v. Sun Oil Co. 307 NY 328, 121 NE2d 249 (1954). The intent need not be illegal or unlawful, MacDonald v. Parama Inc. 15 AD2d 797, 224 NYS2d 854 (2nd Dept. 1962) but even one who enters the land upon the erroneous belief that he has the right to enter thereon will be held liable in trespass, Burger v. Singh 28 AD3d 695, 816 NYS2d 478 (2nd Dept. 2006). Trespass will lie against a party if entry upon the land was perpetrated by a third party, such as an independent contractor or other party, at the direction of the party to be charged, Gracey v. Van Kamp 299 AD2d 837, 750 NYS2d 400 (4th Dept. 2002). Id.

Turning to the issue of hurts, the court expressed that a foreclosure action is an action in equity and as such, it may impose punitive hurts.  “In a suit in equity, the Court is empowered with jurisdiction to do that which ought to be done.” Id.  Spinner then turned to address the bank’s egregious conduct:

Here, the Court is constrained to find that the conduct of Plaintiff in this matter was both willful and wanton, as evidenced by not one but two unauthorized entries into Defendant’s dwelling, occurring in complete derogation of Defendant’s right of possession. This conduct becomes even more glaring when consideration is given to the fact that Defendant affirmatively told Plaintiff that he had secured the property and that it was not abandoned and still contained his personal property. Even so, Plaintiff maintains that it has entered the property under a color of right, which turns out to be illusory under the circumstances. In spite of these declarations, Plaintiff willfully took it upon itself to enter the property on more than one occasion, doing so unreasonably and without notice, in direct contravention of the terms of its mortgage promulgated to Defendant by its assignor. This is even more distressing when it is considered that Plaintiff breaches its obligations to Defendant under the mortgage, running roughshod over Defendant’s rights with a specious claim that it is acting to protect its rights and the property. In small, the conduct of Plaintiff was nothing small of oppressive and would best be described as heavy handed and egregious, to say the very least. Certainly, the trespass was willful and calculated and was not accidental in any way and the Court finds that Plaintiff did not act in excellent faith. Under these circumstances, an award of both actual and exemplary hurts is necessary and appropriate in order to properly compensate Defendant for the losses he has sustained by way of Plaintiff’s shockingly wrongful conduct as well as to serve as an appropriate deterrent to any future outrageous, improper and unlawful deeds.  Id.

Unfortunately, it appears that this type of behavior is not unheard of by members of the real estate bar.  One member noted that a similar situation occurred with a foreclosure defendant client of his.  Although he had secured and winterized the premises, the bank’s inspection service alleged the premises were wide open and entered the premises.  They also changed the premises, turned the valves to “turn off the water” which instead resulted with the water being turned on.  The pipes burst and flooded the home.

The court’s actions in Wells Fargo v. Tyson should send a clear and unequivocal message to Lenders and their various contractors that they do not have an absolute right to enter a mortgagor’s property and such behavior will not be tolerated.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
3. Real Estate Law Update: New York State Decisions of Interest

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The online real estate community was buzzing yesterday as news of this waiver spread quickly. The investor “gurus” are, of course, rejoicing and spreading the news far and wide, without a careful read of the Waiver itself.  The intent of this temporary policy change is to allow investors to take title to a property, rehab it and sell it quickly. It is not a panacea for those investors who pick up a property at a discount, seeking to flip it for a profit in a “back to back” or “double” closing.  For those types of transactions, the 90 day seasoning rule is a non-issue if you utilize a land trust correctly.

HUD’s Mortgagee Letter 2006-14 clarified the Rule and Regulations set forth in 24 CFR 203.37a concerning the eligibility of properties for FHA insurance and the rules governing sales of property.  As I have discussed in a previous blog post,  Legal Analysis of FHA’s Seasoning Requirements, the real estate and mortgage industry routinely misunderstands and applies these eligibility rules incorrectly and it appears that the trend is continuing with this new Waiver.

FAQS:

1. Does it have to be a property bought through a small sale, bank auction or an REO to be eligible under the Waiver?

No. There are no requirements in the Waiver concerning the status of the property itself.  It is not necessary to demonstrate the distressed nature of the property.

2. So I can get a property under contract, do a contract with a potential FHA buyer and close with my FHA buyer the same day or the day after I buy the property?

