senate Bill S3781A

Amended

Relates to unauthorized entities, unregistered mortgage brokers and mortgage fraud

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 03 / Mar / 2011
    • REFERRED TO BANKS
  • 01 / Jun / 2011
    • 1ST REPORT CAL.903
  • 02 / Jun / 2011
    • 2ND REPORT CAL.
  • 06 / Jun / 2011
    • ADVANCED TO THIRD READING
  • 07 / Jun / 2011
    • PASSED SENATE
  • 07 / Jun / 2011
    • DELIVERED TO ASSEMBLY
  • 07 / Jun / 2011
    • REFERRED TO BANKS
  • 04 / Jan / 2012
    • DIED IN ASSEMBLY
  • 04 / Jan / 2012
    • RETURNED TO SENATE
  • 04 / Jan / 2012
    • REFERRED TO BANKS
  • 19 / Jan / 2012
    • AMEND AND RECOMMIT TO BANKS
  • 19 / Jan / 2012
    • PRINT NUMBER 3781A
  • 29 / Feb / 2012
    • AMEND AND RECOMMIT TO BANKS
  • 29 / Feb / 2012
    • PRINT NUMBER 3781B
  • 07 / Mar / 2012
    • 1ST REPORT CAL.315
  • 12 / Mar / 2012
    • 2ND REPORT CAL.
  • 13 / Mar / 2012
    • ADVANCED TO THIRD READING
  • 20 / Jun / 2012
    • PASSED SENATE
  • 20 / Jun / 2012
    • DELIVERED TO ASSEMBLY
  • 20 / Jun / 2012
    • REFERRED TO BANKS

Summary

Relates to unauthorized entities, unregistered mortgage brokers and mortgage fraud; establishes additional penalties against unlicensed or unregistered persons or entities engaging in activities after receiving a cease and desist notice; relates to the crime of mortgage fraud.

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Bill Details

Versions:
S3781
S3781A
S3781B
Legislative Cycle:
2011-2012
Current Committee:
Assembly Banks
Law Section:
Banking Law
Laws Affected:
Add §78-a, amd §§590 & 598, Bank L; amd Art 187 Art Head, amd §§187.00, 187.05, 187.10, 187.15, 187.20 & 187.25, Pen L
Versions Introduced in 2009-2010 Legislative Cycle:
S4871

Sponsor Memo

BILL NUMBER:S3781A

TITLE OF BILL:
An act
to amend the banking law and the penal law,
in relation to unauthorized entities,
unregistered mortgage brokers and mortgage fraud

PURPOSE:
To help prevent and address illegal and fraudulent activities in the
mortgage industry.

SUMMARY:
Section 78-a is added to the Banking Law to provide that the criminal
Investigations Bureau of the Banking Department shall refer any
instances of a person, partnership, association, corporation or other
entity which is operating without being chartered, licensed or
registered as required under this chapter to the Attorney General and
to any other federal, state or local agency or entity for appropriate
enforcement action. At least every six months, the Attorney General
shall provide the Bureau with a written update of the status of any
enforcement actions it has taken against such persons or entities.

Paragraph (f) is added to Section 590(5) of the Banking Law to
prohibit a mortgage banker, mortgage broker or exempt organization
from conducting business with any person, partnership, association,
corporation or other entity which it knows or should have known is
acting as a mortgage banker or a mortgage broker without being
licensed or registered as required by the Banking Law. In addition, a
mortgage banker, mortgage broker or exempt organization shall
promptly notify the Banking Department if it becomes aware of any
such unlicensed or unregistered operations.

Section 598(5) of the Banking Law is amended to increase the maximum
amount of civil penalties assessable against an unlicensed or
unregistered person engaged illegally in mortgage banking or
brokering activities. currently, such person may be liable for a sum
of not less than the amount paid, nor more than four times the amount
paid. This amendment would provide that, where a non-exempt
unlicensed or unregistered person has continued to engage in such
unauthorized activities after receiving a cease and desist notice
from the superintendent of Banks, the maximum amount of liability
shall be up to ten times the amount paid.

JUSTIFICATION:
New York State has established a comprehensive system for regulating,
examining and overseeing the activities and operations of financial
institutions. This regulatory system is important for the promotion
and protection of the financial system, and for ensuring the
protection of consumers.

There continue to be some problems with persons undertaking financial
activities without the required approval of the Banking Department.
Licensing and regulation are crucial for the protection of consumers.
Because some entities are avoiding regulation and are not complying


with the rules established for the protection of consumers, there is
a much greater likelihood that consumers will be defrauded.

In particular, a number of people have operated without authorization
as mortgage brokers, mortgage bankers and money transmitters. Several
homeowners have been subjected to abusive lending practices as a
result of the activities of unregulated persons.

Operating without the required authorization under the Banking Law is
already a crime, and in some cases civil penalties may also apply.
However, additional steps need to be taken to attack this problem. One
concern raised in a State Comptroller's audit was the lack of
coordination between the Banking Department and the Attorney
General's Office in addressing the problem of unregistered mortgage
brokers. These entities have often engaged in misleading, deceptive
and fraudulent practices, harming many homeowners.

