Jacob Inwald ()
Important changes governing pre-foreclosure notices and settlement conferences for reverse mortgages were signed into law on April 20, 2017, requiring 90-day pre-foreclosure notices in all reverse mortgage foreclosures and requiring settlement conferences in many reverse mortgage cases. The amendments affecting reverse mortgage foreclosures, making changes to New York Real Property Law (RPAPL) 1304 and Civil Practice Law and Rules (CPLR) 3408 appear in Part FF, 2017 Sess. Laws of N.Y., Ch. 58 (S. 2008C) (McKinneys). These changes supplemented the 2016 amendments to New York’s residential foreclosure settlement conference law, detailed in a previous article. Jacob Inwald, “Residential Foreclosures: Legislative Changes to Settlement Conference Law,” N.Y.L.J., July 29, 2016. Significant changes to New York’s pre-foreclosure notice law also went into effect at the end of 2016. (The legislation, signed into law on June 23, 2016, as part of an omnibus bill, Part Q of which contained the provisions applicable to residential foreclosures, became effective 180 days after enactment, i.e., on Dec. 20, 2016 pursuant to Chapter 73 of the Laws of New York.)
Reverse mortgages are loans that allow homeowners aged 62 and older to tap into their home equity while remaining in their homes, and can be an important resource for seniors who may have insufficient income to cover their living expenses. Instead of making a payment each month to cover principal and interest, the interest accrues against the borrower’s home equity, and the loan (which most typically is insured by the Federal Housing Administration, known as a Home Equity Conversion Mortgage, or HECM) is not due and payable until the borrower’s death. But borrowers are responsible for payment of taxes and insurance, known as property charges, and a failure to pay such charges can trigger a reverse mortgage “default” that can result in a foreclosure.
These most vulnerable homeowners are increasingly finding themselves in foreclosure as mortgage servicers move aggressively to foreclose without providing an opportunity for the borrower to resolve property charge defaults, or invoke other technical defaults that can trigger foreclosure, causing a substantial uptick in reverse mortgage foreclosures in recent years. The exclusion of reverse mortgages from New York’s foreclosure consumer protections became an unacceptable anomaly, as New York’s most vulnerable homeowners—the seniors to whom reverse mortgages are marketed—were deprived of statutory pre-foreclosure notices and mandatory settlement conferences at which foreclosure-avoiding solutions can be negotiated. The availability of improved notices and settlement conferences at which defaults can be resolved is a positive development for New York’s senior homeowners.
Reverse Mortgage Changes
Prior to the recent amendment, RPAPL 1304, which requires a “90 Day Notice” to be served as a condition precedent to commencement of a foreclosure action on a “home loan,” specifically excluded reverse mortgages from the definition of a “home loan” to which the pre-foreclosure notice requirement applies. That exclusion has now been eliminated. Accordingly, the pre-foreclosure notice requirements discussed below now unequivocally apply to actions seeking foreclosure on reverse mortgage loans. The legislation, which was signed by Gov. Andrew Cuomo on April 20, 2017, specified that these provisions eliminating the exclusion of reverse mortgages from the “home loan” definition took effect along with the 2016 amendments signed into law on June 23, 2016, as part of an omnibus bill, Part Q, which became effective 180 days after enactment, i.e., on Dec. 20, 2016 pursuant to Chapter 73 of the Laws of New York. Part FF, 2017 Sess. Laws of N.Y., Ch. 58 (S. 2008C) (McKinneys), at §3.
Because New York’s foreclosure settlement conference law, codified at CPLR 3408, incorporates the “home loan” definition from RPAPL 1304, the effect of the amendments is to mandate foreclosure settlement conferences for reverse mortgage cases. However, the amendments include an exception to this general rule for reverse mortgage defaults based on the borrower’s death (reverse mortgages, by definition, default upon the death of the last surviving borrower). Specifically, CPLR 3408(a)(2) now provides that settlement conferences shall not be required for reverse mortgage defaults triggered by the death of the last surviving borrower unless the last surviving borrower’s spouse, if any, is a resident of the property subject to foreclosure, or the last surviving borrower’s successor in interest (through bequest or intestacy) owns or has a claim to the property and is a resident of the property at the time of the last surviving borrower’s death.
The legislation offers no rationale for this exclusion of certain reverse mortgage cases from settlement conferences, which is particularly odd since encouraging foreclosure-avoiding settlements in all reverse mortgage cases, if possible, seems desirable. When a reverse mortgage borrower dies and a foreclosure action is thereafter commenced by the lender, moreover, it will not be apparent who the successors are or if a qualifying surviving spouse or successor in interest is residing in the property. As a practical matter, the courts will have to schedule settlement conferences in all reverse mortgage cases before it can be determined if the property is occupied by a qualifying spouse or successor and therefore entitled to a settlement conference. Nothing in the statute prohibits the courts from conducting settlement conferences in all reverse mortgage cases; even before these latest amendments some courts have provided settlement conferences in reverse mortgage foreclosure actions.
