Bill Text: NY S07232 | 2017-2018 | General Assembly | Introduced
Bill Title: Enacts the "Home Equity Fraud Act" to control improper activities by home improvement contractors and finance companies; prohibits mortgage brokers or agents from acting as home improvement contractors; provides additional protections for mortgagors and homeowners.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Introduced - Dead) 2018-01-04 - REFERRED TO BANKS [S07232 Detail]
Download: New_York-2017-S07232-Introduced.html
STATE OF NEW YORK ________________________________________________________________________ 7232 IN SENATE January 4, 2018 ___________ Introduced by Sen. PARKER -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law, the real property law, the real proper- ty actions and proceedings law, the general business law and the general obligations law, in relation to enacting the "Home Equity Fraud Act" The People of the State of New York, represented in Senate and Assem- bly, do enact as follows: 1 Section 1. Short title. This act shall be known and may be cited as 2 the "Home Equity Fraud Act". 3 § 2. Legislative findings. The legislature hereby finds that many 4 senior citizens and minority homeowners in New York have been targeted 5 by unethical home improvement contractors, mortgage companies, mortgage 6 brokers and finance companies who induce these homeowners into entering 7 into high cost high interest rate mortgage agreements which the homeown- 8 er is often unable to afford with the intent of foreclosing on the home 9 and stripping the equity. 10 The legislature further finds that in order to entice people into 11 entering into these agreements they are promised refinancing of primary 12 mortgages, consolidation of loans and outstanding bills and are given 13 cash but often are not told or do not understand that they are securing 14 the loan with a mortgage lien on their home which will lead to foreclo- 15 sure in the event of default. Often these loans are documented with 16 false and misleading documentation provided by brokers which could easi- 17 ly be determined to be false if checked by the lender. Despite prohibi- 18 tions contained in federal law many of these loans are based on equity 19 in the home and not on the borrower's ability to pay. Since many of 20 these homeowners live on a fixed income, they are unable to make the 21 required payments and end up losing their homes. This practice appears 22 to be targeted in neighborhoods with a high concentration of senior and 23 minority residents. 24 The legislature further finds that it is in the best interest of the 25 citizens of this state that these unethical practices should be prohib- 26 ited by law and that unscrupulous individuals should be denied the abil- EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD07212-01-7S. 7232 2 1 ity to utilize the courts of this state to perpetrate these abuses upon 2 senior citizens and minority residents of this state and does therefore 3 enact this Home Equity Fraud Act in order to prevent predatory lending. 4 § 3. Subdivision 1 of section 595-a of the banking law is amended by 5 adding four new paragraphs (i), (j), (k) and (l) to read as follows: 6 (i) Engaging in any activity, transaction or course of business in 7 connection with a home improvement contract as described in section 8 seven hundred seventy of the general business law other than with regard 9 to providing services directly connected with the making of a mortgage 10 loan pursuant to the provisions of this article, and only if such 11 services and the fees paid or to be paid in connection therewith are 12 fully disclosed and agreed to in writing by all parties to the trans- 13 action. 14 (j) Charging or paying, either directly or indirectly, a fee in excess 15 of the greater of five hundred dollars or three percent of the mortgage 16 loan for the services rendered by the mortgage broker. 17 (k) The failure of a mortgage banker or exempt organization to assure 18 that no more than a total of six percent of the value of the loan is 19 charged for all services rendered in connection with qualifying for and 20 receiving the loan, provided that any fees which are required to be paid 21 to any public officer for the filing, recording or releasing in any 22 public office of a document securing the loan and the costs of any title 23 insurance or the fees of an attorney voluntarily engaged by and solely 24 representing the interests of the borrower shall not be included within 25 this limit. 26 (l) Charging a fee or anything of value in connection with the refi- 27 nancing of a mortgage loan unless such refinancing is for the purpose of 28 reducing the rate on the mortgage loan in an amount which exceeds the 29 cost of such refinance and which will allow the mortgagor to recover the 30 cost of refinancing the loan within two years of the date of such refi- 31 nance. This provision shall not apply to any additional proceeds in 32 excess of the original loan received by a mortgagor in connection with 33 such refinancing. 