Mortgage servicers have always known that prosecuting a mortgage foreclosure action in New York was difficult and time consuming. For some loans, it will momentarily become more difficult and markedly more time consuming – all by virtue of a new statute passed in response to the subprime debacle. The bill signed by the governor amends a number of statutes, and while it relates primarily to servicing issues, it effects underwriting as well.
Most succinctly, effective September 1, 2008 and confined solely to subprime or non-traditional loans (as defined by the statute) signed between January 1, 2003 and September 1, 2008, the lender or servicer must send a certain notice to the borrower at least 90 days before a foreclosure is to begin. In other words, this will be a prerequisite to foreclosure and suggests most strongly that it should be sent very shortly after an initial default because of the assured imposition of 90-day waiting period. Should the lender or servicer refrain from immediately sending the notice (and some servicers may understandably have that preference) the hiatus will make the process that much longer, thus exacerbating what is already an acute problem in New York.
But there is yet more room for delay. The bill also requires a court ordered settlement conference for loans of this type in foreclosure. This adds still another layer of delay, of particular concern because court calendars are already clogged (downstate at least) and the courts may not have the facilities to process these conferences with efficiency.
Not surprisingly, there is much more to a new law in detail and nuance. Lisa Confusione, who heads the Berkman, Henoch, Peterson & Peddy, P.C. residential foreclosure department, has prepared a well thought out and extensive analysis of the new law, providing forms as well. Rather than try to reconstruct the review, interested readers can benefit from reading it directly. For your consideration, that analysis follows later in the text.
WHO SHOULD REVIEW THIS?
Servicers of Subprime Loans – This is a must. The statute applies to you and while certain aspects are more for your local counsel, the pre-foreclosure notice provision requires action in-house.
Mortgage Servicers Generally – The definition of subprime and non-traditional is such that it may ensnare lenders or servicers who believe they have no involvement with subprime. So, look at the interest rates and see if it involves some of your loans.
Title Companies – Compliance, or lack thereof, with the new statute will effect the insurability of such titles foreclosed upon. This will require evaluation to issue fee or mortgage policies. The statute will also likely elicit protective statements in foreclosure searches.
ANALYSIS BY LISA CONFUSIONE, ESQ.
I write to you from the law firm of Berkman, Henoch, Peterson & Peddy, P.C. in New York where we prosecute foreclosure actions throughout New York State. In furtherance of my last e-mail, recent legislation was enacted in New York to address the sub prime mortgage crisis. After numerous careful reviews of the legislation, I noticed several discrepancies and our office was in contact with the legislature to obtain clarification. Thus, I was waiting to send this e-mail until after I received answers to my questions from the legislature. Most of the sections of this bill are effective commencing September 1, 2008, although some of the sections apply to loans consummated after September 1, 2008. This e-mail solely discusses the recently enacted legislation as it relates to foreclosure actions commenced or pending in New York. It does not address the amendments to the banking law, etc. If you would like to retain our firm to review the “non-foreclosure” related provisions of the legislation, please let me know.
Also, please review this e-mail carefully since the definition of a sub prime home loan varies for different purposes.
The purpose of this legislation is to assist people facing foreclosure and to help prevent them from losing their homes in the future. This legislation is an effort by the government to provide reasonable consumer protection and the need to offer affordable credit options to New York homeowners.
With respect to a high-cost home loan, (as defined below and in section 6-L of the banking law), a sub prime home loan or a non-traditional home loan (as defined below and in the newly enacted statute of Real Property Action and Proceedings Law (“RPAPL”) Section 1304 – copy attached), RPAPL 1304 will require lenders or servicers, to send a pre-foreclosure notice to borrowers at least 90 days before foreclosure proceedings may be initiated. This is supposed to encourage borrowers to seek help prior to the commencement of foreclosure proceedings. This notice shall be sent by the lender or mortgage servicer to the borrower(s) by registered or certified mail AND ALSO by first class mail to the last known address of the borrower AND, if different, to the mortgaged premises. I strongly suggest that, upon mailing the required notice that an affidavit be prepared and executed attesting to the mailing and that copies of the letters together with proof of the certified or registered mail be kept in the bank’s file. Also, copies of the letters, proof of mailing and the original affidavit, if executed should be sent to your attorney in the referral package so that they may submit same to court with the proper application. The courts are monitoring foreclosure actions with much scrutiny and we, as your attorney, must demonstrate that the lender or servicer complied with the statute. The pre-foreclosure notice must contain 5 government approved housing counselors serving the borrower’s area. I am annexing a draft of the statutory letter for your convenience as well as the listing of approved housing counselors . Pursuant to this statute, the letter will have to conform exactly to the attachment. The pre-foreclosure notice must be at least 14 point type and it only applies to high-cost home loans as defined in section six-L of the banking law, a sub prime home loan or a non-traditional home loan, as defined below and in the attachments.
