Bill Text: NY S05065 | 2019-2020 | 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 1-0)

Status: (Introduced) 2019-04-05 - REFERRED TO BANKS [S05065 Detail]

Download: New_York-2019-S05065-Introduced.html


                STATE OF NEW YORK
        ________________________________________________________________________
                                          5065
                               2019-2020 Regular Sessions
                    IN SENATE
                                      April 5, 2019
                                       ___________
        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.
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD09681-01-9

        S. 5065                             2
     1    The  legislature  further finds that it is in the best interest of the
     2  citizens of this state that these unethical practices should be  prohib-
     3  ited by law and that unscrupulous individuals should be denied the abil-
     4  ity  to utilize the courts of this state to perpetrate these abuses upon
     5  senior  citizens and minority residents of this state and does therefore
     6  enact this Home Equity Fraud Act in order to prevent predatory lending.
     7    § 3. Subdivision 1 of section 595-a of the banking law is  amended  by
     8  adding four new paragraphs (i), (j), (k) and (l) to read as follows:
     9    (i)  Engaging  in  any  activity, transaction or course of business in
    10  connection with a home improvement  contract  as  described  in  section
    11  seven hundred seventy of the general business law other than with regard
    12  to  providing  services directly connected with the making of a mortgage
    13  loan pursuant to the provisions  of  this  article,  and  only  if  such
    14  services  and  the  fees  paid or to be paid in connection therewith are
    15  fully disclosed and agreed to in writing by all parties  to  the  trans-
    16  action.
    17    (j) Charging or paying, either directly or indirectly, a fee in excess
    18  of  the greater of five hundred dollars or three percent of the mortgage
    19  loan for the services rendered by the mortgage broker.
    20    (k) The failure of a mortgage banker or exempt organization to  assure
    21  that  no  more  than  a total of six percent of the value of the loan is
    22  charged for all services rendered in connection with qualifying for  and
    23  receiving the loan, provided that any fees which are required to be paid
    24  to  any  public  officer  for  the filing, recording or releasing in any
    25  public office of a document securing the loan and the costs of any title
    26  insurance or the fees of an attorney voluntarily engaged by  and  solely
    27  representing  the interests of the borrower shall not be included within
    28  this limit.
    29    (l) Charging a fee or anything of value in connection with  the  refi-
    30  nancing of a mortgage loan unless such refinancing is for the purpose of
    31  reducing  the  rate  on the mortgage loan in an amount which exceeds the
    32  cost of such refinance and which will allow the mortgagor to recover the
    33  cost of refinancing the loan within two years of the date of such  refi-
    34  nance.  This  provision  shall  not  apply to any additional proceeds in
    35  excess of the original loan received by a mortgagor in  connection  with
    36  such refinancing.
    37    §  4.  Paragraph  (d) of subdivision 3 of section 595-a of the banking
    38  law, as relettered by chapter 400 of the laws  of  1993,  is  relettered
    39  paragraph (e) and a new paragraph (d) is added to read as follows:
    40    (d)  Each  mortgage  broker,  mortgage  banker and exempt organization
    41  shall provide to each applicant for a mortgage loan  at  or  before  the
    42  time of application, in writing:
    43    (1) A disclosure stating whether the mortgage loan will be retained by
    44  the  original lender or sold after closing to a third party and if it is
    45  to be sold, the name of such third party; and
    46    (2) A notice giving the applicant the right to designate a third party
    47  to receive copies of all written communications regarding the  loan  and
    48  setting forth the procedure for the applicant to exercise such right.
    49    In  the event that the disclosure and notices required by this section
    50  are not made, the mortgage loan made as a  result  of  such  application
    51  shall  not  be  sold  or transferred nor any action taken to enforce the
    52  lender's rights until thirty days after such disclosures  are  made  and
    53  acknowledged by the borrower.
    54    §  5. Subdivision (d) of section 347 of the banking law, as amended by
    55  chapter 22 of the laws of 1990, is amended and  a new subdivision (e) is
    56  added to read as follows:

