Bill Text: NY S07724 | 2021-2022 | General Assembly | Introduced

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Bill Title: Relates to authorizing reverse cooperative apartment unit loans for persons sixty-two years of age or older; provides additional consumer protections.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2022-01-24 - SIGNED CHAP.9 [S07724 Detail]

Download: New_York-2021-S07724-Introduced.html

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                STATE OF NEW YORK
        ________________________________________________________________________

                                          7724

                    IN SENATE

                                     January 7, 2022
                                       ___________

        Introduced  by  Sen.  BIAGGI -- read twice and ordered printed, and when
          printed to be committed to the Committee on Rules

        AN ACT to amend the banking law, the uniform  commercial  code  and  the
          civil  practice  law  and  rules,  in  relation to reverse cooperative
          apartment unit loans

          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:

     1    Section  1.  Subdivision 2 of section 6-o of the banking law, as added
     2  by a chapter of the laws of 2021 amending the banking law,  the  uniform
     3  commercial code and the civil practice law and rules relating to reverse
     4  cooperative  apartment  unit  loans,  as  proposed  in legislative bills
     5  numbers A. 1508 and S. 760, is amended to read as follows:
     6    2. A cooperative apartment unit loan pursuant to this section shall be
     7  subject to the following:
     8    (a) the borrower shall be granted lifetime possession of  the  subject
     9  premises  of the cooperative apartment unit for which [is] the shares or
    10  membership are the security for the reverse cooperative  apartment  unit
    11  loan,  as  long  as  such  apartment unit remains the borrowers' primary
    12  residence and the borrower is not in default under the  reverse  cooper-
    13  ative  apartment unit loan. The borrower or borrowers must certify annu-
    14  ally on each anniversary of the loan, that they reside in the  unit  and
    15  that it is their primary residence;
    16    (b) [the lender shall ask the borrower if they designate a third party
    17  contact,  collect  such  information  from  the borrower and update such
    18  information annually on each anniversary of the loan] annually the lend-
    19  er shall advise the borrower or borrowers of the name and contact infor-
    20  mation, if any, on file for a third-party contact designated pursuant to
    21  paragraph (g) of subdivision one of this section and ask if the borrower
    22  or borrowers want to update or change the information for the third-par-
    23  ty contract;
    24    (c) subject to such rules or regulations  as  the  superintendent  may
    25  adopt, a reverse cooperative apartment unit loan shall be made at either
    26  a fixed or variable rate of interest;

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD02964-02-2
        S. 7724                             2

