N.Y. Real Property Law § 265-a: Home equity theft prevention

§ 265-a. Home equity theft prevention. 1. (a) The legislature finds

and declares that homeowners who are in default on their mortgages or in

foreclosure may be vulnerable to fraud, deception, and unfair dealing by

home equity purchasers. The recent rapid escalation of home values

throughout urban and rural areas has resulted in a significant increase

in home equity, which constitutes the greatest financial asset held by

many homeowners of this state. During the time period between the

default on the mortgage and the scheduled foreclosure sale date,

homeowners in financial distress, especially poor, elderly, and

financially unsophisticated homeowners, are vulnerable to aggressive

"equity purchasers" who induce homeowners to sell their homes for a

small fraction of their fair market values, or in some cases even sign

away their homes, through the use of schemes which often involve oral

and written misrepresentations, deceit, intimidation, and other

unreasonable commercial practices.

(b) The legislature declares that it is the express policy of the

state to preserve and guard the precious asset of home equity, and the

social as well as the economic value of homeownership.

(c) The legislature further finds that equity purchasers may have a

significant impact upon the economy and well-being of this state and its

local communities, and therefore the provisions of this section are

necessary to promote the public welfare.

(d) The intent and purposes of this section are to provide a homeowner

with information necessary to make an informed and intelligent decision

regarding the sale or transfer of his or her home to an equity

purchaser; to require that the sales agreement be expressed in writing;

to safeguard equity sellers against deceit and financial hardship; to

ensure, foster and encourage fair dealing in the sale and purchase of

homes in foreclosure or default; to prohibit representations that tend

to mislead; to prohibit or restrict unfair contract terms; to provide a

cooling off period for equity sellers who enter into covered contracts;

to afford equity sellers a reasonable and meaningful opportunity to

rescind sales to equity purchasers; and to preserve and protect home

equity for the homeowners of this state.

2. The following definitions shall apply to this section:

(a) "Bona fide purchaser or encumbrancer for value" means anyone

acting in good faith who purchases the residential real property from

the equity purchaser for valuable consideration or provides the equity

purchaser with a mortgage or provides a subsequent bona fide purchaser

with a mortgage, provided that he or she had no notice of the equity

seller's continuing right to, or equity in, the property prior to the

acquisition of title or encumbrance, or of any violation of this section

by the equity purchaser as related to the subject property.

(b) "Business day" means any calendar day except Sunday or the public

holidays as set forth in section twenty-four of the general construction

law.

(c) "Covered contract" means any contract, agreement, or arrangement,

or any term thereof, between an equity purchaser and equity seller

which:

(i) is incident to the sale of a residence in foreclosure; or

(ii) is incident to the sale of a residence in foreclosure or default

where such contract, agreement or arrangement includes a reconveyance

arrangement; or

(iii) is incident to the sale of a residence that is the collateral

for a "distressed home loan" as defined in paragraph (d) of subdivision

one of section two hundred sixty-five-b of this article.

For purposes of this section, any reference to the "sale" of a

residence by an equity seller to an equity purchaser shall include a

transaction where an equity seller receives consideration from the

equity purchaser, and a transaction involving a transfer of title to the

equity purchaser where no consideration is provided to the equity

seller.

(d) "Default" means that the equity seller is two months or more

behind in his or her mortgage payments.

(e) "Equity purchaser" means any person who or entity which acquires

title to any residence in foreclosure or, where applicable, default, or

the representative of such person or entity as defined in this

subdivision, except a person who acquires such title as follows:

(i) to use, and who uses, such property as his or her primary

residence;

(ii) by a deed from a referee in a foreclosure sale conducted pursuant

to article thirteen of the real property actions and proceedings law;

(iii) at any sale of property authorized by statute;

(iv) by order or judgment of any court;

(v) from a spouse, or from a parent, grandparent, child, grandchild or

sibling of such person or such person's spouse;

(vi) as a not-for-profit housing organization or as a public housing

agency; or

(vii) a bona fide purchaser or encumbrancer for value.

(f) "Equity seller" means a natural person who is a property owner or

homeowner at the time of the equity sale.

