N.Y. Banking Law § 6-f: Alternative mortgage instruments made by banks, trust companies, savings banks, savings and loan associations and credit unions

§ 6-f. Alternative mortgage instruments made by banks, trust

companies, savings banks, savings and loan associations and credit

unions. 1. Notwithstanding any inconsistent provision of this chapter

or any other law of this state, the superintendent of financial services

is authorized to adopt such rules or regulations as shall permit banks,

trust companies, foreign banking corporations licensed to maintain a

branch or agency in this state, savings banks, savings and loan

associations, credit unions and persons and entities engaging in the

business described in section five hundred ninety of this chapter to

make residential mortgage loans and cooperative apartment unit loans

which provide for (a) periodic readjustments of the rate of interest

charged for the loan or successive terms of the loan or (b) terms of

loan which are shorter than the term of the mortgage or (c) repayment of

the principal amount of the loan by regular payments which are not equal

in amount throughout the term of the mortgage or (d) the lender thereof

to receive a share in the future appreciation of the property serving as

security for the loan under the circumstances set forth in the following

sentence or (e) any combination of paragraphs (a), (b), (c) and (d) of

this subdivision, subject to the provisions of subdivision two of this

section. Where the lender or holder of a residential mortgage loan or

cooperative apartment unit loan enters into a written agreement with the

borrower under which the lender or holder conditionally reduces an

amount of principal of such loan in order to assist a borrower at risk

of foreclosure to avoid such foreclosure, the lender or holder may enter

into a written agreement (a "shared appreciation agreement") with the

borrower under which the lender shall be entitled to share in the

appreciation of the market value of the real property or cooperative

shares and proprietary lease securing such loan between the effective

date of such reduction in principal amount until the date when the

property is sold, provided that the amount the lender is entitled to

receive under such shared appreciation agreement shall be the lesser of

(i) the amount of such reduction in principal, plus interest on such

amount from the date of such reduction to the date of payment at the

same rate of interest as applies to the remaining principal amount of

the residential mortgage loan, and (ii) fifty percent of the amount of

such appreciation. Such amounts shall be payable when the mortgagor

sells the residential real property or cooperative shares and

proprietary lease that secure the loan. Such shared appreciation

agreement shall expressly and conspicuously bear a legend at the top of

the agreement in at least fourteen-point type which shall include the

following: "In this agreement, you are giving away some of any future

increase in value of your home. Please read carefully." For purposes of

this subdivision, the appreciation of the property shall be measured as

the difference, if positive, between the gross sales proceeds (net of

any reasonable real estate commission) of the sale of the property and

the value of the property at the time of the closing of the shared

appreciation mortgage, as determined by an appraisal by an independent

New York state licensed real estate appraiser. Recovery of such

reduction in the principal amount shall not be deemed to be interest for

any purpose of the laws of this state.

Any shared appreciation agreement shall be accompanied by a notice,

which shall be on a separate page from the shared appreciation agreement

and shall contain the following heading in bold, fourteen-point type:

"Important disclosures about the contract in which you agree to give

away a part of any future increase in value of your home. Please read

carefully." The notice shall include the following disclosures:

(1) a statement that the lender will be entitled to share in any

appreciation of the market value of the mortgaged property that occurs

between the time of the loan modification and the time the property is

sold, up to the amount of principal forborne plus interest on such

amount at the applicable rate of interest on the mortgage but in no

event more than fifty percent of the amount of such appreciation, and

providing at least three examples of how such shared appreciation may

affect the borrower at the time the borrower sells the mortgaged

property, such examples to include (A) no appreciation in the value of

the mortgaged property, (B) appreciation of twenty percent and (C)

appreciation of fifty percent;

(2) a statement advising the borrower to seek independent counseling

from a lawyer, a HUD-certified mortgage counselor or a tax advisor

regarding (A) the trade-off between a current reduction in the size of

the mortgage, versus the promise to give up part of the future

appreciation of the home, and (B) the tax consequences of the principal

forgiveness and shared appreciation agreement, and providing a list of

the names and contact information of five HUD-certified mortgage

counselors in the county where the mortgaged property is located or, if

there are fewer than five such counselors in that county, the list may

include counselors in one or more neighboring counties;

(3) a statement on the potential effect of the shared appreciation

agreement on any future refinancing of the mortgage and the potential

effect of any prepayment or refinancing of the mortgage on the

appreciation sharing agreement; and

(4) such other disclosures as the superintendent of financial services

may require.

2. Any rules or regulations which are adopted by the superintendent of

financial services pursuant to subdivision one of this section:

(a) shall provide for disclosures and notices to the borrower with

respect to the terms and conditions of the loan and the mortgage, and

the superintendent of financial services may require the adoption of

uniform disclosure and notice forms for this purpose;

(b) shall provide for the conditions governing renewals of the term of

the loan;

(c) shall not permit any uninsured loan secured by residential real

property to be made in an amount exceeding ninety percent of the

appraised value of the property; and

(d) shall not allow, with respect to any specific alternative mortgage

instrument which permits a periodic readjustment of the rate charged on

the loan, for a greater change in rate than that permitted under federal

law or regulations to federally-chartered banking organizations located

in this state for loans made pursuant to an equivalent alternative

mortgage instrument.