     1    (d)  subject  to  such  rules or regulations as the superintendent may
     2  adopt, the authorized lender may require a borrower to establish  a  set
     3  aside  account for the purposes of paying property taxes, maintenance or
     4  cooperative fees, insurance  premiums  of  the  [property  securing  the
     5  reverse  cooperative apartment unit loan] cooperative apartment unit, or
     6  for the payment of any other fees and expenses;
     7    (e) a lender who fails to make loan advances as required in  the  loan
     8  documents, and fails to cure an actual default after notice as specified
     9  in  the  loan  documents, shall forfeit any right to collect interest or
    10  service charges under the contract. The  lender's right to  recovery  at
    11  loan  maturity  shall  be  limited to the outstanding  balance as of the
    12  date of lender's default, minus all interest.  However, a  lender  shall
    13  not be required to make loan advances under a loan if the borrower is in
    14  default under  the loan;
    15    (f)  the  outstanding  balance  may be prepaid in full by the borrower
    16  without penalty at any time during  the  reverse  cooperative  apartment
    17  unit loan term;
    18    (g)  an  authorized  lender  is prohibited from using or attaching any
    19  property or asset of the borrower or heirs of the  borrower  except  the
    20  shares or membership representing an ownership interest in the apartment
    21  unit  securing the reverse cooperative apartment unit loan in settlement
    22  of a reverse loan obligation--the loan is a non-recourse loan;
    23    (h) an authorized lender shall deliver to the applicant upon  applica-
    24  tion,  a statement [prepared] that complies with the requirements estab-
    25  lished by the department providing the contact information for New  York
    26  approved,  or U.S. Department of Housing and Urban Development approved,
    27  reverse mortgage housing counselors with  cooperative  housing  training
    28  [approved  by  the  department] whom the cooperative apartment owner can
    29  call for independent counseling and information  services.  Further,  no
    30  reverse  loan  commitment shall be issued by the authorized lender until
    31  the applicant presents, in writing, a form that certifies the  terms  of
    32  the  reverse cooperative apartment unit loan have been explained to them
    33  by a New York or  U.S.  Department  of  Housing  and  Urban  Development
    34  approved  reverse  mortgage  housing  counselor with cooperative housing
    35  training [approved by the department. The form  of  such  statement  and
    36  affidavit  and cooperative housing counseling services shall be approved
    37  by the superintendent];
    38    (i) an authorized lender shall deliver to an  applicant  such  disclo-
    39  sures  as may be required by the superintendent which shall describe the
    40  relevant portions of the reverse loan being offered, and  shall  include
    41  but not be limited to the following items:
    42    (i)  a  schedule  of  payments  to and from the borrower and the total
    43  payments in dollars over the life expectancy of the youngest borrower of
    44  the reverse cooperative apartment unit loan for the borrower;
    45    (ii) a statement prominently displayed advising applicants to  consult
    46  with  appropriate  authorities  regarding tax and estate planning conse-
    47  quences of a reverse cooperative apartment unit loan;
    48    (iii) where applicable a description  of  prepayment  and  refinancing
    49  features;
    50    (iv)  to  the  extent determinable at or prior to the inception of the
    51  reverse cooperative apartment unit loan, the interest rate and, an esti-
    52  mate of the total interest payable on the reverse cooperative  apartment
    53  unit loan;
    54    (v)  a  statement  concerning  the  compliance  of the lender with the
    55  criteria established by the superintendent  that  an  authorized  lender
        S. 7724                             3

     1  must  meet  before  it may make reverse cooperative apartment unit loans
     2  pursuant to this section;
     3    (vi) a statement setting forth those events which would cause the loan
     4  to become due and payable (or cause the borrower to default) the reverse
     5  cooperative apartment unit loan;
     6    (vii)  the  loan  is subject to a three day right of rescission by the
     7  borrower; and
     8    (viii) a financial statement setting forth an estimate  of  all  costs
     9  associated with the loan;
    10    (j) an authorized lender shall deliver to each borrower at the time of
    11  closing  of a reverse cooperative unit loan two copies of the borrower's
    12  right to cancel and  instructions  for  how  to  cancel  the  loan  that
    13  complies with the requirements to be prescribed by the superintendent;
    14    (k) a reverse cooperative apartment unit loan pursuant to this section
    15  shall  expressly  and conspicuously bear a legend identifying it as such
    16  in at least fourteen-point font;
    17    (l) a reverse cooperative apartment unit loan shall clearly set  forth
    18  the terms for when the loan becomes due and payable, including:
    19    (i)  regardless of loan payout option chosen by the borrower, the loan
    20  note shall state that the outstanding loan balance will not be  due  and
    21  payable  in  full until the last borrower dies, or if a borrower conveys
    22  all of his or her title in the property and no  other  borrower  retains
    23  title to the property; and
    24    (ii) the loan note shall state that the outstanding loan balance shall
    25  be due and payable in full if any of the following occur:
    26    (1) the [property] cooperative apartment unit ceases to be the primary
    27  residence  of a borrower for reasons other than death and the [property]
    28  cooperative apartment unit is not the primary residence of at least  one
    29  other borrower;
    30    (2)  for a period of longer than twelve consecutive months, a borrower
    31  fails to occupy the [property] cooperative  apartment  unit  because  of
    32  physical or mental illness and the [property] cooperative apartment unit
    33  is not the primary residence of at least one other borrower; or
    34    (3) an obligation of the borrower under the loan note is not met;
    35    (m)  [in  the event that an authorized lender or holder of the reverse
    36  cooperative apartment unit loan determines the loan is  in  default  and
    37  intends  to  initiate proceedings pursuant to the note, the lender shall
    38  notify the borrower's third-party contact] within thirty  business  days
    39  of  learning  of  the occurrence of any event listed in paragraph (l) of
    40  this subdivision, the mortgagee shall notify  the  mortgagor  and  their
    41  authorized designee, in writing, of such occurrence, along with informa-
    42  tion  on the right to cure. The mortgagee shall then allow the mortgagor
    43  forty-five calendar days to cure.  A  mortgagee  may  only  terminate  a
    44  reverse  mortgage  loan  if  the mortgagor fails to cure any termination
    45  event within such forty-five calendar day period. In the event that  the
    46  borrower has not designated a third-party contact to receive such notice
    47  of foreclosure, then the authorized lender or the holder of said reverse
    48  cooperative  apartment unit loan shall notify the local or county office
    49  for the aging of its intent to commence  foreclosure  proceedings.  Such
    50  entity  shall  take  appropriate  action to protect the interests of the
    51  borrower;
    52    (n) a reverse cooperative apartment unit loan secured by shares  or  a
    53  membership representing an ownership interest in a unit in a cooperative
    54  housing  corporation  shall also be subject to the prior approval by the
    55  cooperative's board of directors; and
        S. 7724                             4

