On December 15, 2020, New York Governor Andrew Cuomo signed into law a bill that, among other things, requires reverse mortgage lenders in the state to notify the state’s Department of Financial Services (DFS) and mortgagors of an impending foreclosure action on reverse mortgage borrowers.
The legal and regulatory regime governing reverse mortgages rapidly evolved in the past 24 months. Earlier this year, DFS issued a series of new detailed regulations for reverse mortgages intended to curb “deceptive practices.” These regulations require reverse mortgage lenders to, among other things, provide supplemental consumer protection materials and restrict lenders’ payments of insurance premiums and property taxes. In fact, the pace and volume of recent legislative and regulatory action led some New York-area reverse mortgage originators to pause lending in 2020 as they implemented the new obligations.
The amendment imposes new foreclosure, loss-mitigation, and reporting requirements for HUD-insured home equity conversion mortgages (HECMs) in New York. It does not apply to proprietary reverse mortgages in New York. The new law focuses on protecting reverse mortgage consumers faced with the possibility of foreclosure. It requires lenders to notify the DFS 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 law also obliges DFS to provide a foreclosure notice directly to the borrower, along with a description of resources available to the borrower in the foreclosure process.
The bill also requires lenders to engage in DFS-specified loss mitigation processes before foreclosing and “prevents lenders from making advance payments on mortgage insurance or tax liabilities.” The new prohibition on advance payments has already caused some headaches, as it contradicts federal requirements imposed on reverse mortgage lenders.
Reverse mortgage lenders will need to review the new laws – and any related guidance from DFS – closely because they will be conditions precedent to a foreclosure action on a HECM loan and will be enforceable by “providing treble damages and attorney’s fees to prevailing plaintiffs.”