No this transaction would not be eligible for FHA insurance. The waiver is really of the requirement that the real estate contract be executed on the 91st day after the investor takes title to the property. The requirement that the investor own the property is still in effect and therefore Contract Vendees and Assignments of contract are still prohibited.  Further, an application for an FHA mortgage cannot be submitted to a Lender for consideration without a fully executed Contract.  Therefore, Back to Back Closings will be impossible.

3. So I can close a week after I take title?

Virtually impossible for several reasons. I venture that there are nearly no Lenders in this post-bubble market that will take an application for an FHA mortgage and be in a position to close a week later.  I am going to stretch that to probably 30 days.  This is certain if your sale price to your FHA buyer is 20% or more higher than your acquisition price (do the math – its not that hard to hit that number – especially in certain areas of the country where housing prices are below $50,000). If the sale price exceeds the 20% threshhold, the investor will have to document the increase in value with supporting documentation and/or a second appraisal and the Lender will have to obtain a Property Inspection Report (see paragraph 2 of the Waiver).  This report will not be ordered prior to application submittal and as discussed previously, that doesn’t take place until there is a fully executed Contract of Sale.

4. I found this fantastic property that my buddy picked up 2 months ago for $120,000.00.  He rehabbed it and I am in contract to buy it from him for $220,000.  I want to flip it to an FHA buyer for $250,000.00 can I do it?

You will have to wait until the 91st day after you close title to enter into a Contract of Sale with the FHA buyer. The Waiver will not apply if there is a history of prior flipping activity in the 12 month chain of title (see paragraph 1(c) of the Waiver).

5. In April, the Treasury’s Small Sale Program goes into effect and there should be a lot of distressed properties coming on to the market. The Waiver is going to be a huge help in moving those properties!

No, it isn’t.  Apparently, government offices do not communicate with each other before issuing rulings – one of the requirements under the Treasury small sale program is that the Contract include a representation that the Purchaser will hold the property for 90 days post-closing.  Perhaps the Treasury will revise its Directive and remove this offending language (which, as I had discussed previously, is extremely small-sighted).

Conclusion

Investors should rejoice as finally they are receiving the recognition they deserve: properties are moving because of their hard work and without the proper incentive, it wouldn’t happen. Instead of being the black sheep of the real estate community, investors are a major part of the solution.  This Waiver is what investors need to get the properties rehabbed, sold and occupied to ameliorate the problem of abandoned and blighted homes. It is not a license to flip and should you wish to engage in that type of activity, you will not be able to use this Waiver to accomplish your goals.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Just a heads up on some of the changes that came into effect this past Wesnesday, April 1, 2009, complements of the Mortgage Currency staff:

FHA just released ML 2009-08 – Limits on Cash Out Refinances – going to 85% with case numbers after April 1, 2009. The news is that the 95%’s cash out refi’s are going away – for now!

Plus the 85% will be figured on the Combined LTV!

* New Subordinate Financing: New subordinate financing + new FHA first mortgage + any new junior liens cannot exceed 85% CLTV.

* Existing Subordinate Financing: May remain in place, subordinate to new FHA first mortgage, with no regard for CLTV.

* Modified Subordinate Financing: Newly modified existing subordinate financing that has to be re-executed at closing with new FHA loan is not considered a new subordinate lien. It is treated as existing subordinate financing.Other Reminders

* Delinquent borrowers are not eligible * Must have owned the property at least 12 months

* If owned less than 12 months, value based on the sale price or appraisal–the lower of the two

* Two appraisals required when loan amount exceeds $417,000 (before UFMIP) and is in declining area

* No co-signers or non-owner occupants can be added to meet credit underwriting guidelines

Mortgage Talking Points

Tags: FHA, guidelines, cash-out, refinance, mortgages

Related posts:

1. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. HUD News Release 08-082 FHA Temporarily Lifts Anti-Flipping Rule (Don’t get all excited yet though!)

