Our Alert of May 1, 2007 explained our concern that New York’s new Home Equity Theft Protection Act (the “Act”) may, by virtue of burdens and risks, effectively eliminate the deed-in-lieu of foreclosure as a viable settlement tool.
We were aware of, but in the interests of brevity did not mention RPL §265-a(14) which some believe saves the day and exempts the deed-in-lieu from the Act, thereby maintaining it as a loss mitigation device. Because a number of practitioners raised the point, we address it in this alert.
It would be pleasing if RPL §265-a(14) served that saving purpose – and it just might. But it is unclear at best:
“This section shall not apply to a prior lien holder where the lien was property recorded prior to the execution of any covered contract by both the equity seller and the equity purchaser nor shall any provision of this section be deemed to impair any equity or other available rights of any such prior lien holder.”
The language is tantalizing, albeit oddly ambiguous. If it meant to address a mortgagee, why not say so, clearly? It seems odd to use the much broader “prior lien holder”. It would have been easy to remove application to a mortgagee which purchases the property from its mortgagor (i.e., a deed-in-lieu), but it doesn’t quite say that. Then too, this subsection still refers to execution of the covered contract, antithetical to the notion that a deed-in-lieu need not comply. It would therefore seem quite bold for a title company to insure a deed-in-lieu in reliance upon this dubious statutory recitation – and without title insurance, a deed-in-lieu is not recommended.
In the end, if title companies will insure deeds-in-lieu without compliance with RPL §265-a, it will be welcome. Either legislative clarification or the passage of time will tell us if this will happen. We remain skeptical.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.