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Working to Prevent HECM Foreclosures

The New York legislature has passed a bill that will require lenders to notify the state’s Department of Financial Services (DFS) and mortgagors of impending foreclosure actions [1] against homeowners with reverse mortgages [2].

The bill—which cleared the State House as A5627 and the State Senate as S4408—will add a new layer of DHS regulation to reverse mortgages issued under the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration [3] (FHA) and the Department of Housing and Urban Development [4] (HUD).

The bill will also mandate that lenders operating in New York engage in loss mitigation as defined by DFS prior to foreclosure and also prevents lenders from making advance payments on mortgage insurance or tax liabilities.

“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,” the bill stated.

Furthermore, the bill 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.

The bill will now be passed to Gov. Andrew Cuomo, who has not publicly stated whether he will sign or veto the legislation. The governor has previously sent mixed signals on reverse mortgage-related bills: last December, he vetoed legislation that would have opened the state’s cooperate apartment market to reverse mortgages, but he also signed a bill that required reverse mortgage lenders to provide supplemental consumer protection materials to prospective borrowers while added new restrictions on lenders regarding their payment of insurance premiums and property taxes.