Governor Patterson signed Governor’s Program Bill #44 into law today as it was passed by the NY Assembly (A.10817-A) and Senate (S.8143-A).  The law affects notice provisions in foreclosure actions including extending a “grace period” by adding a 90 Day Pre-Foreclosure Notice. It also extends restrictions and prohibitions to “subprime mortgages”, mortgage brokers, prohibits prepayment penalties on high-cost and subprime mortgages, and criminalizes residential mortgage fraud.  Lastly, it institutes certain requirements and restrictions on “Distressed Property Consultants” (those who seek to negotiate small sales, loan modifications etc.) including numerous strict requirements such as requiring written, notarized contracts with a right to cancel, prohibiting collection of upfront fees or collecting Powers of Attorney from distressed homeowners etc.  Attorneys, non-profit organizations, and lenders are exempt from these requirements.  , The NY legislative site contains the following summary:

SUMMARY:
FARLEY, MALTESE, PADAVAN, FLANAGAN, GOLDEN, LANZA, MORAHAN, RATH, TRUNZO
Amd SS1303 & 1302, add S1304, RPAP L; add R3408, CPLR; amd Bank L, generally; amd S5-501, Gen Ob L; add Art 187 SS187.00 – 187.25, amd S460.10, Pen L; amd S700.05, CP L; add S265-b, RP L
Requires lender and mortgage loan servicers to give borrowers with high-cost home loans or higher-priced home loans ninety days notice before certain actions are taken; establishes all home loans shall be subject to certain standards and limitations; makes the crimes of residential mortgage fraud in the first, second, third, fourth and fifth degrees; relates to distressed property consulting contracts.
CRIMINAL SANCTION IMPACT.
Governor’s Program

The  bill provides new protections for foreclosures of high cost loans. subprime  home loans and non-traditional home loans. See new RPAPL 1304, and definition of Lender in(5)(g) which seems to exclude the occasional private lender. But , the bill would also amend the form of notice currently required to be issued in the  foreclosure of 1-4 family owner occupied residential properties per RPAPL 1303 and it  adds a new Rule 3408 re mandatory judicial conferences in certain foreclosure actions. You would need to look at the definitions in each of these provisions to see if private lenders are ” exempt.”

 The following is a link to the legislative web site where you can obtain a copy of the bill  and the memorandum in support :

http://public.leginfo.state.ny.us/menugetf.cgi  (enter in the bill number: A.10817-A).

The Empire Justice Center, which advocates on behalf of New Yorkers, has provided a preliminary summary of the pertinent parts of the new law and provides an brilliant starting point for digesting the contents of this sweeping change to our real property laws:

119 Washington Ave.¿ Albany, NY 12210

Phone 518.462.6831 ¿ Fax 518.462.6687

www.empirejustice.org

Foreclosure Prevention and Responsible Lending Act of 2008

Summary of Program Bill #44 (A.10817-A/S.8143-A)

Sec. 1 – Amendment to Notice Required Under the Home Equity Theft Prevention Act   (amends RPAPL § 1303)

Amends the notice required under the Home Equity Theft Prevention Act (RPAPL  §  1303) to include language advising the homeowner to immediately contact a lawyer or legal aid office upon receipt of the summons and complaint to obtain advice on how to protect themselves.  Language also is added to warn homeowners about a broader array of foreclosure rescue scams.  The amended notice must be included with the foreclosure summons and complaint starting September 1, 2008.

Sec. 2 – Ninety-Day Pre-Foreclosure Notice (adds RPAPL § 1304)

Starting September 1, 2008, lenders or mortgage loan servicers will be required to send homeowners with high-cost,[i] subprime,[ii] and non-traditional[iii] home loans a notice at least 90 days prior to the commencement of a legal action.  Notices must be sent to the borrower by registered or certified mail and by first-class mail, to the last known address of the borrower.     

            Notice language is set forth in the Act and must be in fourteen-point font.  The notice must state the number of days in default, the amount owed and the telephone number of the lender or servicer.  If the matter is not resolved in 90 days the lender can take action against the homeowner.  The lender or servicer must attach a list of at least five government approved housing counseling agencies in the homeowner’s geographic region that provide free or low-cost counseling.[iv]  The notice directs the homeowner to call the Banking Department’s Toll-Free Helpline or go to their website for more information. 

The 90-day period generally does not apply to mortgagors in bankruptcy, or if the borrower does not occupy that residence as their principal dwelling.  The notice and the ninety-day period must be provided once per year to the same borrower for the same loan.

Remedies:  A defendant may raise a violation of this section as a defense to a foreclosure action. 

