N.Y. Banking Law § 590-a: Junior mortgage loans

§ 590-a. Junior mortgage loans. 1. A licensee may make a loan to a

natural person upon the security of a mortgage on residential real

property which is not a first lien at the rate or rates agreed to by the

licensee and the borrower, subject to such regulations as the

superintendent of financial services may prescribe. Such regulations by

the superintendent of financial services may include such restrictions

as the superintendent of financial services finds necessary or proper.

For purposes of this section, the term mortgage shall include a lien on

an existing ownership interest in certificates of stock or other

evidence of an ownership interest in, and a proprietary lease from, a

corporation or partnership formed for the purpose of the cooperative

ownership of residential real estate.

2. A contract, note or instrument evidencing or securing a junior

mortgage loan shall not contain any acceleration clause which would

provide that the junior mortgage loan may be declared due and payable

upon the condition that the licensee deems itself insecure with respect

to the unpaid balance of such junior mortgage loan; shall not contain

clauses which authorize confession of judgment; shall allow the borrower

to prepay the loan in whole or in part without penalty, and shall

contain the following notice in bold face type, at least ten point size:

"DEFAULT IN THE PAYMENT OF THIS LOAN AGREEMENT MAY RESULT IN THE

LOSS OF THE PROPERTY SECURING THE LOAN. UNDER FEDERAL LAW, YOU MAY HAVE

THE RIGHT TO CANCEL THIS AGREEMENT. IF YOU HAVE THIS RIGHT, THE CREDITOR

IS REQUIRED TO PROVIDE YOU WITH A SEPARATE WRITTEN NOTICE SPECIFYING THE

CIRCUMSTANCES AND TIMES UNDER WHICH YOU CAN EXERCISE THIS RIGHT."

3. Where the contract, note or instrument evidencing or securing a

junior mortgage loan provides for a variable rate of interest, said rate

shall be based on a published index that is (a) readily available, (b)

independently verifiable, (c) beyond the control of the licensee, and

(d) approved by the superintendent. The interest rate of the junior

mortgage loan shall be reduced in proportion to any decrease in the

index rate. Increases in the interest rate may be made at the option of

the licensee.

4. The superintendent of financial services shall adopt regulations,

including but not limited to: (a) providing for disclosure to the

borrower by the licensee of the circumstances under which the rate may

increase, any limitations on the increase, the effect of an increase and

an example of the payment terms that would result from an increase, (b)

providing for disclosure to the borrower by the licensee of a history of

the fluctuations of the index over a reasonable period of time, and (c)

providing for notice to the borrower from the licensee of any rate

increase or change in the terms of payment.

5. A line of credit secured by a junior mortgage shall be established

in an amount of no less than twenty-five hundred dollars; and shall be

repayable in monthly installments.