     1    (o) no reverse cooperative apartment unit loan  shall  be  subject  to
     2  mandatory binding arbitration.
     3    § 2. Paragraph (a) of subdivision 6 of section 6-o of the banking law,
     4  as  added by a chapter of the laws of 2021 amending the banking law, the
     5  uniform commercial code and the civil practice law and rules relating to
     6  reverse cooperative apartment unit loans,  as  proposed  in  legislative
     7  bills numbers A. 1508 and S. 760, is amended to read as follows:
     8    (a)  Every authorized lender and assignee must obtain a surety bond in
     9  the amount of one hundred thousand dollars for  the  benefit  of  claims
    10  against  the lender/assignee for failure to perform their obligations to
    11  the borrower. The superintendent will hold the surety bond. In addition,
    12  a lender or assignee shall maintain an  irrevocable  standby  letter  of
    13  credit  from  a  financial institution approved by the superintendent in
    14  favor of the lender or assignee in  an  amount  necessary  to  fund  all
    15  reverse  mortgage  loan  requirements  anticipated  over the next twelve
    16  months for loans then on the lender's books and  those  expected  to  be
    17  made  over the next twelve months or three million dollars, whichever is
    18  greater. The initial term of the letter of credit shall be at least  two
    19  years. A lender or assignee also shall maintain a minimum capital of ten
    20  million  dollars.  A lender may rely upon its parent company to meet the
    21  minimum capital requirements. [The requirements for a letter  of  credit
    22  shall  not  apply  to  loans  that are fully funded at consummation. The
    23  minimum capital requirements shall not apply  to  lenders  or  assignees
    24  that  sell  loans in the secondary market to a financially viable finan-
    25  cial institution, and the superintendent shall define  the  requirements
    26  of what constitutes a "financially viable financial institution prior to
    27  any secondary market sale".]
    28    § 3. Paragraph (b) of subdivision 7 of section 6-o of the banking law,
    29  as  added by a chapter of the laws of 2021 amending the banking law, the
    30  uniform commercial code and the civil practice law and rules relating to
    31  reverse cooperative apartment unit loans,  as  proposed  in  legislative
    32  bills numbers A. 1508 and S. 760, is amended to read as follows:
    33    (b)  by telephone and first class mail, inform and provide notice to a
    34  borrower when his or her home equity line of credit or  life  expectancy
    35  set  aside  is  depleted  to twenty percent [or less of its value]. Such
    36  notice shall inform the borrower of his or her obligations  relating  to
    37  [such  real  property] the cooperative apartment unit including, but not
    38  limited to, mortgage insurance, homeowners insurance and  real  property
    39  taxes  previously  paid  by  such  line of credit or life expectancy set
    40  aside, and that such obligations must continue to be paid when the  home
    41  equity  line  of  credit  or life expectancy set aside is depleted. Such
    42  notice shall use plain language, written in a clear and coherent  manner
    43  using  words  with  common and every day meanings, appropriately divided
    44  and captioned by its various sections. If the lender  or  its  agent  is
    45  unable  to contact the borrower by telephone, notice must be sent to the
    46  third-party contact if authorized by the borrower.
    47    § 4. Subdivision 11 of section 6-o of the banking law, as added  by  a
    48  chapter  of  the  laws  of  2021  amending  the banking law, the uniform
    49  commercial code and the civil practice law and rules relating to reverse
    50  cooperative apartment unit  loans,  as  proposed  in  legislative  bills
    51  numbers A. 1508 and S. 760, is amended to read as follows:
    52    11.  The sale or transfer of the interest in the cooperative apartment
    53  unit [securing the reverse cooperative apartment unit loan] to a  person
    54  other  than an original borrower or borrowers shall result in the termi-
    55  nation of the reverse loan.
        S. 7724                             5