        S. 5065                             3
     1    (d) The licensee has engaged in the business of a sales finance compa-
     2  ny and has done or failed to do any act, except the failure to  pay  the
     3  fees  required,  which would be grounds for the suspension or revocation
     4  of its license pursuant to section  four  hundred  ninety-five  of  this
     5  chapter were it required to obtain such a license[.];
     6    (e) The licensee has engaged in any activity, transaction or course of
     7  business  or  has  paid or obtained any money or other thing of value in
     8  connection with a home improvement contract as defined in section  seven
     9  hundred  seventy  of  the  general business law without fully disclosing
    10  such activity, transaction or course of business and any fees  or  thing
    11  of  value  paid or to be paid in connection therewith and without having
    12  obtained the agreement in writing from all parties to the transaction.
    13    § 6. Section 592-a of the banking law  is  amended  by  adding  a  new
    14  subdivision 3 to read as follows:
    15    3.  Any  mortgage  broker registered under this article who in any way
    16  places with or obtains a mortgage loan from a mortgage banker or  exempt
    17  organization  registered  under  this  article shall for all purposes be
    18  deemed to be an agent of  such  banker  or  exempt  organization.    Any
    19  attempt by any person to void this provision by contract or in any other
    20  way shall be void as against public policy.
    21    § 7. The real property law is amended by adding a new section 254-e to
    22  read as follows:
    23    § 254-e. Certain mortgage provisions prohibited. No mortgage on a loan
    24  secured  primarily  by  an  interest  in real property used as a primary
    25  residence by the mortgagor at the time such loan is made  shall  contain
    26  any provision which:
    27    1. allows for a balloon payment; or
    28    2.  allows  for a payment schedule with regular periodic payments that
    29  cause the principal balance to increase; or
    30    3. allows for a provision stating that the interest rate of  the  loan
    31  underlying the mortgage increases after default.
    32    §  8.  The  real  property  actions  and proceedings law is amended by
    33  adding a new section 1316 to read as follows:
    34    § 1316. Notice to mortgagor or owner. In all foreclosure  actions  the
    35  mortgagee,  upon  commencement  of a foreclosure proceeding, shall serve
    36  the mortgagor at the same time as service of the summons and  complaint,
    37  a notice in the following form:
    38    "NOTICE TO MORTGAGOR OR OWNER:
    39    YOU  HAVE BEEN SERVED WITH A SUMMONS AND COMPLAINT IN A MORTGAGE FORE-
    40  CLOSURE PROCEEDING. IF YOU FAIL TO  RESPOND  TO  THESE  IMPORTANT  LEGAL
    41  DOCUMENTS, YOU MAY LOSE YOUR HOME.
    42    Read this carefully:
    43    YOU  MAY BE ABLE TO PREVENT YOUR HOME FROM BEING LOST IN A FORECLOSURE
    44  ACTION.
    45    State and federal laws allow you to defend foreclosure proceedings  in
    46  certain circumstances and may allow you to prevent a foreclosure on your
    47  home.  You may  be able to offer defenses in this foreclosure proceeding
    48  under the following circumstances:
    49    1. If you gave a mortgage on your home as the result of a door to door
    50  transaction;
    51    2. If you gave a mortgage on your home in  order  to  finance  a  home
    52  improvement contract;
    53    3.  If you did not understand that you were signing a mortgage or were
    54  unaware that you had a mortgage on your home;