In order to encourage and promote better cooperation, this bill would
require the Banking Department to inform the Attorney General and
other appropriate agencies if it learns of any such unauthorized
entities. The Attorney General is directed to provide the Department
with regular updates on the status of any enforcement action being
taken to prevent the continued operation of unauthorized entities.
This should help ensure that the State remains focused on shutting
down entities which flaunt the laws and harm consumers.

Given the number of problems with unauthorized mortgage brokers, the
bill also establishes an affirmative obligation on licensed mortgage
bankers and registered mortgage brokers to not conduct business with
these unauthorized entities, and to notify the Banking Department if
they become aware of such illegal operations.

The bill would also establish the specific crime of mortgage fraud in
order to provide law enforcement officials with the improved ability
to address this growing problem. Law enforcement officials and
financial regulators have seen a disturbing number of incidents in
which a mortgage broker (or a mortgage banker acting in the capacity
of a broker) falsifies data and documents in order to secure approval
of a loan, thereby enabling the banker or broker to close the loan
and collect its fees. This type of fraudulent action may occur either
with or without the knowledge of the applicant.

This type of fraud victimizes both the borrower and the lender. In
these cases, the homeowner usually receives a loan they can't afford,
which typically ruins them financially and ultimately results in the
loss of the home. The lender is also victimized as it loses money on
these bad loans.

Federal law already imposes strict penalties for knowingly making false
statements in an attempt to influence the action of a banking
institution on a loan application. However, that law only applies to
fraudulent applications submitted to federally-insured banking
institutions. This bill creates state level penalties that can be
used for crimes affecting both insured banking institutions and other
types of mortgage bankers who are not currently protected by the
federal law. This new crime targets those brokers and bankers who
actively engage in the forging of false supporting documents for a


mortgage loan. By cracking down on this abusive practice, this
legislation will help protect both the consumers and lenders who are
victimized by this practice.

LEGISLATIVE HISTORY:
S.2856 of 2005-06 Passed Senate Both Years
S.2746 of 2007-08 Passed Senate Both Years
S.4871 of 2009-10 Referred to Banks
S.3781 of 2011 Passed Senate

FISCAL IMPACT:
None.

EFFECTIVE DATE:
This act shall take effect on the thirtieth day after it shall have
become a law.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 3781--A

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                              March 3, 2011
                               ___________

Introduced  by  Sen.  SMITH  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Banks  --  recommitted  to
  the  Committee  on  Banks  in accordance with Senate Rule 6, sec. 8 --
  committee discharged, bill amended, ordered reprinted as  amended  and
  recommitted to said committee

AN  ACT to amend the banking law and the penal law, in relation to unau-
  thorized entities, unregistered mortgage brokers and mortgage fraud

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1. The banking law is amended by adding a new section 78-a to
read as follows:
  S 78-A. UNAUTHORIZED  ENTITIES.  THE  CRIMINAL  INVESTIGATIONS  BUREAU
SHALL  REFER ANY INSTANCES OF A PERSON, PARTNERSHIP, ASSOCIATION, CORPO-
RATION OR OTHER ENTITY  WHICH  IS  OPERATING  WITHOUT  BEING  CHARTERED,
LICENSED  OR  REGISTERED  AS REQUIRED UNDER THIS CHAPTER TO THE ATTORNEY
GENERAL AND TO ANY OTHER FEDERAL, STATE OR LOCAL AGENCY  OR  ENTITY  FOR
APPROPRIATE  ENFORCEMENT ACTION. AT LEAST EVERY SIX MONTHS, THE ATTORNEY
GENERAL SHALL PROVIDE THE BUREAU WITH A WRITTEN UPDATE OF THE STATUS  OF
ANY ENFORCEMENT ACTIONS IT HAS TAKEN AGAINST SUCH PERSONS OR ENTITIES.
  S  2.  Subdivision  5  of section 590 of the banking law is amended by
adding a new paragraph (f) to read as follows:
  (F) NO MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT  ORGANIZATION  SHALL
CONDUCT  BUSINESS WITH ANY PERSON, PARTNERSHIP, ASSOCIATION, CORPORATION
OR OTHER ENTITY WHICH IT KNOWS OR SHOULD HAVE KNOWN IS ACTING AS A MORT-
GAGE BANKER OR A MORTGAGE BROKER WITHOUT BEING LICENSED OR REGISTERED AS
REQUIRED BY THIS ARTICLE. A MORTGAGE BANKER, MORTGAGE BROKER  OR  EXEMPT
ORGANIZATION SHALL PROMPTLY NOTIFY THE DEPARTMENT OF ANY SUCH UNLICENSED
OR UNREGISTERED OPERATIONS.
  S  3.  Subdivision  5  of  section 598 of the banking law, as added by
chapter 571 of the laws of 1986, is amended to read as follows:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD09855-02-2