34 § 4. Paragraph (d) of subdivision 3 of section 595-a of the banking 35 law, as relettered by chapter 400 of the laws of 1993, is relettered 36 paragraph (e) and a new paragraph (d) is added to read as follows: 37 (d) Each mortgage broker, mortgage banker and exempt organization 38 shall provide to each applicant for a mortgage loan at or before the 39 time of application, in writing: 40 (1) A disclosure stating whether the mortgage loan will be retained by 41 the original lender or sold after closing to a third party and if it is 42 to be sold, the name of such third party; and 43 (2) A notice giving the applicant the right to designate a third party 44 to receive copies of all written communications regarding the loan and 45 setting forth the procedure for the applicant to exercise such right. 46 In the event that the disclosure and notices required by this section 47 are not made, the mortgage loan made as a result of such application 48 shall not be sold or transferred nor any action taken to enforce the 49 lender's rights until thirty days after such disclosures are made and 50 acknowledged by the borrower. 51 § 5. Subdivision (d) of section 347 of the banking law, as amended by 52 chapter 22 of the laws of 1990, is amended and a new subdivision (e) is 53 added to read as follows: 54 (d) The licensee has engaged in the business of a sales finance compa- 55 ny and has done or failed to do any act, except the failure to pay the 56 fees required, which would be grounds for the suspension or revocationS. 7232 3 1 of its license pursuant to section four hundred ninety-five of this 2 chapter were it required to obtain such a license[.]; 3 (e) The licensee has engaged in any activity, transaction or course of 4 business or has paid or obtained any money or other thing of value in 5 connection with a home improvement contract as defined in section seven 6 hundred seventy of the general business law without fully disclosing 7 such activity, transaction or course of business and any fees or thing 8 of value paid or to be paid in connection therewith and without having 9 obtained the agreement in writing from all parties to the transaction. 10 § 6. Section 592-a of the banking law is amended by adding a new 11 subdivision 3 to read as follows: 12 3. Any mortgage broker registered under this article who in any way 13 places with or obtains a mortgage loan from a mortgage banker or exempt 14 organization registered under this article shall for all purposes be 15 deemed to be an agent of such banker or exempt organization. Any 16 attempt by any person to void this provision by contract or in any other 17 way shall be void as against public policy. 18 § 7. The real property law is amended by adding a new section 254-e to 19 read as follows: 20 § 254-e. Certain mortgage provisions prohibited. No mortgage on a loan 21 secured primarily by an interest in real property used as a primary 22 residence by the mortgagor at the time such loan is made shall contain 23 any provision which: 24 1. allows for a balloon payment; or 25 2. allows for a payment schedule with regular periodic payments that 26 cause the principal balance to increase; or 27 3. allows for a provision stating that the interest rate of the loan 28 underlying the mortgage increases after default. 29 § 8. The real property actions and proceedings law is amended by 30 adding a new section 1316 to read as follows: 31 § 1316. Notice to mortgagor or owner. In all foreclosure actions the 32 mortgagee, upon commencement of a foreclosure proceeding, shall serve 33 the mortgagor at the same time as service of the summons and complaint, 34 a notice in the following form: 35 "NOTICE TO MORTGAGOR OR OWNER: 36 YOU HAVE BEEN SERVED WITH A SUMMONS AND COMPLAINT IN A MORTGAGE FORE- 37 CLOSURE PROCEEDING. IF YOU FAIL TO RESPOND TO THESE IMPORTANT LEGAL 38 DOCUMENTS, YOU MAY LOSE YOUR HOME. 39 Read this carefully: 40 YOU MAY BE ABLE TO PREVENT YOUR HOME FROM BEING LOST IN A FORECLOSURE 41 ACTION. 42 State and federal laws allow you to defend foreclosure proceedings in 43 certain circumstances and may allow you to prevent a foreclosure on your 44 home. You may be able to offer defenses in this foreclosure proceeding 45 under the following circumstances: 46 1. If you gave a mortgage on your home as the result of a door to door 47 transaction; 48 2. If you gave a mortgage on your home in order to finance a home 49 improvement contract; 50 3. If you did not understand that you were signing a mortgage or were 51 unaware that you had a mortgage on your home; 52 4. If you were on public assistance at the time you gave a mortgage on 53 your home, or were retired and collecting Social Security or SSI and the 54 person who took the mortgage on your home knew you had a fixed income; 55 5. If you were on a limited fixed income at the time you gave the 56 mortgage on your home.S. 7232 4 1 Also, your mortgage documents may contain language stating your rights 2 under the contract in cases where you are subject to foreclosure. 