Sec. 3 – Mandatory Settlement Conferences (amends CPLR Rule 3408)

Effective September 1, 2008, for residential foreclosure actions involving a high-cost home loan made between January 1, 2003 and September 1, 2008, or a subprime,[v] or a nontraditional[vi] loan where the defendant is a resident of the property, there must be a mandatory conference held by the court, within sixty days after the date proof of service of the foreclosure is filed with the county clerk, or on an adjourned date agreed to by the parties.  If the defendant appears pro se at the conference, the court may assign counsel.  The plaintiff may appear in person or by counsel, but if appearing by counsel the representative must be fully authorized to dispose of the case.  The court may allow the plaintiff’s representative to participate by telephone or video conference. 

For foreclosure actions which started prior to September 1, 2008, but where there is no final order of judgment, the defendant has a right to request a settlement conference.  The court shall request the plaintiff to identify if the loan is a high-cost or subprime loan and will send a notice to the defendant.  When requested, the conference must be held as soon as practicable.

Sec. 4 – High-Cost Home Loans (amends Banking Law § 6-1)

            >Additional prohibitions on “high-cost home loans”[vii] are added to Banking Law § 6-l, effective September 1, 2008, including a ban on payment option loans, prepayment penalties, teaser rates with a duration less than six months, and yield spread premiums (unless properly told and used to offset up front costs).  Lenders also are required to tell the taxes and insurance payment when they first present a potential monthly payment.  Starting July 1, 2010, lenders will be required to escrow for taxes and insurance.[viii]  

            Remedies:  Remedies for violations of Banking Law § 6-l remain the same.  These include actual, consequential and incidental hurts, statutory hurts, rescission, injunctive, declaratory or other equitable relief, and attorneys’ fees, depending on the nature of the violation.  Defendants may raise violations as a defense to a foreclosure action, as well.  The Attorney General and Superintendent of the Banking Department (“Superintendent”) are authorized to enforce the law.  

Sec. 5 – Subprime Home Loans (adds Banking Law § 6-m)

            Prohibitions and regulations are extended to “subprime home loans,”[ix] effective September 1, 2008.  Generally the prohibitions and regulations are the same as set forth for “high-cost home loans” including:  no negatively amortizing loans, including payment option loans; no financing insurance or other products unrelated to loan; no refinancing special mortgages; no loan flipping; no kickbacks or other payments to mortgage brokers for services not rendered, or not reasonably related to the value of excellent or services; no yield spread premiums that do not offset up front costs and are not properly told;  no prepayment penalties; and no teaser rates with a duration of less than six months.  Additional prohibitions are set forth in the Act.

Lenders making subprime loans must verify that the borrower has the ability to repay the loan, taking into account escrow payments, current and expected income, credit history, current obligations, employment status and other financial resources apart from the home.  If the loan is an adjustable rate mortgage (ARM), payment ability must be based on the monthly payment calculated at the fully indexed rate.[x]    

            Lenders must provide borrowers a counseling notice with a list of counselors, similar to the notice provided for “high-cost” loans and must tell the taxes and insurance payment amount the first time borrower is informed of monthly payment amount.  Starting July 1, 2010, lenders will be required to escrow for taxes and insurance.  Subprime home loans must include a legend at the top that the mortgage is a subprime home loan subject to Banking Law § 6-m.  Lenders are also explicitly prohibited from splitting loans or otherwise attempting in terrible faith to avoid coverage under the act.  

            Remedies:   Borrowers are entitled to actual hurts for violations of Banking Law § 6-m, and may also be awarded injunctive, declaratory and such other equitable relief the court deems appropriate in an action to enforce compliance with this the law.  Borrowers may raise violations as a defense to a foreclosure action and the court may award, in addition to other hurts, attorneys’ fees to the defendant.  The Attorney General and Superintendent also may bring enforcement actions.   

Secs. 6, 13 – Restrictions on Mortgage Brokers (adds Banking Law § 590-b)

Mortgage brokers must act in the borrower’s interest, with reasonable skill, care and diligence and in excellent faith and with
honest dealing.  Brokers are prohibited from directly or indirectly accepting, giving or charging any undisclosed compensation, and must clearly tell to the borrower within three days of the loan application all material information that could affect the borrower’s ability to get the loan.  Brokers must present borrowers with a range of potential appropriate loan products.  Mortgage brokers and lenders, are prohibited from improperly influencing or attempting to influence the appraisal process relating to a home loan.

