This assistance translates § 265-a of the Real Residential Or Commercial Property Law (" § 265-a"), which was embraced as part of the Home Equity Theft Prevention Act ("HETPA"). Section 265-a was adopted in 2006 to deal with the growing nationwide problem of deed theft, home equity theft and foreclosure rescue scams in which 3rd party investors, usually representing themselves as foreclosure specialists, strongly pursued struggling house owners by guaranteeing to "conserve" their home. As kept in mind in the Sponsor's Memorandum of Senator Hugh Farley, the legislation was intended to address "2 primary types of deceptive and abusive practices in the purchase or transfer of distressed residential or commercial properties." In the very first scenario, the homeowner was "misinformed or fooled into finalizing over the deed" in the belief that they "were merely acquiring a loan or refinancing. In the 2nd, "the homeowner purposefully transfer the deed, with the expectation of briefly leasing the residential or commercial property and then being able to purchase it back, but soon finds that the deal is structured in such a way that the homeowner can not afford it. The result is that the house owner is kicked out, loses the right to buy the residential or commercial property back and loses all of the equity that had been developed in your home."

Section 265-a consists of a number of protections versus home equity theft of a "home in foreclosure", consisting of providing homeowners with information essential to make an informed decision concerning the sale or transfer of the residential or commercial property, restriction against unreasonable contract terms and deceit; and, most significantly, where the equity sale remains in material violation of § 265-a, the opportunity to rescind the transaction within two years of the date of the recording of the conveyance.

It has actually pertained to the attention of the Banking Department that particular banking institutions, foreclosure counsel and title insurers are concerned that § 265-a can be read as using to a deed in lieu of foreclosure granted by the mortgagor to the holder of the mortgage (i.e. the individual whose foreclosure action makes the mortgagor's residential or commercial property a "house in foreclosure" within the significance of § 265-a) and thus limits their ability to offer deeds in lieu to property owners in suitable 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 analyses are misguided.

It is a fundamental guideline of statutory building to offer result 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 neighborhood 1 of the area, explains the target of the new section:

During the time period in between the default on the mortgage and the scheduled foreclosure sale date, property owners in monetary distress, especially bad, elderly, and economically unsophisticated house owners, are vulnerable to aggressive "equity purchasers" who cause homeowners to offer their homes for a small portion of their reasonable market price, or in many cases even sign away their homes, through making use of plans which typically include oral and written misstatements, deceit, intimidation, and other unreasonable industrial practices.

In contrast to the expense's clearly stated function of dealing with "the growing problem of deed theft, home equity theft and foreclosure rescue scams," there is no indication that the drafters expected that the bill would cover deeds in lieu of foreclosure (likewise understood as a "deed in lieu" or "DIL") provided by a debtor to the loan provider or subsequent holder of the mortgage note when the home is at danger of foreclosure. A deed in lieu of foreclosure is a common approach to prevent lengthy foreclosure procedures, which may make it possible for the mortgagor to get a number of benefits, as detailed listed below. Consequently, in the opinion of the Department, § 265-a does not use to the person who was the holder of the mortgage or was otherwise entitled to foreclose on the mortgage (or any agent of such person) at the time the deed in lieu of foreclosure was gotten in into, when such person consents to accept a deed to the mortgaged residential or commercial property in complete or partial complete satisfaction of the mortgage financial obligation, as long as there is no arrangement to reconvey the residential or commercial property to the debtor and the existing market value of the home is less than the amount owing under the mortgage. That truth might be demonstrated by an appraisal or a broker price opinion from an independent appraiser or broker.

A deed in lieu is an instrument in which the mortgagor conveys to the loan provider, or a subsequent transferee of the mortgage note, a deed to the mortgaged residential or commercial property completely or partial satisfaction of the mortgage debt. While the lender is anticipated to pursue home retention loss mitigation alternatives, such as a loan adjustment, with an overdue borrower who wishes to remain in the home, a deed in lieu can be useful to the borrower in particular situations. For example, a deed in lieu might be helpful for the debtor where the quantity owing under the mortgage exceeds the current market value of the mortgaged residential or commercial property, and the customer may for that reason be lawfully accountable for the shortage, or where the borrower's scenarios have actually altered and she or he is no longer able to manage to pay of principal, interest, taxes and insurance, and the loan does not get approved for an adjustment under offered programs. The DIL releases the borrower from all or many of the personal indebtedness related to 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 consent to waive any shortage judgment and also will add to the debtor's moving expenses. It likewise stops the accrual of interest and penalties on the financial obligation, prevents the high legal expenses associated with foreclosure and might be less harmful to the property owner's credit than a foreclosure.

In fact, DILs are well-accepted loss mitigation options to foreclosure and have actually been incorporated into the majority of servicing requirements. Fannie Mae and HUD both recognize that DILs might be advantageous for customers in default who do not receive other loss mitigation alternatives. The federal Home Affordable Mortgage Program ("HAMP") needs participating lenders and mortgage servicers to consider a borrower determined to be eligible for a HAMP adjustment or other home retention option 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 specific competent loss mitigation strategies, including short sales and deeds in lieu used under the Home Affordable Foreclosure Alternatives ("HAFA") program.

Although § 265-an applies to a deal with regard to a "residence in foreclosure," in the viewpoint of the Department, it does not apply to a DIL provided 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 omitted from the definition of "equity purchaser," 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 show an intention to cover a purchaser of a DIL, but rather indicates that the drafters contemplated that § 265-a used just to the fraudsters and deceitful entities who stole a property owner's equity and to authentic buyers who might buy the residential or commercial property from them. We do not think that a statute that was meant to "pay for greater protections to house owners confronted 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 option to foreclosure. Nor do we believe an analysis that requires mortgagees who have the indisputable right to foreclose to pursue the more expensive and time-consuming judicial foreclosure process is sensible. Such an interpretation breaches an essential guideline of statutory building and construction that statutes be "offered a sensible building and construction, it being presumed that the Legislature meant a sensible outcome." Brown v. Brown, 860 N.Y.S. 2d 904, 907 (Sup. Ct. Nassau Co. 2008).

We have actually found no New York case law that supports the proposition that DILs are covered by § 265-a, or that even mention DILs in the context of § 265-a. The vast majority of cases that point out HETPA involve other areas of law, such as RPAPL § § 1302 and 1304, and CPLR Rule 3408. The citations to HETPA typically 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 couple of cases that do not include other foreclosure requirements include fraudulent deed transactions that clearly 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).