Foreclosure Predicate Notices
The predicate notices provided to homeowners before a foreclosure action can be commenced—the 90 Day Notice required by RPAPL 1304 and the Help for Homeowners in Foreclosure Notice that must accompany the summons and complaint (mandated by RPAPL 1303)—have become central features of New York’s judicial foreclosure process. Both of these notices are conditions precedent which, if not strictly complied with, mandate dismissal of the foreclosure action. See Aurora Loan Servs. v. Weisblum, 85 A.D. 3d 95 (2d Dep’t 2011); First Nat’l Bank of Chicago v. Silver, 73 A.D. 3d 162 (2d Dep’t 2010). They both provide homeowners with basic information about the consequences of foreclosure and are meant to connect homeowners with foreclosure prevention services and to encourage foreclosure-avoiding loss mitigation efforts.
The 2016 amendments to RPAPL 1304 updated the language of the 90 Day Notice to better provide delinquent borrowers with notice of the amount required to bring their loan current. RPAPL 1304 (1). The amended notice updates the information provided about housing counseling resources, requiring the provision of a current list of at least five housing counseling agencies serving the county where the property is located from a listing that the Department of Financial Services is obligated to maintain. Id. The statute also now requires that the notice provide a current list of at least five housing counseling agencies serving the county where the property is located from a listing maintained by the Department of Financial Services and requires the Department of Financial Services to maintain a list, by county, of housing counseling agencies. RPAPL 1304 (2).
The amendments also clarify questions that had arisen about the applicability of the 90 Day Notice requirements, specifying that the 90-day waiting period before a foreclosure action can be filed does not apply, or ceases to apply, if the borrower has filed for bankruptcy protection or no longer occupies the residence as a principal dwelling; and making it clear that nothing relieves the lender of the obligation to send the notice, which remains a condition precedent to commencing a foreclosure proceeding. RPAPL 1304(3).
Some homeowners were confused by receipt of the 90-Day Notice, believing it to be a notice of foreclosure or an eviction notice, contributing to the problems associated with vacant and abandoned homes. The amended notice makes clear that it is not an eviction notice and that the homeowner remains the owner of the home; that a foreclosure action has not yet started; and that the homeowner remains responsible for the property. RPAPL 1304(1). The amendments also clarify that the notice need only be provided once in a 12-month period to the same borrower in connection with the same loan and the same delinquency, except that if a borrower cures a delinquency following a 90-Day Notice but then re-defaults within the 12 month period, the lender must provide a new notice. RPAPL 1304 (4).
Finally, the amendments to RPAPL 1304 now impose an obligation to provide the 90-Day Notice in languages other than English for any borrower known to have limited English proficiency, provided that the borrower’s native language is one of the six most common non-English languages spoken by individuals with limited English proficiency in New York State, based on United States census data. The amendments further require the Department of Financial Services to post the notice in such languages on its website, relieving foreclosing lenders of any burden to translate the notice. RPAPL 1304(5).
Amendments to the Help For Homeowners in Foreclosure notice required to be served with the foreclosure summons and complaint pursuant to RPAPL 1303 also aim to clarify the homeowners’ rights and obligations while the foreclosure case is pending, making clear to borrowers that they are not required to vacate their home until the property is sold at auction, and cautioning that borrowers in foreclosure remain responsible for the maintenance of their homes and for payment of property taxes while the foreclosure action is pending. RPAPL 1303(3).
Consumer Bill of Rights
A new §3-a of RPAPL 1303, finally, directed the Department of Financial Services to publish a Consumer Bill of Rights detailing the rights and responsibilities of parties to foreclosure proceedings, and to update such bill of rights annually, as needed. RPAPL 1303(3-a). The Consumer Bill of Rights can be found on the Department’s website. This bill of rights is now required to be provided to foreclosure defendants at the first settlement conference, pursuant to CPLR 3408(l).
Complementing the clarifications of the settlement conference law effected by the amendments to CPLR 3408, the technical amendments to RPAPL 1304 and 1303 are designed to provide better information to distressed homeowners seeking to prevent avoidable foreclosures. Most importantly, the recent amendments affording 90 Day Notice and settlement conference protections to reverse mortgage borrowers rectifies a substantial gap in New York’s judicial foreclosure framework, and offers hope to a vulnerable population of seniors who have been facing a rising tide of reverse mortgage foreclosures in recent years.