*This 90 day period shall not apply if the borrower does not occupy the residence as the borrower’s principal residence, if the borrower has filed an application for the adjustment of debts or an order for relief from the payment of debts. Also, if the pre-foreclosure notice has been sent, the 90 day period has not expired but the homeowner moved from the premises, then you do not have to wait until the expiration of the 90 day period to proceed with the foreclosure action.
*For repeat defaulting mortgagors, the notice and ninety day period need only be provided once in a 12 month period to the same borrower in connection with the loan.
To curtail delays, it is strongly recommended that Lenders or Servicers send this pre-foreclosure notice containing the 5 government approved housing counselors immediately upon the borrower’s default. Notice is considered given as of the date mailed (not as of the date on the letter).
As your attorneys, it will be our duty to ensure that a foreclosure action is not commenced until 90 days after the date of mailing of the pre-foreclosure notice. Furthermore, if the loan is a high cost home loan or sub prime loan, our office must insure that proper language as more fully described below is included in the complaint. In addition, our office must include statements in the supporting affidavit attesting to the facts of the mailing of said notice along with a copy of the notice(s). Thus, if the loan is a high cost home loan, a sub prime home loan, or a non-traditional home loan, kindly indicate same in the referral and include in the referral, copies of the notice, proof of mailing of same and an affidavit, if one was executed. Please be advised that if the referral is not marked as a high cost home loan, subprime home loan or non-traditional home loan and the pre-foreclosure notice is not included in the referral package, our office will not consider the loan to be a high cost home loan, subprime home loan or non-traditional home loan.
RPAPL 1304 defines “Home Loan”, “Sub Prime Home Loan” and “Non-Traditional Home Loan” as set forth below
Home Loan means a home loan, including an open end credit plan, other than a reverse mortgage transaction, in which:
(i) the principal amount at origination did not exceed the conforming loan size in existence at the time of origination for a comparable dwelling as established by Fannie Mae
(ii) borrower is a natural person;
(iii) debt is incurred primarily for personal, family or household purposes
(iv) one to four family – borrower’s principal dwelling
(v) property is located in New York State
In a nut shell, a home loan is a conforming loan to an individual who occupies the mortgaged premises in New York and the debt was incurred primarily for personal, family or household purposes.
Subprime Home Loan means a Home Loan (as defined above), consummated between 1-1-03 and 9-1-08 where the terms of the loan exceed the threshold as defined below. A subprime home loan excludes a dwelling, a temporary or “bridge” loan with a term of twelve months or less, or a home equity line of credit.
Threshold means for a first lien mortgage loan, the annual percentage rate (“APR”)of the home loan at consummation of the transaction exceeds 3 percentage points over the yield on treasury securities having comparable periods of maturity to the loan maturity measured as of the 15th day of the month immediately preceding the month in which the loan was consummated; or for a subordinate mortgage lien, the APR at consummation of the transaction equals or exceeds 5 percentage points over the yield on treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the loan was consummated; as determined by the following rules: if the terms of the home loan offer any initial or introductory period, and the annual percentage rate is less than that which will apply after the end of such initial or introductory period, then the annual percentage rate that shall be taken into account for purposes of this section shall be the rate which applies after the initial or introductory period.
*****Please note that the definition of a sub prime home loan as set forth in RPAPL 1304 is different from the definition of a sub prime home loan as set forth in the newly enacted section 6-M of the Banking law. I will raise the issues over these varying definitions further on in this e-mail.
Non-Traditional Home Loan as defined in RPAPL 1304 means a payment option adjustable rate mortgage or an interest only loan consummated between 1-1-03 and 9-1-08.
