New York State Cracks Down on Reverse Mortgage Foreclosures

The state of New York this month enacted a law that requires reverse mortgage lenders to provide more detailed warnings to borrowers potentially facing foreclosure.

Under the new regulation, which Gov. Andrew Cuomo signed in April, lenders must alert Home Equity Conversion Mortgage borrowers 90 days before they intend to start a legal foreclosure action.

Empire State lawmakers included in the text of the bill a template for the required notification letter, which must prominently feature the phrase “You could lose your home to foreclosure. Please read the following notice carefully,” rendered in 16-point font.

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The remainder of the letter must be written in 14-point type and include a host of information, including the specific reason why the lender believes the homeowner to be in default, the amount of back taxes and insurance that can be repaid to avoid the foreclosure action if applicable, and a list of housing counseling agencies that can provide assistance.

“If you were in default due to the death of your spouse, you may be considered an eligible ‘non-borrowing spouse’ under a HUD program which allows you to remain in your home for the rest of your life,” the letter also must read, while additionally informing borrowers of an “at-risk extension” that applies to homeowners aged 80 and older with long-term illnesses. 

Finally, the law requires the letter to include a direct lender phone number where troubled borrowers can receive information about working out a possible solution, as well as phone and online contacts for the New York State Department of Financial Services.

“While we cannot ensure that a resolution is possible, we encourage you to take immediate steps to try to achieve a resolution,” the letter must advise in its conclusion. “The longer you wait, the fewer options you may have.”

New York lawmakers had originally attempted to enact the new reverse mortgage foreclosure provisions in April 2017, according to National Reverse Mortgage Lenders Association co-general counsel Jim Milano pointed out in a notice about the new law. An error held its publication until this past April, but the passed bill explicitly makes the law retroactive to April 20, 2017, Milano noted.

Reverse mortgage foreclosures have garnered increasing attention in the last few years, particularly during the confirmation of Treasury Secretary Steven Mnuchin — whose tenure at OneWest Bank coincided with a number of HECM foreclosures associated with its then-subsidiary, Financial Freedom — and with the release of data showing a substantial spike in the actions in 2016.

Industry leaders have struck back by pointing out that the term “foreclosures” applies to property transfers after the death of the last remaining borrower, and the Department of Housing and Urban Development said the 2016 spike was likely the result of new guidance compelling lenders to speed up the foreclosure process. 

The disconnect between local ordinances and federal regulations often causes problems for lenders. For instance, a proposed Philadelphia regulation would prevent HECM companies from foreclosing upon homeowners with city-approved deferred tax payment plans. But lenders are ultimately bound by federal laws, which in this case can prevent them from taking any action other than foreclosure unless the tax debt is fully forgiven.

“Servicers are boxed in,” Leslie Flynne of Reverse Mortgage Solutions told RMD of the Philadelphia law in March. “We have to pay the past due taxes if the taxing authority reports them unpaid.”

Written by Alex Spanko

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