3 If you think that you may have a defense to this foreclosure proceed- 4 ing you must act promptly - failure to answer the enclosed summons and 5 complaint will allow the mortgagee's or bank's attorneys to enter a 6 default judgment against you. 7 The front of the summons will tell you how many days you have to 8 answer before the mortgagee or bank may enter a default judgment against 9 you. 10 YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY. The 11 law, (New York Real Property Actions and Proceedings Law Article 13) 12 provides defenses for certain mortgagors and homeowners. 13 The phone numbers and office addresses for your local legal aid 14 offices are contained in your telephone directory. If your phone book 15 has government pages, the phone number and office addresses of your 16 local legal aid offices should be listed there also. 17 ONLY A QUALIFIED ATTORNEY CAN TELL YOU ALL OF YOUR RIGHTS IN THIS 18 PROCEEDING. 19 YOU MUST ACT PROMPTLY OR YOU MAY LOSE YOUR HOME." 20 § 9. The real property actions and proceedings law is amended by 21 adding a new section 1317 to read as follows: 22 § 1317. Pleading required. 1. Any complaint served in a proceeding 23 initiated pursuant to this article relating to a mortgage loan which was 24 initiated by a mortgage banker or exempt organization registered pursu- 25 ant to section five hundred ninety-one of the banking law must contain 26 an affirmative allegation, which allegation must be proven to the satis- 27 faction of the court, that such mortgage banker or exempt organization 28 has complied with all of the provisions of section five hundred ninety- 29 five-a of the banking law. 30 2. In any action brought under this article in which the mortgage to 31 be foreclosed arose from the refinancing of a personal residence which 32 was owned by the defendant for more than five years prior to the date of 33 such mortgage it shall be an affirmative defense that: (a) at the time 34 of the loan origination the mortgagor did not have the financial ability 35 to repay the loan and that the financial institution knew or should have 36 known that the mortgagor would not be able to repay such loan; (b) the 37 mortgage broker, mortgage banker or exempt organization which originated 38 the loan violated any provision of section five hundred ninety-five-a of 39 the banking law; or (c) the mortgage document contains a provision 40 prohibited by section two hundred fifty-four-e of the real property law. 41 The court may consider factors including but not limited to the fact 42 that the mortgagor was not employed and unlikely to obtain future 43 employment, the fact that the mortgagor was living on a fixed income or 44 was the recipient of federal or state entitlement of public assistance 45 or that the payments required by such mortgage loan, together with the 46 payments required by any other loan secured by the premises to be fore- 47 closed, were more than fifty percent of the mortgagor's after tax month- 48 ly income as of the date of the loan. For purposes of this section, the 49 term financial institution shall include any banking organization, mort- 50 gage broker, mortgage banker or licensed lenders involved in the origi- 51 nation of the mortgage being foreclosed and any assignee or successor of 52 such person or entity. In any action brought under this article in 53 which any such affirmative defense is proven to the satisfaction of the 54 finder of fact, the court may award reasonable attorney fees to the 55 defendant.S. 7232 5 1 § 10. Paragraph (h) of subdivision 1 of section 771 of the general 2 business law, as amended by chapter 32 of the laws of 1989, is amended 3 to read as follows: 4 (h) A notice to the owner that, in addition to any right otherwise to 5 revoke an offer, the owner may cancel the home improvement contract 6 until midnight of the [third] fifteenth business day after the day on 7 which the owner has signed an agreement or offer to purchase relating to 8 such contract. Cancellation occurs when written notice of cancellation 9 is given to the home improvement contractor. Notice of cancellation, if 10 given by mail, shall be deemed given when deposited in a mailbox proper- 11 ly addressed and postage prepaid. Notice of cancellation shall be suffi- 12 cient if it indicates the intention of the owner not to be bound. 13 Notwithstanding the foregoing, this paragraph shall not apply to a tran- 14 saction in which the owner has initiated the contact and the home 15 improvement is needed to meet a bona fide emergency of the owner, and 16 the owner furnishes the home improvement contractor with a separate 17 dated and signed personal statement in the owner's handwriting describ- 18 ing the situation requiring immediate remedy and expressly acknowledging 19 and waiving the right to cancel the home improvement contract within 20 [three] fifteen business days. For the purposes of this paragraph the 21 term "owner" shall mean an owner or any representative of an owner. 22 § 11. The general business law is amended by adding a new section 23 771-b to read as follows: 24 § 771-b. Responsibilities of home improvement contractors. 