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New Reverse Mortgage Foreclosure Bill Passes in New York

A new bill in New York requiring area lenders to notify the state’s Department of Financial Services (DFS) and mortgagors of an impending foreclosure action has passed both houses of the state’s legislature, and is now awaiting the delivery to, and signature of Governor Andrew Cuomo to become law.

The bill, known as A5627 in the State House and S4408 in the State Senate, is designed to further regulate loans issued in New York under the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD).

“Lenders must now notify the Department of Financial Services when engaging in foreclosure proceedings against a borrower, and must also provide proof to the department that HUD has granted prior approval to accelerate the loan, proof of the default and notice to the borrower, and any other information required by the department,” reads section 1 of the new bill.

It also calls on the New York DFS to provide a foreclosure notice directly to the borrower, at the same time providing resources that the borrower may use to assist them during the foreclosure process.

“This legislation is intended to help more senior citizens avoid being foreclosed on and be able to stay in their homes,” said New York State Senator Andrew Goundares, the sponsor of the bill’s Senate version in an email to RMD.

The bill also requires lenders operating within the state to engage in loss mitigation as defined by DFS before foreclosing, and “prevents lenders from making advance payments on mortgage insurance or tax liabilities,” the bill reads.

These new requirements will be conditions that must be observed prior to the institution of a foreclosure action on a HECM loan, and will be enforceable by, “providing treble damages and attorney’s fees to prevailing plaintiffs,” the bill reads.

According to official communication channels of the New York State Legislature, the passed bill has yet to actually be delivered to Governor Cuomo, who can choose to either sign it into law or to veto it and send it back to the legislature for additional deliberation.

Cuomo has shown willingness to veto reverse mortgage-related legislation in the past, most recently this past December when he vetoed a bill which would’ve allowed reverse mortgage cooperative apartment unit loans for the state’s senior population, citing insufficient consumer protections.

Reverse mortgage-related legislation has been moving quickly in New York for the past several months. Earlier in December 2019, Cuomo signed a sweeping bill into law which took aim at what it calls “deceptive practices,” requiring reverse mortgage lenders to provide supplemental consumer protection materials while imposing additional restrictions on lenders related to their payment of insurance premiums and property taxes.

The passage of that bill and lingering compliance questions led briefly to a pause in New York area reverse mortgage business, as lenders grew concerned over how best to understand the impact that the new regulations would have on the business. Originations in New York largely resumed by the following month.

Read the text of the new bill at the New York State Senate.