The Home Equity Theft prevention Act ("Hetpa") has been in follow since February 1, 2007. Its purpose is to protect distressed homeowners from potentially fraudulent "foreclosure rescue" programs by assuring that the homeowner has enough data to make an informed decision about the replacement of title to his or her home (see part 308 of the Laws of 2006 for the Legislature's statement of purpose). Hetpa is codified in
Rpl 265-a and Rpapl 1303.
New York Lawyer
The circumstances under which Hepta will apply can be summarized as follows:
a natural person (called an "Equity Seller") enters into a contract (called a "Covered Contract") to sell his or her necessary house to a buyer (called an "Equity Purchaser") which house consists of land improved by a one to four family dwelling and (i) the premises is in Foreclosure (as defined below) or (ii) the Equity distributor is in Default (as defined below) under financing secured by the premises and the Covered contract includes a Reconveyance deal (as defined below).
There is slight blurring concerning the first three requirements - in order for Hetpa to apply, the distributor must be a natural person who is the article title owner of a one to four family dwelling one unit of which "the equity distributor occupies or occupied at a time immediately prior to the equity sale as his or her traditional residence." Rpl 265-a(k).
The act becomes trickier with regard to the circumstances comprising a Covered contract and what is mandated for transactions which do consist of Covered Contracts. The following frame will aid in the analysis of this part of the act.
I. As a traditional condition, the contract must be "incident to" the sale of premises that are either in Foreclosure or in Default (as defined). Although this suggests that the transaction, in order to be defined as a Covered Contract, must arise out of the foreclosure or default, the safe coming is to analyze any transaction in which the distributor is in Default or in Foreclosure for yielding with Hetpa.
Additionally, under Rpl 265-a(e) the term "Equity Purchaser" specifically does notinclude a person or entity acquiring title as follows: (i) for use as a traditional house (natural persons only); (ii) by referee's deed in an article 13 foreclosure sale or at any sale of asset authorized by statute; (iii) by order or judgment of any court; (iv) from a spouse, or from a parent, grandparent, child, grandchild or sibling of such person or such person's spouse; (v) as a not-for-profit housing club or as a communal housing agency; or (vi) a bona fide purchaser or encumbrancer for value.
Thus, a buy under the foregoing circumstances is not subject to the act. The key exceptions to the act here are that, in addition to government sanctioned sales, non-profits and relatives, anyone purchasing the premises for use as the purchaser's own traditional house and any bona fide purchaser or encumbrancer for value is not deemed to be an Equity Purchaser. Transactions entertaining the foregoing are not covered by the act.
Pursuant to Rpl 265-a(e), the term "bona fide purchaser or encumbrancer for value" includes "anyone acting in good faith who purchases the residential real asset from the Equity Purchaser for necessary notice or provides the Equity Purchaser with a mortgage or provides a subsequent bona fide purchaser with a mortgage, in case,granted that he or she had no notice of the Equity Seller's persisting right in, or equity in, the asset prior to the acquisition of title or encumbrance, or of any violation of this section by the Equity Purchaser as associated to the subject property."
Ii. Once the foregoing threshold is met, one of two conditions must also exist in order for the transaction to be covered by Hetpa.
(a) If the premises are in Foreclosure, then any contract for the sale of the premises is deemed to be a Covered contract subject to the act. Hepta defines Foreclosure to mean that "there is an active lis pendens filed in court pursuant to article thirteen of the real asset actions and proceedings law against the subject property, or the subject asset is on an active asset tax lien sale list" (emphasis added).
(b) Alternatively, if the Equity distributor is in Default (as opposed to Foreclosure), then a contract to sell the premises will only be deemed a Covered contract if it contains a Reconveyance Agreement. An Equity distributor is deemed to be in "Default" if he or she is two months or more behind in his or her mortgage payments. Hetpa defines a "Reconveyance Agreement" as an deal under which the Equity Purchaser agrees to reconvey an interest in the house back to the Equity distributor to enable the Equity distributor to regain rights of the residence. Although the Reconveyance deal can be in any form, typical structures comprise sale/leaseback arrangements or the grant of an selection to repurchase. Hetpa also provides that an arrangement whereby an Equity distributor mortgages a necessary house to an Equity Purchaser may also be deemed to be a Reconveyance deal . However, the act does not clarify what type of arrangement is targeted by this language.
Iii. If the foregoing circumstances exist, the contract of sale should be treated as a Covered Contract. The main implication of coverage by the act is that the Equity distributor is entitled to a five day right of cancellation of the Covered contract (Rpl 265-a(5)). The Equity Purchaser must, within ten days following receipt of a notice of cancellation, "return without condition any traditional covered contract and any other documents signed by the equity distributor as well as any fee or other notice received by the equity purchaser from the equity seller. Cancellation of the contract shall release the equity distributor of all obligations to pay fees to the equity purchaser." Id.
Iv. To ensure that safety under the act is effectuated, Hetpa sets forth some requirements (see Rpl 265-a(3) - (7)). These comprise the following:
(a) Covered Contracts must comprise the entire deal of the parties, including: the total consideration; a perfect article of the terms of cost or other consideration; the time for delivery of possession; the terms of any rental or lease agreement; the terms of any reconveyance arrangement;
(b) Covered Contracts must also comprise a statutory form of notice of Cancellation and definite statutory language alerting the Equity distributor to their right to cancel (These forms may be found in Rpl 265-a(6)(a) and (4)(i) respectively;
(c) All Covered Contracts and notice of Cancellation attached thereto must be written in at least twelve-point bold type, in English or in both English and Spanish if Spanish is the traditional language of the equity seller;
(d) Hetpa prohibits the Equity Purchaser from entertaining in determined activities while the five day rescission period. See Rpl 265-a(7)(a).
(e) The act also restricts the data and representations that may be made at any time by an Equity Purchaser to an Equity Seller. See Rpl 265-a(7)(b)-(d).
The provisions of Hetpa may not be waived. Rpl 265-a(17).
V. The real teeth in Hetpa comes in Rpl 265-a(8), which provides that any transaction which is in material violation of its provisions "is voidable and . . . May be rescinded by the Equity distributor within two years of the date of the recording of the conveyance of the residential real property". In order to rescind, the Equity distributor must give a notice of Rescission to the Equity Purchaser and his or her successors in interest (other than bona fide purchasers or encumbrancers, discussed below), and article the notice of Rescission in the recording office of the County in which the asset is located.
Therefore, any Equity Purchaser who fails to mouth yielding with Hetpa in association with a covered transaction leaves itself open to cancellation of the transaction for up to two years. Of course, it is likely that, by that time, the premises will have been sold to a third party. Hetpa provides that the two year right of cancellation shall not sway the rights of any (as defined above). See Rpl 265-a(8)(c).
Vi. One other protective part that Hetpa provides, which is unrelated to its provisions concerning Covered Contracts, is the addition of Rpapl 1303, which requires the plaintiff in a mortgage foreclosure operation to comprise a notice entitled "Help or Homeowners in Foreclosure." with the summons and complaint served upon the defendant. (This form may be found in Rpapl §1303.)
The notice must be on a cut off page of colored paper in bold, fourteen-point type. Note that Hetpa does not specify the types of asset classifications for which the notice must be included.
New York's Home Equity Theft prevention Act
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