High Cost Home Loan as defined in section 6-L of the banking law means a home loan as defined above where:
(i) for a first lien mortgage loan, the annual percentage rate (“APR”) of the home loan at consummation of the transaction exceeds 8 percentage points over the yield on treasury securities having comparable periods of maturity to the loan maturity measured as of the 15th day of the month immediately preceding the month in which the loan application is received by the lender; or for a subordinate mortgage lien, the APR at consummation of the transaction equals or exceeds 9 percentage points over the yield on treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the loan application is received by the lender; as determined by the following rules: if the terms of the home loan offer any initial or introductory period, and the annual percentage rate is less than that which will apply after the end of such initial or introductory period, then the annual percentage rate that shall be taken into account for purposes of this section shall be the rate which applies after the initial or introductory period; or
(ii) the total points and fees exceed: five percent of the total loan amount if the total loan amount is fifty thousand dollars or more; or six percent of the total loan amount if the total loan amount is fifty thousand dollars or more and the loan is a purchase money loan guaranteed by the federal housing administration or the veterans administration; or the greater of six percent of the total loan amount or fifteen hundred dollars, if the total loan amount is less than fifty thousand dollars; provided, the following discount points shall be excluded from the calculation of the total points and fees payable by the borrower:
(1) Up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan’s interest rate will be discounted does not exceed by more than one percentage point the yield on United States treasury securities having comparable periods of maturity to the loan maturity measured as of the fifteenth day of the month immediately preceding the month in which the application is received;
(2) Any and all bona fide loan discount points funded directly or indirectly through a grant from a federal, state or local government agency or 501(c)(3) organization.
Thus, for any high cost home loan, subprime home loan and non- traditional loan as defined above and in the pertinent sections of the legislation, the pre-foreclosure notice must be sent as delineated above. It is crucial for you as the lender or servicer to be able to identify a high cost home loan, a subprime home loan or a non-traditional loan so that RPAPL 1304 can be complied with. The time frames as outlined in the definitions of these loans must be adhered to and watched carefully. For example, with a high cost home loan, the file must be marked with the date of receipt of the loan application since the APR is measured as of the 15th day of the month immediately preceding the month in which the application was received by the lender.
Notably, the statute states that the Banking Department shall publish the required info on their web site, which has not yet been done.
CPLR 3408 was also recently passed which requires a mandatory court ordered settlement conference for foreclosure proceedings involving homeowners with High Cost Home Loans, Subprime Home Loans and Non-Traditional Home Loans consummated between January 1, 2003 – September 1, 2008, where the mortgagor resides at the property being foreclosed. These settlement conferences will be held within 60 days after proof of service of the complaint is filed with the county clerk’s office or on an adjourned date as agreed to by the parties. The statute further provides that the plaintiff of the action must appear in person or by counsel and if by counsel, then such counsel shall have full authority to settle. Notably, the statute gives the court the authority to permit plaintiff to attend the settlement conference telephonically or by video conference. The purpose of these settlement conferences is to advise the parties of their relative rights and obligations under the mortgage documents and to attempt a mutually agreeable resolution. For homeowners who cannot afford an attorney, the court under certain circumstances, may appoint one.
To facilitate settlement, we recommend that the lender or servicer provide our office with reinstatement and payoff figures for these settlement conferences.
Clearly, these statutory conferences will delay the foreclosure actions. Additionally, from a cost perspective, the attorneys will be requesting additional fees for appearances at these settlement conferences
This statute also requires that for any foreclosure action on a residential mortgage loan where the action was commenced prior to September 1, 2008 and final judgment has not yet been issued, the court shall request each plaintiff to identify to the court whether the loan in foreclosure is a sub prime home loan (as defined in section 1304 of the real property actions and proceedings law) or is a high -cost home loan (as defined in section 6-1 of the banking law). If the loan is either, then the court shall notify the defendant that if he or she is a resident of such property, then he or she may request a settlement conference.
Section 1302 of the RPAPL was amended to provide that on any action commenced after September 1, 2008, any complaint served to foreclose a high cost home loan, as defined in banking law section 6-L or a sub prime loan, as defined in section 6-M, (please note that the definition in 6-M is different from RPAPL 1304), must contain affirmative allegations (which must be proven to the satisfaction of the court before entry of judgment, by default or otherwise) that, at the time the proceeding is commenced, the plaintiff is the owner and holder of the subject mortgage and note or has been delegated authority to institute a foreclosure action and that the plaintiff has complied with the provisions of section 595a of the banking law and any rules and regulations promulgated thereunder, section six-l or six-m of the banking law and RPAPL 1304.
Section 6-M of the Banking Law defines subprime home loan as a home loan in which the fully indexed APR exceeds by more than 1.75 percentage points for a first lien loan, or by more than 3 .75 percentage points for a subordinate lien loan, the average commitment rate for loans in the northeast region with a comparable duration to the duration of such home loan, as published by Freddie Mac in its weekly primary mortgage market survey (pmms) as posted in the week prior to the week when the lender receives a completed application. Excluded is a transaction to finance the initial construction of a dwelling, a temporary or bridge loan with a term of 12 months or less, or a home equity line of credit.