S. 3781--A                          2

  5. Civil  penalties  assessable  against  unlicensed  or  unregistered
persons or entities. If any non-exempt unlicensed or unregistered person
or entity engages in activities encompassed by this article, he shall be
liable  to any person or entity affected by such activities for a sum of
money of not less than the amount of money paid to an affected person or
entity in connection with such activities, nor more than four times such
sum; PROVIDED HOWEVER THAT WHERE A NON-EXEMPT UNLICENSED OR UNREGISTERED
PERSON  HAS  CONTINUED  TO  ENGAGE IN SUCH UNAUTHORIZED ACTIVITIES AFTER
RECEIVING A CEASE AND DESIST NOTICE FROM THE SUPERINTENDENT, THE MAXIMUM
AMOUNT OF LIABILITY SHALL BE UP TO TEN TIMES SUCH SUM. Such sum  may  be
sued  for  and recovered by any person or entity for his use and benefit
in any court of competent jurisdiction.
  S 4.  The article heading of article 187 of the penal law, as added by
chapter 472 of the laws of 2008, is amended to read as follows:
  [RESIDENTIAL] MORTGAGE FRAUD
  S 5. Section 187.00 of the penal law, as amended by chapter 507 of the
laws of 2009, is amended to read as follows:
S 187.00 Definitions.
  As used in this article:
  1. "Person" means any individual or entity.
  2. ["Residential mortgage] "MORTGAGE loan" means a loan  or  agreement
to  extend credit, including the renewal, refinancing or modification of
any such loan, made to a person OR AN ENTITY, which  loan  is  primarily
secured  by  either  a  mortgage,  deed of trust, or other lien upon any
interest in [residential] real property or any certificate of  stock  or
other  evidence  of ownership in, and a proprietary lease from, a corpo-
ration or partnership formed for the purpose of cooperative ownership of
[residential] real property.
  3. ["Residential real property" means  real  property  improved  by  a
one-to-four family dwelling, or a residential unit in a building includ-
ing units owned as condominiums or on a cooperative basis, used or occu-
pied,  or intended to be used or occupied, wholly or partly, as the home
or residence of one or more persons, but shall not refer  to  unimproved
real property upon which such dwellings are to be constructed.
  4.  "Residential  mortgage]  "MORTGAGE fraud" is committed by a person
who, knowingly and with  intent  to  defraud,  presents,  causes  to  be
presented,  or prepares with knowledge or belief that it will be used in
soliciting an applicant for, applying for,  underwriting  or  closing  a
[residential] mortgage loan, or filing with a county clerk of any county
in  the  state  arising out of and related to the closing of a [residen-
tial] mortgage loan, any written statement which:
  (a) contains materially false information concerning any fact material
thereto; or
  (b) conceals, for the purpose of  misleading,  information  concerning
any fact material thereto.
  S  6.  Section 187.05 of the penal law, as added by chapter 472 of the
laws of 2008, is amended to read as follows:
S 187.05 [Residential mortgage] MORTGAGE fraud in the fifth degree.
  A person is guilty of [residential] mortgage fraud in the fifth degree
when he or she commits [residential] mortgage fraud.
  [Residential mortgage] MORTGAGE fraud in the fifth degree is a class A
misdemeanor.
  S 7. Section 187.10 of the penal law, as added by chapter 472  of  the
laws of 2008, is amended to read as follows:
S 187.10 [Residential mortgage] MORTGAGE fraud in the fourth degree.

S. 3781--A                          3

  A  person  is  guilty  of  [residential]  mortgage fraud in the fourth
degree when he or she commits [residential] mortgage fraud  and  thereby
receives  proceeds  or any other funds in the aggregate in excess of one
thousand dollars.
  [Residential  mortgage] MORTGAGE fraud in the fourth degree is a class
E felony.
  S 8. Section 187.15 of the penal law, as added by chapter 472  of  the
laws of 2008, is amended to read as follows:
S 187.15 [Residential mortgage] MORTGAGE fraud in the third degree.
  A person is guilty of [residential] mortgage fraud in the third degree
when he or she commits [residential] mortgage fraud and thereby receives
proceeds or any other funds in the aggregate in excess of three thousand
dollars.
  [Residential mortgage] MORTGAGE fraud in the third degree is a class D
felony.
  S  9.  Section 187.20 of the penal law, as added by chapter 472 of the
laws of 2008, is amended to read as follows:
S 187.20 [Residential mortgage] MORTGAGE fraud in the second degree.
  A person is guilty of  [residential]  mortgage  fraud  in  the  second
degree  when  he or she commits [residential] mortgage fraud and thereby
receives proceeds or any other funds in the aggregate in excess of fifty
thousand dollars.
  [Residential mortgage] MORTGAGE fraud in the second degree is a  class
C felony.
  S  10. Section 187.25 of the penal law, as added by chapter 472 of the
laws of 2008, is amended to read as follows:
S 187.25 [Residential mortgage] MORTGAGE fraud in the first degree.
  A person is guilty of [residential] mortgage fraud in the first degree
when he or she commits [residential] mortgage fraud and thereby receives
proceeds or any other funds in the aggregate in excess  of  one  million
dollars.
  [Residential mortgage] MORTGAGE fraud in the first degree is a class B
felony.
  S  11.  This act shall take effect on the thirtieth day after it shall
have become a law.

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