New York Governor Signs Bill Regulating HECMs
On December 6, 2019, New York Governor Andrew Cuomo signed into law a bill, Assembly Bill 5626 (AB 5626), which, among other things, regulates reverse mortgages issued under FHA’s HECM program. AB 5626 also appears to require lenders offering reverse mortgages in New York to obtain approval from the Superintendent of the New York Department of Financial Services (Superintendent) in order to make HECMs in New York. The bill will take effect on March 5, 2020, and the Superintendent must amend, add and/or repeal any rules and regulations necessary to implement the bill’s provisions by June 3, 2020.
In addition, AB 5626 provides that an authorized lender, or any other party or entity, is prohibited from engaging in any unfair or deceptive practices in connection with the marketing or offering of reverse mortgage loans and must not: (i) use the words “government insured” or other similar language representing that reverse mortgage loans are insured, supported, and sponsored by any governmental entity in any commercial, mailing, advertisement or writing relating thereto; (ii) use the words “public service announcement” in any commercial, mailing, advertisement or writing relating thereto; or (iii) represent that any such loan is other than a commercial product.
Moreover, lenders or their agents must include certain consumer protection information, the content and form of which must be specified by the Superintendent, with any solicitation for reverse mortgage products mailed to a physical address in New York. Lenders must also provide each applicant or potential applicant with the telephone number and internet website address provided by HUD for the purposes of acquiring HECM counseling. Further, both the lender and the borrower must be represented by an attorney at closing, and each such party must have at least one attorney present to conduct the closing.
Additionally, AB 5626 provides various servicing-related requirements and restrictions. For example, lenders must inform and provide notice to a borrower, by telephone and first-class mail, when his or her line of credit or life expectancy set aside is depleted to 10% or less of its value. Such notice must inform the borrower, in plain language, of his or her obligations relating to the property. In addition, reverse mortgage lenders are prohibited from making an advance payment for any obligation arising from the borrower’s property. Moreover, in the event a borrower defaults upon the payment of insurance premiums or real property taxes, the lender may only pay those premiums and/or taxes which are in arrears.
The bill also states that in the event a lender seeks to foreclose on a reverse mortgage loan on the basis that the property is no longer the primary residence of or occupied by the borrower, if during the verification of the borrower’s primary residence and/or occupancy no responses are received in response to mailings relating thereto, such lender must cause a telephone call to be made to the borrower, or if the borrower is unreachable by telephone, to the third-party contact (if designated). In addition to making such call, prior to the commencement of a foreclosure proceeding, an in-person visit must also be made to the borrower. Note that the lender may not charge a fee for any such visit and inspection. Moreover, the lender must wait at least 30 days following the in-person visit, in addition to any additional time or notice requirements specified by any other provision of law, before initiating a foreclosure action on the basis that the property is no longer the primary residence of the borrower. If the borrower contacts the lender and provides proof of residence or occupancy after such visit, but before the commencement of the foreclosure action, the lender is barred from initiating such foreclosure action.
The bill also provides that compliance with its requirements is a condition precedent to commencing a foreclosure action, and failure to comply is a complete defense to such action. Additionally, any person injured by any violation of the bill’s requirements or any violation of the rules and regulations of HUD relating to the HECM program may bring an action to recover treble damages, plus the prevailing plaintiff’s reasonable attorneys’ fees.