        S. 5065                             4
     1    4. If you were on public assistance at the time you gave a mortgage on
     2  your home, or were retired and collecting Social Security or SSI and the
     3  person who took the mortgage on your home knew you had a fixed income;
     4    5.  If  you  were  on  a limited fixed income at the time you gave the
     5  mortgage on your home.
     6    Also, your mortgage documents may contain language stating your rights
     7  under the contract in cases where you are subject to foreclosure.
     8    If you think that you may have a defense to this foreclosure  proceed-
     9  ing  you  must act promptly - failure to answer the enclosed summons and
    10  complaint will allow the mortgagee's or  bank's  attorneys  to  enter  a
    11  default judgment against you.
    12    The  front  of  the  summons  will  tell you how many days you have to
    13  answer before the mortgagee or bank may enter a default judgment against
    14  you.
    15    YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY.   The
    16  law,  (New  York  Real  Property Actions and Proceedings Law Article 13)
    17  provides defenses for certain mortgagors and homeowners.
    18    The phone numbers and  office  addresses  for  your  local  legal  aid
    19  offices  are  contained  in your telephone directory. If your phone book
    20  has government pages, the phone number  and  office  addresses  of  your
    21  local legal aid offices should be listed there also.
    22    ONLY  A  QUALIFIED  ATTORNEY  CAN  TELL YOU ALL OF YOUR RIGHTS IN THIS
    23  PROCEEDING.
    24    YOU MUST ACT PROMPTLY OR YOU MAY LOSE YOUR HOME."
    25    § 9. The real property actions  and  proceedings  law  is  amended  by
    26  adding a new section 1317 to read as follows:
    27    §  1317.  Pleading  required.  1. Any complaint served in a proceeding
    28  initiated pursuant to this article relating to a mortgage loan which was
    29  initiated by a mortgage banker or exempt organization registered  pursu-
    30  ant  to  section five hundred ninety-one of the banking law must contain
    31  an affirmative allegation, which allegation must be proven to the satis-
    32  faction of the court, that such mortgage banker or  exempt  organization
    33  has  complied with all of the provisions of section five hundred ninety-
    34  five-a of the banking law.
    35    2.  In any action brought under this article in which the mortgage  to
    36  be  foreclosed  arose from the refinancing of a personal residence which
    37  was owned by the defendant for more than five years prior to the date of
    38  such mortgage it shall be an affirmative defense that: (a) at  the  time
    39  of the loan origination the mortgagor did not have the financial ability
    40  to repay the loan and that the financial institution knew or should have
    41  known  that  the mortgagor would not be able to repay such loan; (b) the
    42  mortgage broker, mortgage banker or exempt organization which originated
    43  the loan violated any provision of section five hundred ninety-five-a of
    44  the banking law; or (c)  the  mortgage  document  contains  a  provision
    45  prohibited by section two hundred fifty-four-e of the real property law.
    46  The  court  may  consider  factors including but not limited to the fact
    47  that the mortgagor was  not  employed  and  unlikely  to  obtain  future
    48  employment,  the fact that the mortgagor was living on a fixed income or
    49  was the recipient of federal or state entitlement of  public  assistance
    50  or  that  the payments required by such mortgage loan, together with the
    51  payments required by any other loan secured by the premises to be  fore-
    52  closed, were more than fifty percent of the mortgagor's after tax month-
    53  ly  income as of the date of the loan. For purposes of this section, the
    54  term financial institution shall include any banking organization, mort-
    55  gage broker, mortgage banker or licensed lenders involved in the  origi-
    56  nation of the mortgage being foreclosed and any assignee or successor of

        S. 5065                             5
     1  such  person  or  entity.    In any action brought under this article in
     2  which any such affirmative defense is proven to the satisfaction of  the
     3  finder  of  fact,  the  court  may award reasonable attorney fees to the
     4  defendant.
     5    §  10.  Paragraph  (h)  of subdivision 1 of section 771 of the general
     6  business law, as amended by chapter 32 of the laws of 1989,  is  amended
     7  to read as follows:
     8    (h)  A notice to the owner that, in addition to any right otherwise to
     9  revoke an offer, the owner may  cancel  the  home  improvement  contract
    10  until  midnight  of  the [third] fifteenth business day after the day on
    11  which the owner has signed an agreement or offer to purchase relating to
    12  such contract.  Cancellation occurs when written notice of  cancellation
    13  is  given to the home improvement contractor. Notice of cancellation, if
    14  given by mail, shall be deemed given when deposited in a mailbox proper-
    15  ly addressed and postage prepaid. Notice of cancellation shall be suffi-
    16  cient if it indicates the intention  of  the  owner  not  to  be  bound.
    17  Notwithstanding the foregoing, this paragraph shall not apply to a tran-
    18  saction  in  which  the  owner  has  initiated  the contact and the home
    19  improvement is needed to meet a bona fide emergency of  the  owner,  and
    20  the  owner  furnishes  the  home  improvement contractor with a separate
    21  dated and signed personal statement in the owner's handwriting  describ-
    22  ing the situation requiring immediate remedy and expressly acknowledging
    23  and  waiving  the  right  to cancel the home improvement contract within
    24  [three] fifteen business days. For the purposes of  this  paragraph  the
    25  term "owner" shall mean an owner or any representative of an owner.
    26    §  11.  The  general  business  law is amended by adding a new section
    27  771-b to read as follows:
    28    § 771-b.  Responsibilities of home improvement contractors. 1. No home
    29  improvement contractor shall engage  in  any  activity,  transaction  or
    30  course  of  business  or pay or receive any fee, payment, money or other
    31  thing of value in connection with the financing of  a  home  improvement
    32  contract  without  fully disclosing such activity, transaction or course
    33  of business and any fees, payment or other thing of value paid or to  be
    34  paid  in  connection therewith and without having obtained the agreement
    35  in writing from all parties to the transaction to such activity and  the
    36  payment therefor.
    37    2.  In  addition  to  any right otherwise to revoke a home improvement
    38  contract, the buyer may cancel  such  contract  until  midnight  of  the
    39  fifteenth  day  after  the  home improvement contract was signed by both
    40  parties. Cancellation shall occur when written notice of cancellation is
    41  given to the home improvement contractor.  Notice  of  cancellation,  if
    42  given by mail, shall be deemed given when deposited in a mailbox proper-
    43  ly  addressed  and postage prepaid. Notice of cancellation need not take
    44  any prescribed form and shall be sufficient if it indicates  the  inten-
    45  tion  of  the signatory not to be bound.  Notwithstanding the foregoing,
    46  this subdivision shall not apply to a transaction in which the owner has
    47  initiated the contact and the home improvement is needed to meet a  bona
    48  fide  emergency  of the owner, and the owner furnishes the home improve-
    49  ment contractor with a separate dated and signed personal  statement  in
    50  the  owner's  handwriting  describing  the situation requiring immediate
    51  remedy and expressly acknowledging and waiving the right to  cancel  the
    52  home improvement contract within fifteen business days. For the purposes
    53  of  this  subdivision the term "owner" shall mean an owner or any repre-
    54  sentative of an owner.
    55    3. No home improvement contract shall be  enforceable  unless  at  the
    56  time  it  is  signed  by  the homeowner, the home improvement contractor