(g) "Foreclosure" means that there is an active notice of pendency

filed in court pursuant to article thirteen of the real property actions

and proceedings law, or a foreclosure action pursuant to article eleven

or thirteen of the real property actions and proceedings law has been

commenced against the subject property, or an action to enforce a

mortgage note has been commenced against the borrower whose property is

secured by a mortgage loan, or the subject property is on an active

property tax or utility lien sale list.

(h) "Property owner" or "homeowner" means any or all record title

owners of the residential real property in foreclosure or, where

applicable, default at the time of the equity sale.

(i) "Reconveyance arrangement" means:

(i) the transfer of title to residential real property by an equity

seller who is in default or foreclosure, either by transfer of interest

from an equity seller to an equity purchaser or by creation of a

mortgage or other lien or encumbrance during the time of default or

foreclosure that allows the equity purchaser to obtain legal or

equitable title to all or part of the property, and

(ii) the subsequent conveyance, or promise of a subsequent conveyance,

of an interest back to the equity seller by the equity purchaser that

allows the equity seller to regain possession of the property, which

interest shall include but not be limited to a purchase agreement,

option to purchase, or lease.

(j) "Representative" means a person who in any manner solicits,

induces, arranges, or causes any equity seller to transfer title or

solicits any member of the equity seller's family or household to induce

or cause any equity seller to transfer title to the residence in

foreclosure or, where applicable, default to the equity purchaser.

(k) "Residence" and "residential real property" means residential real

property consisting of one- to four-family dwelling units, one of which

the equity seller occupies or occupied at a time immediately prior to

the equity sale as his or her primary residence.

3. Every covered contract and notice of cancellation attached thereto

shall be written in letters of a size equal to at least twelve-point

bold type, in English or in both English and Spanish if Spanish is the

primary language of the equity seller, and shall be fully completed and

signed and dated by the equity seller and equity purchaser. Any

instrument of conveyance shall become effective no sooner than midnight

of the fifth business day after the date on which the covered contract

is executed.

4. All covered contracts shall contain the entire agreement of the

parties and shall include, but not be limited to, the following terms:

(a) The name, business address, and the telephone number of the equity

purchaser;

(b) The address of the residence in foreclosure or, where applicable,

default;

(c) The total consideration to be given by the equity purchaser in

connection with or incident to the sale;

(d) A complete description of the terms of payment or other

consideration including, but not limited to, any services of any nature

which the equity purchaser represents he or she will perform for the

equity seller before or after the sale;

(e) The time, if any, at which physical possession of the residence is

to be transferred to the equity purchaser and the residence vacated by

the equity seller;

(f) The terms of any rental or lease agreement;

(g) The terms of any reconveyance arrangement;

(h) A notice of cancellation as provided in paragraph (a) of

subdivision six of this section; and

(i) The following notice shall appear on the contract in immediate

proximity to the space reserved for the equity seller's signature and

shall be in at least fourteen-point bold type if the covered contract is

printed or in capital letters if the covered contract is typed. The

notice must contain the name of the equity purchaser and the date and

time by which the covered contract must be cancelled. The notice shall

be completed by the equity purchaser:

"NOTICE REQUIRED BY NEW YORK LAW

You may cancel this contract at any time before midnight of

________________________________________.

(Date)

________________________________________________________________________

(Name of Equity Purchaser)

or anyone working for ____________________________ CANNOT ask you to

(Name of Equity Purchaser)

sign or have you sign any deed or any other document until your right to

cancel this contract has ended. See attached notice of cancellation

form for an explanation of this right. You should always consult an

attorney or community organization before signing any legal documents

concerning your home. It is advisable that you find your own attorney,

and not consult with an attorney who has been provided to you by the

purchaser. The law requires that this contract contain the entire

agreement. You should not rely upon any other written or oral agreement

or promise."

The equity purchaser shall accurately enter the date on which the

right to cancel ends. The covered contract required by this section

shall survive delivery of any instrument of conveyance of the residence

in foreclosure or, where applicable, default, and shall have no effect

on persons other than the parties to the covered contract.

