by Weiner Brodsky Kider
New York recently enacted Senate Bill 884 (SB 884), which amends the HECM servicing requirements under the newly added section 280-d of the New York Real Property Law. Section 280-d and the changes made by SB 884 will go into effect on April 14, 2021.
By way of background, section 280-d was recently added by Senate Bill 4408 (SB 4408) to regulate the servicing of HECM loans in New York. SB 4408 provides that in the event of a default or foreclosure upon a HECM, the authorized lender must transmit to the New York Department of Financial Services (NYDFS), upon the commencement of the foreclosure proceeding: (i) proof that HUD has granted prior approval to accelerate the loan, (ii) proof that the default notice was sent to the borrower, and (iii) any information relating to the loan and the borrower as the NYDFS determines to be necessary. Upon receipt of such information, the NYDFS must provide notice of and information relating to the foreclosure to the borrower. Additionally, SB 4408 requires authorized lenders to include a written notice in reverse mortgage loan commitments that states that the NYDFS will be provided notice of any default or foreclosure upon the loan so as to provide assistance to the borrower.
Moreover, SB 4408 directs the NYDFS to issue regulations which must require mortgagees to engage in mandatory loss mitigation procedures to be specified by the NYDFS. Further, SB 4408 requires lenders to submit loan-level reports to the NYDFS for any HECMs receiving loss mitigation assistance. Notably, in addition to providing borrowers with a private right of action, SB 4408 also states that the requirements in section 280-d are conditions precedent to commencing an action to foreclose upon a HECM.
While SB 884 does not change the aforementioned provisions from SB 4408 that give borrowers a private right of action and provide that the requirements in section 280-d are conditions precedent to commencing a foreclosure action on a HECM loan, it does, however, revise certain requirements in section 280-d. Specifically, the key changes made by SB 884 include, in part, the following:
- Removes the requirement that a specific written notice must be included in reverse mortgage loan commitments;
- Removes the provision that generally states that, upon the commencement of a foreclosure proceeding, lenders must transmit to the NYDFS proof that HUD has granted prior approval to accelerate the loan and proof that the default notice has been given to the borrower;
- Removes the requirement that the NYDFS must provide notice to the borrower regarding the borrower’s foreclosure;
- Provides that in addition to the requirements under section 1304 of the New York Real Property Law (section 1304), which requires a specific notice to be given to a borrower prior to commencing a legal action (including foreclosure) against the borrower, an authorized lender must also include in such notice any additional information required by the NYDFS;
- Instead of directing the NYDFS to promulgate regulations on mandatory loss mitigation, section 280-d, as amended, now directs the NYDFS to issue regulations requiring the notice in section 1304 to include additional information explaining the borrower’s rights in a foreclosure process;
- States that in addition to the filing requirements under section 1306 of the New York Real Property Law, filings with the NYDFS that relate to HECM loans must also include an affirmative statement that the lender, assignee, or mortgage loan servicer either: (i) received final approval from HUD to accelerate the loan, or (ii) no such approval from HUD is required;
- Clarifies the loan-level reporting requirements in section 280-d;
- Requires lenders to: (i) comply with all applicable laws, rules, and guidance issued by HUD on HECM loss mitigation, and (ii) maintain policies on loss mitigation that must be updated when necessary to ensure compliance with all applicable rules.
Note SB 884 is the latest in a series of bills that New York has recently passed to regulate reverse mortgages in New York. Assembly Bill 5626 (AB 5626), which added section 280-b to the New York Real Property Law (section 280-b), was enacted in December 2019 and went into effect on March 5, 2020. Section 280-b regulates HECM origination and servicing activities in New York. WBK’s prior coverage of AB 5626 is available here.
(Editor’s note: Weiner Brodsky Kider PC serves as outside counsel to NRMLA.)