New York Enacts New Reverse Mortgage Foreclosure LawOn 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.”

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Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Leah M. Campbell Leah M. Campbell

Leah Campbell is a senior attorney in the Banking and Financial Services Practice Group. Leah has significant experience representing financial services and insurance company clients in both federal and state courts, as well as before state regulators. She has advised national mortgage servicers…

Leah Campbell is a senior attorney in the Banking and Financial Services Practice Group. Leah has significant experience representing financial services and insurance company clients in both federal and state courts, as well as before state regulators. She has advised national mortgage servicers on FDCPA claims, loan finance companies on UDAAP claims, and banks on OFAC- related issues.

In addition, Leah has provided intellectual property guidance in M&A and corporate structuring matters and advised on GDPR implementation and cross-border encryption issues.