     1    § 5. Paragraph 1-a of subsection (f) of section 9-611 of  the  uniform
     2  commercial  code, as added by a chapter of the laws of 2021 amending the
     3  banking law, the uniform commercial code and the civil practice law  and
     4  rules  relating to reverse cooperative apartment unit loans, as proposed
     5  in  legislative  bills numbers A. 1508 and S. 760, is amended to read as
     6  follows:
     7    (1-a) Notwithstanding any other provision of law,  with  regard  to  a
     8  reverse cooperative apartment unit loan, at least forty-five days before
     9  a  secured  party,  as  defined under Section 9-102(a)(73), or its agent
    10  takes any steps to dispose of its collateral, as provided for in Section
    11  9-610, the secured party or its agent shall give notice to the borrower,
    12  and separate notice to the borrower's designated third-party if one  has
    13  been  designated  in at least fourteen-point type except for the heading
    14  which shall be in at least sixteen-point type. The notice shall  include
    15  the following:
    16       YOU COULD LOSE YOUR COOPERATIVE APARTMENT UNIT TO FORECLOSURE.
    17                 PLEASE READ THE FOLLOWING NOTICE CAREFULLY.
    18  Date
    19  Borrower's address
    20  Loan Number:
    21  Property Address:
    22  Dear Borrower(s) {or heirs of Debtor?}:
    23  As  of  ___________,  your reverse cooperative apartment unit loan is in
    24  default. Under New York State Law, we are  required  to  send  you  this
    25  notice to inform you that you may be at risk of losing your home.
    26  Your  reverse  loan is in default because you have not complied with the
    27  following conditions of your loan:
    28  _____ You are not occupying your  cooperative  apartment  unit  as  your
    29  primary residence
    30  _____ You did not submit the required annual certificate of occupancy
    31  _____ The named borrower on the reverse loan has died
    32  _____ You did not pay maintenance on your unit to the cooperative corpo-
    33  ration,  and  {servicer}  paid your maintenance for you on the following
    34  date(s)  in  the  following   amount(s):________________________________
    35  ____________________________________
    36  _____ You did not make required repairs to your unit
    37  If  the claim is based on your failure to pay maintenance to the cooper-
    38  ative corporation, you can cure this default by making  the  payment  of
    39  $____________  for  the  advances we made towards these payments on your
    40  behalf.
    41  You have the right to dispute the claims listed above by contacting  us,
    42  by  calling  ___________ or sending a letter to __________________. This
    43  may include proof of payments made for water  and  sewer  charges  or  a
    44  current declaration page from your insurance company, or any other proof
    45  to dispute the servicer's claim.
    46  OPTIONS  MAY  BE  AVAILABLE  FOR YOU TO CURE YOUR DEFAULT. SOME OF THESE
    47  OPTIONS ARE LISTED BELOW.  YOU  MAY  CONTACT  {SERVICER}  AT  {TOLL-FREE
    48  NUMBER} TO DISCUSS YOUR OPTIONS.
    49  If  you  are  in default for failure to pay maintenance, you may qualify
    50  for a re-payment plan to cure the default balance owed.
    51  Attached to this notice is a list of New  York  approved  housing  coun-
    52  seling agencies and legal services in your area which provide free coun-
    53  seling.   A   statewide   listing   by   county  is  also  available  at
    54  [http://www.dfs.ny.gov/consumer/mortg nys  np  counseling  agencies.htm]
    55  https://www.dfs.ny.gov/consumers/help_for_homeowners/new_york_state_non-
        S. 7724                             6

