This guidance interprets § 265-a of the Real Residential Or Commercial Property Law (" § 265-a"), which was adopted as part of the Home Equity Theft Prevention Act ("HETPA"). Section 265-a was embraced in 2006 to handle the growing nationwide issue of deed theft, home equity theft and foreclosure rescue scams in which 3rd party investors, typically representing themselves as foreclosure professionals, strongly pursued troubled homeowners by promising to "save" their home. As noted in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was intended to attend to "2 primary kinds of deceitful and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the first scenario, the house owner was "deceived or fooled into signing over the deed" in the belief that they "were merely obtaining a loan or refinancing. In the 2nd, "the house owner knowingly indications over the deed, with the expectation of temporarily renting the residential or commercial property and after that having the ability to buy it back, however quickly finds that the offer is structured in a way that the property owner can not afford it. The result is that the homeowner is forced out, loses the right to buy the residential or commercial property back and loses all of the equity that had been built up in your home."

Section 265-an includes a number of securities against home equity theft of a "residence in foreclosure", including supplying house owners with information required to make an informed choice relating to the sale or transfer of the residential or commercial property, prohibition against unfair agreement terms and deceit; and, most notably, where the equity sale is in material infraction of § 265-a, the opportunity to rescind the deal within 2 years of the date of the recording of the conveyance.

It has come to the attention of the Banking Department that specific banking organizations, foreclosure counsel and title insurance providers are concerned that § 265-a can be checked out as using to a deed in lieu of foreclosure granted by the mortgagor to the holder of the mortgage (i.e. the person whose foreclosure action makes the mortgagor's residential or commercial property a "residence in foreclosure" within the meaning of § 265-a) and hence restricts their ability to offer deeds in lieu to property owners in appropriate cases. See, e.g., Bruce J. Bergman, "Home Equity Theft Prevention Act: Measures May Apply to Deeds-in-Lieu of Foreclosure, NYLJ, June 13, 2007.

The Banking Department believes that these interpretations are misdirected.

It is a basic rule of statutory building and construction to provide impact to the legislature's intent. See, e.g., Mowczan v. Bacon, 92 N.Y. 2d 281, 285 (1998 ); Riley v. County of Broome, 263 A.D. 2d 267, 270 (3d Dep't 2000). The legislative finding supporting § 265-a, which appears in subdivision 1 of the section, makes clear the target of the brand-new section:

During the time period between the default on the mortgage and the arranged foreclosure sale date, property owners in financial distress, especially bad, elderly, and financially unsophisticated homeowners, are susceptible to aggressive "equity purchasers" who cause house owners to offer their homes for a small fraction of their reasonable market worths, or in many cases even sign away their homes, through making use of plans which often involve oral and written misstatements, deceit, intimidation, and other unreasonable commercial practices.

In contrast to the costs's clearly specified function of dealing with "the growing problem of deed theft, home equity theft and foreclosure rescue frauds," there is no sign that the drafters anticipated that the bill would cover deeds in lieu of foreclosure (likewise called a "deed in lieu" or "DIL") offered by a debtor to the loan provider or subsequent holder of the mortgage note when the home is at threat of foreclosure. A deed in lieu of foreclosure is a common technique to avoid prolonged foreclosure proceedings, which may enable the mortgagor to get a variety of advantages, as detailed listed below. Consequently, in the opinion of the Department, § 265-a does not use to the individual who was the holder of the mortgage or was otherwise entitled to foreclose on the mortgage (or any representative of such individual) at the time the deed in lieu of foreclosure was participated in, when such individual consents to accept a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage financial obligation, as long as there is no arrangement to reconvey the residential or commercial property to the customer and the present market price of the home is less than the amount owing under the mortgage. That reality may be shown by an appraisal or a broker cost viewpoint from an independent appraiser or broker.

A deed in lieu is an instrument in which the mortgagor communicates to the lender, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial complete satisfaction of the mortgage financial obligation. While the lender is expected to pursue home retention loss mitigation alternatives, such as a loan modification, with an overdue debtor who desires to remain in the home, a deed in lieu can be advantageous to the customer in specific circumstances. For instance, a deed in lieu might be helpful for the borrower where the quantity owing under the mortgage goes beyond the existing market worth of the mortgaged residential or commercial property, and the debtor might for that reason be legally accountable for the shortage, or where the borrower's scenarios have changed and she or he is no longer able to afford to make payments of principal, interest, taxes and insurance, and the loan does not certify for an adjustment under available programs. The DIL launches the customer from all or the majority of the personal insolvency associated with the defaulted loan. Often, in return for saving the mortgagee the time and effort to foreclose on the residential or commercial property, the mortgagee will accept waive any shortage judgment and also will add to the customer's moving expenses. It also stops the accrual of interest and penalties on the financial obligation, prevents the high legal expenses associated with foreclosure and might be less damaging to the homeowner's credit than a foreclosure.

In reality, DILs are well-accepted loss mitigation alternatives to foreclosure and have actually been incorporated into a lot of maintenance standards. Fannie Mae and HUD both recognize that DILs might be beneficial for customers in default who do not certify for other loss mitigation options. The federal Home Affordable Mortgage Program ("HAMP") needs participating lending institutions and mortgage servicers to consider a customer identified to be eligible for a HAMP adjustment or other home retention alternative for other foreclosure options, consisting of short sales and DILs. Likewise, as part of the Helping Families Save Their Homes Act of 2009, Congress developed a safe harbor for particular qualified loss mitigation plans, including brief sales and deeds in lieu provided under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an applies to a deal with respect to a "house in foreclosure," in the opinion of the Department, it does not use to a DIL offered to the holder of a defaulted mortgage who otherwise would be entitled to the treatment of foreclosure. Although a purchaser of a DIL is not particularly left out from the meaning of "equity buyer," as is a deed from a referee in a foreclosure sale under Article 13 of the Real Residential Or Commercial Property Actions and Proceedings Law, our company believe such omission does not indicate an intent to cover a buyer of a DIL, however rather indicates that the drafters contemplated that § 265-a used only to the fraudsters and dishonest entities who stole a homeowner's equity and to authentic buyers who might buy the residential or commercial property from them. We do not believe that a statute that was meant to "pay for greater protections to property owners faced with foreclosure," First National Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep't 2010), must be construed to deprive property owners of an essential alternative to foreclosure. Nor do we think an interpretation that forces mortgagees who have the indisputable right to foreclose to pursue the more expensive and lengthy judicial foreclosure process is sensible. Such an analysis breaches a fundamental guideline of statutory construction that statutes be "offered an affordable construction, it being presumed that the Legislature meant an affordable outcome." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have actually discovered no New York case law that supports the proposition that DILs are covered by § 265-a, or that even point out DILs in the context of § 265-a. The large bulk of cases that cite HETPA include other areas of law, such as RPAPL § § 1302 and 1304, and CPLR Rule 3408. The citations to HETPA frequently are dicta. See, e.g., Deutsche Bank Nat'l Trust Co. v. McRae, 27 Misc.3 d 247, 894 N.Y.S. 2d 720 (2010 ). The few cases that do not involve other foreclosure requirements involve deceitful deed transactions that plainly are covered by § 265-a. See, e.g. Lucia v. Goldman, 68 A.D. 3d 1064, 893 N.Y.S. 2d 90 (2009 ), Dizazzo v. Capital Gains Plus Inc., 2009 N.Y. Misc. LEXIS 6122 (September 10, 2009).