        S. 5065                             6
     1  shall furnish to the  homeowner  a  notice  containing  a  statement  in
     2  substantially the following form:
     3    YOU  THE  HOMEOWNER,  MAY  CANCEL  THIS  CONTRACT AT ANY TIME PRIOR TO
     4  MIDNIGHT OF THE FIFTEENTH BUSINESS DAY AFTER THE DATE OF THIS  CONTRACT.
     5  SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION.
     6    §  12.  The general obligations law is amended by adding a new section
     7  5-337 to read as follows:
     8    § 5-337. Certain home equity loan contracts; enforceability. 1.    Any
     9  loan  made  in  violation  of  section five hundred ninety-five-a of the
    10  banking law shall be unenforceable and  no  default  judgment  shall  be
    11  entered  in any action as a result of the alleged default of the defend-
    12  ant to make payments pursuant to a loan agreement  which  arose  as  the
    13  result  of  the refinance of a personal residence owned by the defendant
    14  whether or not secured by a mortgage unless the court makes an  affirma-
    15  tive  finding  of  fact  in  writing that the provisions of section five
    16  hundred ninety-five-a of the banking law have not been violated.
    17    2. In any action brought seeking enforcement of a loan agreement which
    18  arose from the refinancing of a personal residence which  was  owned  by
    19  the defendant for more than five years prior to the date of such loan it
    20  shall be an affirmative defense that: (a) at the time of the loan origi-
    21  nation the borrower did not have the financial ability to repay the loan
    22  and  that  the  financial institution knew or should have known that the
    23  borrower would not be able to repay such loan; (b) the mortgage  broker,
    24  mortgage  banker  or  exempt  organization  which  originated  the  loan
    25  violated any provision of section  five  hundred  ninety-five-a  of  the
    26  banking  law; or (c) any mortgage document signed contemporaneously with
    27  the loan contains a provision prohibited by section two  hundred  fifty-
    28  four-e  of the real property law. The court may consider factors includ-
    29  ing but not limited to the fact that the mortgagor was not employed  and
    30  unlikely  to  obtain  future employment, the fact that the mortgagor was
    31  living on a fixed income or was the recipient of federal or state  enti-
    32  tlement of public assistance or that the payments required by such loan,
    33  together  with  the  payments  required by any other loan secured by the
    34  premises securing such loan, were more than fifty percent of the borrow-
    35  er's after tax monthly income as of the date of the loan.  For  purposes
    36  of  this section, the term financial institution shall include any bank-
    37  ing organization, mortgage broker, mortgage banker  or  licensed  lender
    38  involved  in the origination of the loan for which enforcement is sought
    39  and any assignee or successor of such person or entity.    In  any  such
    40  action  in  which such affirmative defense is proven to the satisfaction
    41  of the finder of fact, the court may award reasonable attorney  fees  to
    42  the defendant.
    43    § 13. This act shall take effect on the first of October next succeed-
    44  ing  the date on which it shall have become a law.  Effective immediate-
    45  ly, the addition, amendment and/or repeal  of  any  rule  or  regulation
    46  necessary  for  the implementation of this act on its effective date are
    47  authorized to be made and completed on or before such effective date.
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