     1  profit_housing_counseling_agencies. You may also call your local Depart-
     2  ment of Aging for a referral or call 311 if you live in New York City.
     3  Qualified  free help is available; watch out for companies or people who
     4  charge a fee for these services.
     5  You may also contact  {SERVICER}  directly  at  __________  and  ask  to
     6  discuss  all  possible  options  to  allow  you to cure your default and
     7  prevent the foreclosure of your home. While  we  cannot  ensure  that  a
     8  resolution  is possible, we encourage you to take immediate steps to try
     9  to achieve a resolution.  The longer you wait, the fewer options you may
    10  have.
    11  If you have not taken any actions to resolve this matter  within  ninety
    12  days  from  the  date  this notice was mailed, we will have the right to
    13  take your cooperative shares from you.
    14  If you need further information, please call the New York State  Depart-
    15  ment  of Financial Services' toll-free helpline at 877-226-5697 or visit
    16  the Department's website at http://www.dfs.ny.gov.
    17  IMPORTANT: You have the right to remain in your unit until you receive a
    18  court order telling you to leave the property. If a  foreclosure  action
    19  is filed against you in court, you still have the right to remain in the
    20  unit  until a court orders you to leave. You legally remain the owner of
    21  your cooperative shares and are  responsible  for  the  unit  until  the
    22  shares  are  transferred  to  a new owner through a sale. However, there
    23  will be no court proceeding before the shares are transferred to  a  new
    24  owner. After the shares are transferred, the new owner may begin a court
    25  proceeding to evict you from the unit.
    26  This notice is not an eviction notice.
    27    § 6. Subdivision (a) of rule 3410 of the civil practice law and rules,
    28  as  added by a chapter of the laws of 2021 amending the banking law, the
    29  uniform commercial code and the civil practice law and rules relating to
    30  reverse cooperative apartment unit loans,  as  proposed  in  legislative
    31  bills numbers A. 1508 and S. 760, is amended to read as follows:
    32    (a) For purposes of this rule, default shall only include a borrower's
    33  breach  of  an  obligation  under  the reverse mortgage cooperative loan
    34  agreement, and shall not  include  death  of  the  borrower,  except  as
    35  detailed  in  paragraph  one  of  subdivision  (i)  of this rule, or the
    36  borrower's permanent vacating of the cooperative unit.
    37    § 7.  The opening paragraph of subdivision (b) of  rule  3410  of  the
    38  civil  practice law and rules, as added by a chapter of the laws of 2021
    39  amending the banking law, the uniform  commercial  code  and  the  civil
    40  practice  law  and  rules relating to reverse cooperative apartment unit
    41  loans, as proposed in legislative bills numbers A. 1508 and S.  760,  is
    42  amended to read as follows:
    43    In  any  action  [recovery]  involving  a  borrower's  default under a
    44  reverse cooperative apartment unit loan, as defined in paragraph (a)  of
    45  subdivision  one  of  section six-o of the banking law, the lender shall
    46  file a petition with the supreme court of the county in which the  coop-
    47  erative apartment is located stating that the loan is in default and the
    48  reason  for  the  default.  The  petition must be served on the borrower
    49  pursuant to section three hundred eight of this chapter. Within ten days
    50  of the date of service of the notice to  the  borrower,  the  petitioner
    51  must  file  a  specialized  request  for  judicial intervention with the
    52  clerk. Within sixty days of receipt of the notice or on  such  adjourned
    53  date as has been agreed to by the parties, the court shall hold a manda-
    54  tory  settlement  conference  for  the  purpose  of  holding  settlement
    55  discussions pertaining to the relative rights  and  obligations  of  the
    56  parties under the loan documents, including, but not limited to:
        S. 7724                             7

     1    §  8.  This  act  shall  take  effect on the same date and in the same
     2  manner as a chapter of the laws of 2021 amending the  banking  law,  the
     3  uniform commercial code and the civil practice law and rules relating to
     4  reverse  cooperative  apartment  unit  loans, as proposed in legislative
     5  bills  numbers  A. 1508 and S. 760, takes effect. Effective immediately,
     6  the addition, amendment and/or repeal of any rule or  regulation  neces-
     7  sary  for  the  implementation  of  this  act  on its effective date are
     8  authorized to be made and completed on or before such effective date.