5. (a) In addition to the right of rescission described in subdivision

eight of this section, the equity seller has the right to cancel any

covered contract with an equity purchaser until midnight of the

fourteenth business day following the day on which the equity seller and

equity purchaser sign a covered contract that complies with this

section.

(b) Cancellation occurs when the equity seller, or a representative of

the equity seller, personally delivers written notice of cancellation to

the address specified in the covered contract or sends a letter via

facsimile or other means of written communication, United States mail,

or through an established commercial letter delivery service, indicating

cancellation to the business address of the equity purchaser listed on

the covered contract. Proof of facsimile delivery or proof of mailing

creates a presumption that the notice of cancellation has been

delivered.

(c) A notice of cancellation given by the equity seller pursuant to

paragraph (a) of this subdivision need not take the particular form as

provided with the covered contract and, however expressed, is effective

if it indicates the intention of the equity seller not to be bound by

the covered contract.

(d) Within ten days following receipt of a notice of cancellation

given in accordance with this subdivision, the equity purchaser shall

return without condition any original covered contract and any other

documents signed by the equity seller as well as any fee or other

consideration received by the equity purchaser from the equity seller.

Cancellation of the contract shall release the equity seller of all

obligations to pay fees to the equity purchaser.

6. (a) The covered contract shall be accompanied by a form completed

by the equity purchaser in duplicate, captioned "notice of cancellation"

in at least twelve-point bold type if the covered contract is printed or

in capital letters if the covered contract is typed. This form shall be

attached to the covered contract, shall be easily detachable, and shall

contain in type of at least twelve-point if the covered contract is

printed or in capital letters if the covered contract is typed, the

following statement written in the same language as used in the covered

contract:

"NOTICE OF CANCELLATION

This contract was entered into on ____________________________________

(Enter date covered contract signed)

You may cancel this contract for the sale of your house, without any

penalty or obligation, at any time before midnight of

___________________________. (Enter date)

To cancel this transaction, personally deliver a signed and dated copy

of this cancellation notice, or send it by facsimile, United States

mail, or an established commercial letter delivery service, indicating

cancellation to ____________________________________________________, at

(Name of purchaser) ___________________________________

(Street address of purchaser's place of business and facsimile number if

any) NOT LATER THAN midnight of _______________________________________.

(Enter date)

If you wish to cancel this contract, sign and date both copies and

return one copy immediately to the purchaser.

I hereby cancel this transaction.

__________________________________/_______________________________"

(Seller's signature) (Date)

(b) The equity purchaser shall provide each equity seller with two

copies of the covered contract and attached notice of cancellation. The

equity purchaser shall accurately enter the date on which the right to

cancel ends.

7. (a) Before midnight of the fourteenth business day after the date

on which the covered contract is executed, the equity purchaser shall

not do any of the following:

(i) accept from any equity seller an execution of, or induce any

equity seller to execute, any instrument of conveyance of any interest

in the residence in foreclosure or, where applicable, default;

(ii) record with the county clerk any document, including, but not

limited to, any instrument of conveyance, signed by the equity seller;

(iii) transfer or encumber or purport to transfer or encumber any

interest in the residence in foreclosure or, where applicable, default

to any third party;

(iv) pay the equity seller any consideration; or

(v) suggest, encourage, or provide any form which allows the equity

seller to waive his or her right to cancel or rescind under this

section.

(b) An equity purchaser shall make no false or misleading statement

regarding the value of the residence in foreclosure or, where

applicable, default; the amount of proceeds the equity seller will

receive after a foreclosure sale; the timing of the judicial foreclosure

process; any contract term; the equity seller's rights or obligations

incident to or arising out of the sale transaction; the nature of any

document which the equity purchaser induces the equity seller to sign;

or any other false or misleading statement concerning the sale of the

residence in foreclosure or, where applicable, default, or concerning

the reconveyance arrangement.