1. No home 25 improvement contractor shall engage in any activity, transaction or 26 course of business or pay or receive any fee, payment, money or other 27 thing of value in connection with the financing of a home improvement 28 contract without fully disclosing such activity, transaction or course 29 of business and any fees, payment or other thing of value paid or to be 30 paid in connection therewith and without having obtained the agreement 31 in writing from all parties to the transaction to such activity and the 32 payment therefor. 33 2. In addition to any right otherwise to revoke a home improvement 34 contract, the buyer may cancel such contract until midnight of the 35 fifteenth day after the home improvement contract was signed by both 36 parties. Cancellation shall occur when written notice of cancellation is 37 given to the home improvement contractor. Notice of cancellation, if 38 given by mail, shall be deemed given when deposited in a mailbox proper- 39 ly addressed and postage prepaid. Notice of cancellation need not take 40 any prescribed form and shall be sufficient if it indicates the inten- 41 tion of the signatory not to be bound. Notwithstanding the foregoing, 42 this subdivision shall not apply to a transaction in which the owner has 43 initiated the contact and the home improvement is needed to meet a bona 44 fide emergency of the owner, and the owner furnishes the home improve- 45 ment contractor with a separate dated and signed personal statement in 46 the owner's handwriting describing the situation requiring immediate 47 remedy and expressly acknowledging and waiving the right to cancel the 48 home improvement contract within fifteen business days. For the purposes 49 of this subdivision the term "owner" shall mean an owner or any repre- 50 sentative of an owner. 51 3. No home improvement contract shall be enforceable unless at the 52 time it is signed by the homeowner, the home improvement contractor 53 shall furnish to the homeowner a notice containing a statement in 54 substantially the following form:S. 7232 6 1 YOU THE HOMEOWNER, MAY CANCEL THIS CONTRACT AT ANY TIME PRIOR TO 2 MIDNIGHT OF THE FIFTEENTH BUSINESS DAY AFTER THE DATE OF THIS CONTRACT. 3 SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION. 4 § 12. The general obligations law is amended by adding a new section 5 5-336 to read as follows: 6 § 5-336. Certain home equity loan contracts; enforceability. 1. Any 7 loan made in violation of section five hundred ninety-five-a of the 8 banking law shall be unenforceable and no default judgment shall be 9 entered in any action as a result of the alleged default of the defend- 10 ant to make payments pursuant to a loan agreement which arose as the 11 result of the refinance of a personal residence owned by the defendant 12 whether or not secured by a mortgage unless the court makes an affirma- 13 tive finding of fact in writing that the provisions of section five 14 hundred ninety-five-a of the banking law have not been violated. 15 2. In any action brought seeking enforcement of a loan agreement which 16 arose from the refinancing of a personal residence which was owned by 17 the defendant for more than five years prior to the date of such loan it 18 shall be an affirmative defense that: (a) at the time of the loan origi- 19 nation the borrower did not have the financial ability to repay the loan 20 and that the financial institution knew or should have known that the 21 borrower would not be able to repay such loan; (b) the mortgage broker, 22 mortgage banker or exempt organization which originated the loan 23 violated any provision of section five hundred ninety-five-a of the 24 banking law; or (c) any mortgage document signed contemporaneously with 25 the loan contains a provision prohibited by section two hundred fifty- 26 four-e of the real property law. The court may consider factors includ- 27 ing but not limited to the fact that the mortgagor was not employed and 28 unlikely to obtain future employment, the fact that the mortgagor was 29 living on a fixed income or was the recipient of federal or state enti- 30 tlement of public assistance or that the payments required by such loan, 31 together with the payments required by any other loan secured by the 32 premises securing such loan, were more than fifty percent of the borrow- 33 er's after tax monthly income as of the date of the loan. For purposes 34 of this section, the term financial institution shall include any bank- 35 ing organization, mortgage broker, mortgage banker or licensed lender 36 involved in the origination of the loan for which enforcement is sought 37 and any assignee or successor of such person or entity. In any such 38 action in which such affirmative defense is proven to the satisfaction 39 of the finder of fact, the court may award reasonable attorney fees to 40 the defendant. 41 § 13. This act shall take effect on the first of October next succeed- 42 ing the date on which it shall have become a law; provided, however, 43 that any rules, regulations or actions necessary to implement the 44 provisions of this act on its effective date are immediately authorized 45 and directed to be promulgated, repealed or amended on or before such 46 effective date.
