New York Home Equity Theft Prevention Act

The Home Equity Theft Prevention Act (“HETPA”) has been in effect since February 1, 2007. Its purpose is to protect distressed homeowners from potentially “foreclosure rescue” programs. fraudulent by ensuring that the homeowner has enough information to make an informed decision about transferring title to their home (see Chapter 308 of the Statutes of 2006 for the Legislature’s statement of purpose). HETPA is encoded in

RPL 265-a and RPAPL 1303.

The circumstances in which HEPTA will apply can be summarized as follows:

an individual (called a “Stock Seller”) enters into a contract (called a “Covered Contract”) to sell his or her principal residence to a buyer (called a “Share Buyer”) whose residence consists of land improved by one to four family dwellings and (i) the property is in Foreclosure (as defined below) or (ii) the Seller of Equity is in Default (as defined below) with financing secured by the property and the Covered Contract includes a Reconversion Agreement ( as defined below) below).

There is little confusion regarding the first three requirements: for HETPA to apply, the seller must be an individual who is the record holder of a one- to four-family dwelling, one unit of which “the seller of shares occupies or occupied at a time immediately prior to the sale of shares as his principal residence”. RPL 265-a(k).

The act becomes more complicated with respect to the circumstances that make up a Covered Contract and what is required for transactions that do consist of Covered Contracts. The following scheme will help in the analysis of this part of the law.

I. As a main condition, the contract must be “incident to” the sale of premises that are in Foreclosure or in Default (as defined). While this suggests that the transaction, to be defined as a Covered Contract, must arise out of foreclosure or default, the safe approach is to test any transaction where the seller is in Default or Foreclosure to comply with HETPA.

In addition, under RPL 265-a(e), the term “Buyer of Shares” specifically does not include a person or entity that acquires a title as follows: (i) for use as a primary residence (individuals only); (ii) by deed of arbitrator in a Section 13 foreclosure sale or in any sale of property authorized by law; (iii) by order or judgment of any court; (iv) of a spouse, or of a parent, grandparent, child, grandchild, or sibling of such person or of such person’s spouse; (v) as a non-profit housing organization or as a public housing agency; or (vi) a bona fide purchaser or encumber of security.

Therefore, a purchase under the above circumstances is not subject to the act. The key exceptions to the law here are that, in addition to sales authorized by the government, nonprofit organizations, and family members, anyone purchasing the premises for use as the purchaser’s primary residence, and any bona fide purchaser or security encumber is not considered a Purchaser of shares. Transactions involving the above are not covered by the law.

Pursuant to RPL 265-a(e), the term “bona fide purchaser or value encumber” includes “any person acting in good faith who purchases the Capital Buyer’s residential real property for valuable consideration or provides Equity Buyer with a mortgage or provides a subsequent bona fide buyer with a mortgage, provided he or she was not notified of Seller’s continuing right to shares, or ownership interest prior to acquisition of title or lien , or of any violation of this section by the Buyer of shares in connection with the subject property.”

II. Once the above threshold is reached, one of two conditions must also exist for the transaction to be covered by HETPA.

(a) If the property is in Foreclosure, then any contract for the sale of the property is considered a Covered Contract subject to the law. HEPTA defines Foreclosure as meaning that “there is an active lis pendens filed in court pursuant to section thirteen of the real property actions and proceedings act against the subject property, or the subject property is on an active list Property Tax Lien Sale” (emphasis added).

(b) Alternatively, if the Seller of shares is in Default (as opposed to Foreclosure), then a contract to sell the facilities will only be considered a Covered Contract if it contains a Reconversion Agreement. A seller of shares is considered “default” if they are two months or more behind on their mortgage payments. HETPA defines a “Repossession Agreement” as an agreement under which Share Buyer agrees to re-transfer an interest in the Residence to Share Seller to enable Share Seller to repossess the Residence. Although the Reconversion Agreement can take any form, typical structures include sale/lease agreements or the grant of a repurchase option. HETPA also provides that an agreement whereby a Seller of Shares mortgages a principal residence to a Buyer of Shares may also be considered a Transfer Agreement. However, the law does not clarify what type of arrangement this language is intended for.

third If the above circumstances exist, the sales contract must be treated as a Covered Contract. The main implication of coverage by law is that the Seller of Shares is entitled to a five-day right to cancel the covered Contract (RPL 265-a(5)). The Share Buyer must, within ten days of receipt of notice of cancellation, “unconditionally return any original covered contracts and other documents signed by the Share Seller, as well as any fees or other consideration received by the Share Buyer.” Buyer of Shares from Seller of Shares Cancellation of the contract will release Seller of Shares from all obligations to pay fees to Buyer of Shares.” ID.

IV. To ensure that protection under the law is effected, HETPA lays down several requirements (see RPL 265-a(3) – (7)). These include the following:

(a) Covered Contracts must contain the entire agreement of the parties, including: the total consideration; a full description of the terms of payment or other consideration; the delivery time of the possession; the terms of any rental or lease agreement; the terms of any transfer arrangement;

(b) Covered Contracts must also include a legal Notice of Cancellation form and specific legal language alerting the Seller of Shares to their right to cancel (These forms can be found at RPL 265-a(6)(a) and ( 4)(i) respectively;

(c) All Covered Contracts and the accompanying Notice of Cancellation must be written in at least twelve point bold type, in English, or in English and Spanish if Spanish is the primary language of the seller of shares;

(d) HETPA prohibits the Share Buyer from engaging in certain activities during the five day termination period. See RPL 265-a(7)(a).

(e) The law also restricts the information and representations that a Buyer of Shares may make at any time to a Seller of Shares. See RPL 265-a(7)(b)-(d).

The provisions of HETPA cannot be waived. RPL 265-a(17).

V. HETPA’s true teeth are found in RPL 265-a(8), which states that any transaction that materially violates its provisions “is voidable and…may be terminated by the Seller of Shares within two years of the date of registration of the alienation of the housing property”. To terminate, the Seller of Shares must give a Notice of Termination to the Buyer of Shares and their successors (other than bona fide purchasers or encumbers, discussed below), and file the Notice of Termination with the Stock Registry Office. the County in which the property is located.

Therefore, any Share Buyer who fails to comply with HETPA in connection with a covered transaction is open to cancellation of the transaction for up to two years. Of course, it is likely that, by then, the premises have been sold to a third party. HETPA provides that the two-year right to cancel will not affect anyone’s rights (as defined above). See RPL 265-a(8)(c).

SAW. Another measure of protection that HETPA provides, unrelated to its provisions with respect to Covered Contracts, is the addition of RPAPL 1303, which requires a plaintiff in a foreclosure action to include a notice titled “Help or Homeowners in Foreclosure”. with the summons and complaint served on the defendant. (This form can be found at RPAPL §1303.)

The notice must be on a separate page of colored paper in fourteen point bold type. Please note that HETPA does not specify the types of property classifications for which notice must be included.