(c) An equity purchaser is prohibited from representing, directly or

indirectly, that:

(i) the equity purchaser is acting as an advisor or a consultant, or

in any other manner represents that the equity purchaser is acting on

behalf of the equity seller;

(ii) the equity purchaser has certification or licensure that the

equity purchaser does not have, or that the equity purchaser is not a

member of a licensed profession if he or she is actually such a member;

(iii) the equity purchaser is assisting the equity seller to save the

house unless the equity purchaser has a good faith basis for the

representation; or

(iv) the equity purchaser is assisting the equity seller in preventing

a completed foreclosure unless the equity purchaser has a good faith

basis for the representation.

(d) It is unlawful for any equity purchaser to initiate, enter into,

negotiate, or consummate any covered contract involving residential real

property in foreclosure or, where applicable, default if such equity

purchaser, by the terms of such covered contract, takes undue advantage

of the equity seller.

8. (a) Any transaction involving residential real property in

foreclosure or, where applicable, default which is in material violation

of subdivision three, four, six, seven or eleven of this section is

voidable and the transaction may be rescinded by the equity seller

within two years of the date of the recording of the conveyance of the

residential real property in foreclosure or, where applicable, default.

(b) Such rescission shall be effected by giving written notice to the

equity purchaser and his or her successor in interest, if the successor

is not a bona fide purchaser or encumbrancer for value as set forth in

paragraph (c) of this subdivision, and by recording such notice with the

county clerk of the county in which the property is located, within two

years of the date of the recording of the conveyance to the equity

purchaser. The notice of rescission shall contain the name of the equity

seller and the name of the equity purchaser in addition to any successor

in interest holding record title to the residential real property and

shall particularly describe such residential real property. The equity

purchaser and his or her successor in interest if the successor is not a

bona fide purchaser or encumbrancer for value as set forth in paragraph

(c) of this subdivision, shall have twenty days after the delivery of

the notice in which to reconvey title to the property free and clear of

encumbrances created subsequent to the rescinded transaction and which

are due to the actions of the equity purchaser. As a condition of the

reconveyance of title, the equity seller shall return to the equity

purchaser any consideration received from the equity purchaser as part

of the original transaction. Upon failure to reconvey title within such

time, the equity seller may bring an action to enforce the rescission

and for cancellation of the covered contract and deed.

(c) The provisions of this subdivision shall not affect the interest

of a bona fide purchaser or encumbrancer for value if such purchase or

encumbrance occurred prior to the recording of the notice of rescission

pursuant to paragraph (b) of this subdivision. Knowledge that the

property was residential real property in foreclosure or, where

applicable, default shall not impair the status of such persons or

entities as bona fide purchasers or encumbrancers for value. This

subdivision shall not be deemed to abrogate any duty of inquiry which

exists as to rights or interests of persons in possession of the

residential real property in foreclosure or, where applicable, default.

(d) In any action brought to enforce a rescission pursuant to this

section, a court may award to a prevailing equity seller costs and

reasonable attorneys' fees.

9. An equity seller may bring an action for the recovery of damages or

equitable relief against an equity purchaser for a violation of

subdivision three, four, six, seven or eleven of this section. A court

may award to a prevailing equity seller actual damages plus reasonable

attorneys' fees and costs. In addition, the court may award equitable

relief, or increase the award in an amount not to exceed three times the

equity seller's actual damages, or both, if the court deems such award

proper. Any action brought pursuant to this section shall be commenced

within six years after the date of the alleged violation.

10. (a)(i) Any equity purchaser who, with intent to defraud, violates

subdivision seven of this section or engages in any practice which would

operate as a criminal fraud or deceit upon an equity seller shall, upon

conviction, be guilty of a class E felony and subject to a fine of not

more than twenty-five thousand dollars, imprisonment in accordance with

the penal law, or both.

(ii) Any equity purchaser who knowingly violates subdivision seven of

this section shall, upon conviction, be guilty of a class A misdemeanor

and subject to a fine of not more than twenty-five thousand dollars,

imprisonment in accordance with the penal law, or both. A second offense

within five years shall be a class E felony and subject to a fine of not

more than twenty-five thousand dollars, imprisonment in accordance with

the penal law, or both.

