N.Y. Public Authorities Law § 2405-d: Lease-to-own program

* § 2405-d. Lease-to-own program. (1) The agency is authorized to

participate in lease-to-own programs as described in this section. The

purpose of a lease-to-own program is to provide mortgage financing for a

residence occupied as a primary residence by a prospective mortgagor

pursuant to a lease-to-own contract with the owner of such property. The

lease-to-own contract shall provide for the eventual purchase by the

resident of the residence and an interim lease of the residence prior to

the closing of the purchase thereof. The party to the lease-to-own

contract who is the seller of the residence is referred to in this

section as the "seller". The prospective purchaser who is a party to the

lease-to-own contract is referred to in this section as the

"tenant-purchaser". A "residence" for the purpose of this section is a

single-family home, a condominium housing unit or a housing unit owned

by a cooperative housing corporation.

(2) The agency may contract to acquire and may acquire a mortgage loan

or loans made by a bank to a seller who has entered a lease-to-own

contract with an eligible tenant-purchaser for the property which is the

subject of and security for such mortgage loan.

(3) (a) The lease-to-own contract shall contain:

(i) a lease of the residence, or in the case of cooperative housing

units a sublease, for a term not to exceed five years.

(ii) provision for a rental payment not less than the sum of (A) an

amount sufficient to pay the estimated real property taxes and insurance

on the residence, or in the case of a cooperative unit, the maintenance

charges; (B) the cost of routine maintenance of the residence unless the

lease-to-own contract requires the tenant-purchaser to perform such

maintenance at his own expense; (C) an amount sufficient to pay the

interest on the mortgage loan held by the agency on the residence less

the estimated earnings on the escrow fund provided for in subdivision

four of this section which is allocable to such mortgage held by the

agency; (D) an amount to be held in escrow, referred to as the

"tenant-purchaser escrow", which, when accumulated over the period of

the lease-to-own contract, will amount to a sum sufficient to pay the

tenant-purchaser's required down payment under the lease-to-own contract

plus the estimated closing costs of purchase which will be allocable to

the tenant-purchaser, including the seller's closing costs at the

initial closing of the mortgage to the seller; and (E) in the case of a

condominium unit, common charges.

(iii) provisions obligating the tenant-purchaser to buy and the seller

to sell the residence at the end of the lease term.

(iv) a provision under which the seller waives specific performance

with respect to the tenant-purchaser's obligation to purchase.

(v) a provision that default by the tenant-purchaser under the

provisions of the lease-to-own contract shall result in the forfeiture

to the seller of all amounts in the tenant-purchaser escrow.

(vi) a provision that the tenant-purchaser shall have the option upon

reasonable notice to the seller and the agency to elect to close the

purchase of the residence at an earlier date than that specified in the

lease-to-own contract.

(vii) a provision that the rent shall be adjusted under the

lease-to-own contract periodically to take account of changes in taxes,

insurance, escrow earnings and other variables intended to be covered by

the tenant's rental payment.

(viii) a provision governing the consequences of default by each of

the parties.

(b) The provisions of the emergency housing rent control law, the

local emergency housing rent control act, the city rent and

rehabilitation law, the emergency tenant protection act of nineteen

seventy-four and the New York city rent stabilization law of nineteen

hundred sixty-nine shall not apply to a residence subject to a

lease-to-own mortgage, provided that the mortgage is purchased by the

agency. Such exemption shall begin at the commencement of the lease term

and shall endure for so long thereafter as the agency holds the mortgage

loan. The agency shall not sell the mortgage loan prior to the closing

of the transfer of title to the tenant-purchaser or default by the

tenant-purchaser under the lease-to-own contract.

(c) The agency shall adopt procedures to ensure that the payments

contemplated by subparagraph (ii) of paragraph (a) of this subdivision

are in fact applied to those purposes.

(4) (a) The mortgage loan documents with respect to a mortgage loan

acquired by the agency pursuant to this section shall provide that there

shall be retained as additional security for the mortgage loan an amount

not less than fifteen percent of the purchase price stated in the

lease-to-own contract. The amount retained shall be disbursed in cash at

the mortgage closing to an escrow fund held by the owner of the

mortgage. When the agency becomes the owner of the mortgage loan, the

agency shall receive the escrow amount to be held by the agency in

escrow. The escrowed funds may be invested by the agency in securities

in which the agency is authorized to invest its own funds. All banks and

trust companies are authorized to give such security for deposits by the

agency of escrowed funds as determined by the agency. The escrow amounts

pertaining to various lease-to-own mortgage loans may be commingled for

investment purposes, but the agency shall keep books of account showing

the amount to the credit of each individual escrow account. The

investment earnings on each individual escrow account shall be credited

to the interest payment on the applicable mortgage loan.

(b) The agency shall advise the seller at periodic convenient

intervals of the amount of such earnings with respect to each mortgage

loan.

(5) With the agency's approval, the lease-to-own contract may provide

that, so long as the seller is not in default, in lieu of the

establishment of a tenant-purchaser escrow account, that the portion of

the tenant-purchaser's rental payments allocable to such an account may

be received by the seller first as reimbursement of the seller's costs

of closing of the initial mortgage to the seller and, second, to be

credited to the purchase price of the premises.

(6) (a) At the closing of the transfer of title to the residence to

the tenant-purchaser pursuant to the lease-to-own contract, the agency

shall disburse the escrow amount to or for the account of the

tenant-purchaser.

(b) At such closing, the agency shall require the tenant-purchaser to

furnish private mortgage insurance if such insurance is required in the

case of other mortgage loans under this title. If such insurance is not

obtainable in the private market at the time of such closing, the agency

is authorized to issue such insurance.

(7) The agency shall establish such requirements with regard to

lease-to-own contracts, lease-to-own residences, the qualifications of

tenant-purchasers, and the agency's participation in any lease-to-own

program, as may be deemed appropriate by the agency to achieve the

objectives of this section. The agency's requirements, including but not

limited to income limits applicable to the tenant-purchaser and the

purchase price of the residence, must be satisfied at or before the time

the mortgage loan is purchased, and the tenant-purchaser must be deemed

qualified by the agency at the time.

(8) Notwithstanding any other provision of law, the agency is

authorized to require, as a condition to the financing of any mortgage

with respect to a lease-purchase residence, such restrictions upon

assumability of the mortgage, default provisions, rights to accelerate,

and other terms as the agency may determine to be necessary or

desirable. All such terms shall be enforceable by the originating bank,

the agency, and any successor holder of the mortgage unless expressly

waived in writing by or on behalf of the agency.

(9) The provisions of this section shall expire and be of no further

force and effect on and after July first, nineteen hundred ninety-five.

* NB Expired July 1, 1995