Please refer to page 8 and 9 of the legislation, lines 38 through 56 and 1 through 6, respectively for a discussion on the determination of the “comparable duration” and for the superintendant’s ability to designate other threshold rates.
*****Please note that Section 6-M solely applies to loans that are consummated after 9-1-08. Thus, in order for our office to make the proper allegations in the complaint, kindly advise with the referral whether the loan is a high cost home loan (or sub prime home loan – which will be sometime in the future since those loans have not originated yet). To comply with the amended RPAPL section 1302, the assignment of mortgage MUST be executed and received by our office or of record in the county clerk’s office prior to filing the summons and complaint.
RPAPL 1303 has also been amended to revise the notice that is served on the homeowner/mortgagor on residential foreclosures of 1 to 4 family, owner occupied. Our office is aware of said amendment and will comply. A copy of the revised notice is attached.
Also worth mentioning for your reading enjoyment is the criminal statute regarding residential mortgage fraud from the 1st degree to the 5th degree. See pages 21 through 25.
A number of new programs to fund homeowner counseling have already been established in New York State, including the Sub Prime Foreclosure Prevention Services Program which is approved by the legislature. This program includes grants and aid to non-profits to provide financial counseling, mediation, legal representation, negotiation and other support services to borrowers who are facing default or foreclosure. The State Foreclosure Prevention Working Group works with sub prime mortgage loan servicers to reduce the number of unnecessary foreclosures by encouraging loan modifications and sustainable long-term solutions.
Clearly this legislation places additional (and heavy) burdens on both the lender and/or servicer as well as the foreclosing attorneys. Kindly review and do not hesitate to contact me with any questions, issues or concerns.
YOU COULD LOSE YOUR HOME. PLEASE READ THE FOLLOWING NOTICE CAREFULLY
As of (insert date), your home loan is (insert # of days) days in default. Under New York State Law, we are required to send you this notice to inform you that you are at risk of losing your home. You can cure this default by making the payment of (insert $ amount) dollars by (insert date).
If you are experiencing financial difficulty, you should know that there are several options available to you that may help you keep your home. Attached to this notice is a list of government approved housing counseling agencies in your area which provide free or very low-cost counseling. You should consider contacting one of these agencies immediately. These agencies specialize in helping homeowners who are facing financial difficulty. Housing counselors can help you assess your financial condition and work with us to explore the possibility of modifying your loan, establishing an easier payment plan for you, or even working out a period of loan forbearance. If you wish, you may also contact us directly at (insert phone number) and ask to discuss possible options.
While we cannot assure that a mutually agreeable resolution is possible, we encourage you to take immediate steps to try to achieve a resolution. The longer you wait, the fewer options you may have.
If this matter is not resolved within 90 days from the date this notice was mailed, we may commence legal action against you (or sooner if you cease to live in the dwelling as your primary residence).
If you need further information, please call the New York State Banking Department’s toll-free helpline at 1-877-BANK-NYS (1-877 -226-5697) or visit the Department’s website at http://www.banking.state.ny.us .
REVISED 1303 NOTICE
HELP FOR HOMEOWNERS IN FORECLOSURE
New York state law requires that we send you this notice about the foreclosure process. Please read it carefully.
SUMMONS AND COMPLAINT
You are in danger of losing your home. If you fail to respond to the summons and complaint in this foreclosure action, you may lose your home. Please read the summons and complaint carefully. You should immediately contact an attorney or your local legal aid office to obtain advice on how to protect yourself.
SOURCES OF INFORMATION AND ASSISTANCE
The state encourages you to become informed about your options in foreclosure. In addition to seeking assistance from an attorney or legal aid office there are government agencies, and non-profit organizations that you may contact for information about possible options, including trying to work with your lender during this process.
To locate an entity near you, you may call the toll-free helpline maintained by the New York State Banking Department at 1(877) 226-5697 or visit the department’s website at http://www.banking.state.ny.us/.
FORECLOSURE RESCUE SCAMS
Be careful of people who approach you with offers to Asave@ your home. There are individuals who watch for notices of foreclosure actions in order to unfairly profit from a homeowner’s distress. You should be extremely careful about any such promises and any suggestions that you pay them a fee or sign over your deed. State law requires anyone offering such services for profit to enter into a contract which fully describes the services they will perform and fees they will charge, and which prohibits them from taking any money from you until they have completed all such promised services.
WE ARE ATTEMPTING TO COLLECT A DEBT. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE.
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.