(b) An equity purchaser who, when acting in good faith, violates

subdivision seven of this section, shall not be deemed to have violated

such subdivision if the equity purchaser:

(i) establishes by a preponderance of the evidence that the compliance

failure was not intentional and resulted from a bona fide error

notwithstanding the maintenance of procedures reasonably adapted to

avoid such errors;

(ii) notifies the equity seller within ninety days of the contract

date of the compliance failure; and

(iii) makes appropriate restitution to the equity seller and

appropriate adjustments to the transaction within ninety days of the

contract date. Examples of bona fide errors include, but are not

limited to, clerical, calculation, computer malfunction and programming,

and printing errors. An error of legal judgment with respect to a

person's obligations under this section is not a bona fide error, nor is

a failure to provide notices or other material information required by

this section.

11. (a) In any transaction in which an equity seller purports to grant

a residence in foreclosure or default to an equity purchaser by any

instrument which appears to be an absolute conveyance and reserves to

himself or herself or is given by the equity purchaser an option to

repurchase, such transaction shall create a presumption that the

transaction is a loan transaction, which may be overcome by clear and

convincing evidence to the contrary, and that the purported absolute

conveyance is a mortgage.

(b) An equity purchaser shall not enter into a reconveyance

arrangement unless:

(i) The equity purchaser verifies by appropriate documentation that

the equity seller has or is likely to have a reasonable ability to pay

for the subsequent conveyance of an interest back to the equity seller.

In the case of a lease with an option to purchase, payment ability also

includes the reasonable ability to purchase the property within the term

of the option to purchase. There is a rebuttable presumption that the

equity purchaser has not verified reasonable payment ability if the

equity purchaser has not obtained documents other than a statement by

the equity seller of assets, liabilities and income. The standard for

determining a reasonable ability to pay shall be the same standard as

set forth in paragraph (k) of subdivision two of section six-l of the

banking law;

(ii) the equity purchaser and the equity seller complete a closing for

any reconveyance arrangement in which the equity purchaser obtains a

deed or mortgage from an equity seller. For purposes of this section,

"closing" means an in-person meeting to complete final documents

incident to the sale of the real property or creation of a mortgage on

the real property conducted by an attorney who is not employed by or an

affiliate of the equity purchaser;

(iii) the equity purchaser obtains the written consent from the equity

seller before the equity purchaser grants any interest in the property

to anyone else during such time as the equity seller maintains an

interest in the property, including an option to repurchase; and

(iv) the equity purchaser notifies all existing mortgage lien holders

of his or her intent to accept conveyance of an interest in the property

from the equity seller, and fully complies with all terms and conditions

contained in the mortgage lien documents, including but not limited to

due-on-sale provisions or meeting all qualification requirements for

assuming the repayment of the mortgage.

(c) An equity purchaser shall not enter into repurchase or lease terms

as part of the reconveyance arrangement that are unfair or commercially

unreasonable, and is prohibited from engaging in any other unfair or

unconscionable conduct.

(d) As part of a reconveyance arrangement, an equity purchaser shall

either:

(i) ensure that title to the residence is reconveyed to the equity

seller; or

(ii) make a payment to the equity seller such that the equity seller

has received consideration in an amount of at least eighty-two percent

of the fair market value of the property within one hundred twenty days

of either the eviction or voluntary relinquishment of possession of the

residence by the equity seller. The equity purchaser shall make a

detailed accounting of the basis for the payment amount, or a detailed

accounting of the reasons for failure to make a payment, including

providing written documentation of expenses, within such one hundred

twenty-day period. The accounting shall be on a form prescribed by the

department of financial services. For purposes of this subparagraph, the

following applies:

(A) there is a rebuttable presumption that an appraisal by a person

licensed or certified by an agency of the federal government or this

state to appraise real estate establishes the fair market value of the

property;