Remedies:  Borrowers are entitled to actual hurts, injunctive, declaratory and other equitable relief deemed appropriate by a court for violations of these duties by the broker, or for violations by a lender of the appraisal provisions.  The law allows for a prevailing defendant in a foreclosure action to be awarded attorneys’ fees, implying a right to raise violations as part of a foreclosure defense.  The Attorney General and the Superintendent may bring enforcement actions.

Secs. 7 – 12, and 14-16 – Regulation of Mortgage Loan Servicers. 

Mortgage loan servicers must be registered with the Superintendent, effective July 1, 2009.  The Superintendent must set up registration procedures, and is authorized to promulgate regulations for servicers including requirements for disclosures to homeowners regarding interest rate resets; requirements regarding pay-off statements time frames for which servicers must apply payments; and requirements for servicers to file reports with the Banking Department.  Also, the right of the Superintendent to examine the business records of licensees, and related provisions regarding business practice, are extended to cover servicers. 

Remedies:  The Banking Board may prescribe regulations, as well, including grounds for the imposition of fines or other penalty.  Other remedies are available to the Superintendent and the Banking Board already available in law for violations by other registered entities including an additional penalty to be paid to the people of New York. 

Sec. 17 – Affirmative Allegation of Standing (amends RPAPL § 1302)

            Foreclosure complaints filed on or after September 1, 2008 for high-cost and subprime home loans must include an affirmative allegation that at the time the proceeding was commenced, the plaintiff was the owner and holder of the subject mortgage and note, or has authority to institute the foreclosure lawsuit.  The plaintiff also must aver that they have complied with Banking Law Section 595-a and its regulations, Banking Law § 6-1 and § 6-m, and with the 90 day notice provision (RPAPL Sec. 1304). 

Sec. 18 – Prepayment Penalties (amends General Obligations Law, § 5-501(3)(b))

            Amends current prohibition on prepayment penalties on home loans that are prepaid after one year from the date of loan origination, to specify that “high-cost” and “subprime” loans cannot contain any prepayment penalties, pursuant to Banking Law § 6-l or § 6-m.

Secs. 19–25 – Criminalization of “Residential Mortgage Fraud” (Penal Law Article § 187)

            “Residential mortgage fraud” becomes a new criminal action for fraudulent loans originated on or after November 1, 2008.  The crime is committed by any person who prepares or provides materially fake information for purposes of getting a loan, or in filing documents containing fake information with a county clerk.[xi]  Borrowers applying for a residential mortgage loan who intend to live in the property are exempted
from the definition, unless they act as an accessory.

            Penalties:  Penalties vary based on the compensation received by the offender and range from a Class A misdemeanor to a Class B felony.  Various sections of Criminal Procedure Law, Penal Law and the Banking Law are amended to include “residential mortgage fraud” within their coverage.

Sec. 26 – Requirements for “Distressed Property Consultants” (adds Real Property Law § 265-b)

 “Distressed property consultants” solicit homeowners in default and promise to help them with a work-out, responding to a complaint, or other activities regarding negotiating with the lender.  The definition does not include attorneys, lenders generally, and bona fide not-for-profits such as housing counseling and legal services agencies. 

Effective September 1, 2008, there must be a written contract between the consultant and the homeowner that sets forth the nature of the service, compensation expected and contact information for the consultant.  The homeowner has a right to cancel the contract within five days and must be given a notice of their right to rescind, referrals to non-profit and government agencies, along with two copies of a “Notice of Cancellation” form that the homeowner may use to cancel the contract (language for the notice and form is set forth in the bill).  Consultants are prohibited from receiving payment for services before the full completion of such services, taking power of attorney from the homeowner and retaining original loan documents of the homeowner, among other things.

Remedies:  Violation may result in voidance of the contract, as well as actual and consequential hurts and costs should the homeowner be harmed.  If the violation was intentional or reckless, a court may award treble hurts and attorneys’ fees.  The Attorney General also may bring an action, including an action to enjoin the offender.  

Tags: Foreclosurelaw, distressed property consultant, new york, Governor Patterson, subprime, mortgage, settlement conference, high-cost loan, small sale, loan modification, real estate

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FHA EXTENDS FINANCING FOR IMMEDIATE BUY OF FORECLOSED HOMES Measure seen to bring stability to home values and accelerate sale of vacant properties

WASHINGTON – In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must bought by owner-occupants, will no longer be subject to the customary 90-day waiting period.”A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to buy these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

HUD News Release 08-082

Tags: FHA, REO, foreclosure, flipping, resale, property, mortgages

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