(B) the time for determining the fair market value amount shall be

determined in the reconveyance arrangement as either at the time of the

execution of the reconveyance arrangement or at resale to a bona fide

purchaser. If the covered contract states that the fair market value

shall be determined at the time of resale, the fair market value shall

be the resale price if it is sold within one hundred twenty days of the

eviction or voluntary relinquishment of the property by the equity

seller. If the covered contract states that the fair market value shall

be determined at the time of resale, and the resale is not completed

within one hundred twenty days of the eviction or voluntary

relinquishment of the property by the equity seller, the fair market

value shall be determined by an appraisal conducted within ten days

after the end of such one hundred twenty-day period and payment, if

required, shall be made to the equity seller. If payment is not made to

the equity seller at such time, the fair market value shall be

recalculated as the resale price on resale and payment shall be made to

the equity seller within fifteen days of resale. A detailed accounting

of the basis for the payment amount shall be made within fifteen days of

resale, including providing written documentation of expenses. The

accounting shall be on a form prescribed by the department of financial

services;

(C) "consideration" shall mean any payment or thing of value provided

to the equity seller, including unpaid lease payments owed by the equity

seller prior to the date of eviction or voluntary relinquishment of the

property, reasonable costs paid to third parties necessary to complete

the reconveyance transaction, payment of money to satisfy a debt or

legal obligation of the equity seller or the reasonable cost of repairs

for damage to the dwelling caused by the equity seller beyond ordinary

wear and tear; but shall not include amounts imputed as any fee paid

directly or indirectly to the equity purchaser, or his or her

representative, incident to a reconveyance arrangement, except for

reasonable costs paid to third parties necessary to complete the

reconveyance.

(D) "resale" means a bona fide market sale of the property subject to

the reconveyance arrangement by the equity purchaser to an unaffiliated

third party.

(E) "resale price" means the purchase price of the property on resale.

(e) This subdivision shall not be deemed to abrogate any duty of

inquiry which exists as to rights or interests of persons in possession

of the residential real property in foreclosure or default.

(f) All deeds or conveyances subject to a reconveyance arrangement

shall state explicitly on the face of the document that the conveyance

is subject to a reconveyance arrangement, and shall state the terms of

the reconveyance arrangement. Moreover, all reconveyance arrangements

must be simultaneously recorded by the equity purchaser with the subject

deed in the county clerk's office where the property is located.

12. Any provision of a covered contract which attempts or purports to

limit the liability of the equity purchaser under this section shall be

null and void. Inclusion of such provision shall at the option of the

equity seller render the covered contract void. The equity purchaser

shall be liable to the equity seller for all damages proximately caused

by such provision. Any provision in a covered contract which attempts or

purports to require arbitration of any dispute arising under this

section shall be void at the option of the equity seller.

13. In addition to the other remedies provided, whenever there shall

be a violation of this section, application may be made by the attorney

general in the name of the people of the state of New York to a court or

justice having jurisdiction by a special proceeding to issue an

injunction, and upon notice to the defendant of not less than five days,

to enjoin and restrain the continuance of such violations; and if it

shall appear to the satisfaction of the court or justice that the

defendant has, in fact, violated this section, an injunction may be

issued by such court or justice, enjoining and restraining any further

violation, without requiring proof that any person has, in fact, been

injured or damaged thereby. In any such proceeding, the court may make

allowances to the attorney general as provided in paragraph six of

subdivision (a) of section eighty-three hundred three of the civil

practice law and rules, and direct restitution. Whenever the court shall

determine that a violation of this section has occurred, the court may

impose a civil penalty of not more than twenty-five thousand dollars for

each violation. In connection with any such proposed application, the

attorney general is authorized to take proof and make a determination of

the relevant facts and to issue subpoenas in accordance with the civil

practice law and rules.

14. This section shall not apply to a prior lien holder where the lien

was properly recorded prior to the execution of any covered contract by

both the equity seller and the equity purchaser nor shall any provision

of this section be deemed to impair any equity or other available rights

of any such prior lien holder.

15. The provisions of this section shall be liberally construed to

effectuate the intent and to achieve the purposes set forth in

subdivision one of this section.

16. The provisions of this section are not exclusive and are in

addition to any other requirements, rights, remedies, and penalties

provided by law.

17. Any waiver of the provisions of this section shall be void and

unenforceable as contrary to the public policy.

18. If any provision of this section, or if any application thereof to

any person or circumstances is held unconstitutional, the remainder of

this section and the application of its provisions to other persons and

circumstances shall not be affected thereby.