senate Bill S19

2013-2014 Legislative Session

Enacts the Home Equity Fraud Act to control improper activities by home improvement contractors and finance companies

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Archive: Last Bill Status - In Committee


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

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jan 08, 2014 referred to banks
Jan 09, 2013 referred to banks

Co-Sponsors

S19 - Bill Details

See Assembly Version of this Bill:
A2852
Current Committee:
Senate Banks
Law Section:
Banking Law
Laws Affected:
Amd §§595-a, 347 & 592-a, Bank L; add §254-e, RP L; add §§1308 & 1309, RPAP L; amd §771, add §771-b, Gen Bus L; add §5-336, Gen Ob L
Versions Introduced in Previous Legislative Sessions:
2011-2012: S7271, S7471, A2378
2009-2010: A3386

S19 - Bill Texts

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Enacts the "Home Equity Fraud Act" to control improper activities by home improvement contractors and finance companies; prohibits mortgage brokers or agents from acting as home improvement contractors; provides additional protections for mortgagors and home owners.

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BILL NUMBER:S19

TITLE OF BILL:
An act
to amend the banking law, the real property law, the real property
actions and proceedings law,
the general business law and the general
obligations law,
in relation to enacting the "Home Equity Fraud Act"

PURPOSE OR GENERAL IDEA OF BILL:
The purpose of the bill is to end the practice of allowing mortgage,
companies, mortgage brokers and home improvement contractors to join
together to encourage lower or fixed income New Yorkers with
substantial equity in their homes, to obtain mortgages with
unaffordable terms which ultimately result in the loss of their homes.

SUMMARY OF SPECIFIC PROVISIONS:
Section 1. Short Title

Section 2. Legislative findings

Section 3. Amends the banking law, subdivision 1 of section 595-a by
adding four new paragraphs (i), (j), (k) and (l). Requires mortgage
bankers and brokers to disclose their affiliation with home
improvement contractors and limits the fees they can charge for their
services rendered in connection with the financing or refinancing of
home equity loans. It also restricts the practice of flipping a
mortgage, i.e. refinancing the same mortgage in order to charge
additional fees.

Section 4. Amends the banking law, paragraph (d) of subdivision 3 of
section 595-a, as relettered by chapter 400 of the laws of 1993, is
relettered paragraph (e) and a new paragraph (d) is added. Requires
bankers and brokers to disclose whether the loan will be sold and if
so to whom it will be sold and thereafter prohibits any sale of the
loan until thirty days after such disclosures are made. It also
requires bankers and brokers to give all borrowers a notice setting
forth their right to designate a third party to receive copies of all
written communications regarding the loan.

Section 5. Amends the banking law, section 347 by adding a new
subdivision (e). Requires that licensed lenders shall not be allowed
to accept any money from home improvement contractors without fully
disclosing their relationship and getting the customer's permission.

Section 6. Amends the banking law, section 592-a by adding a new
subdivision 3. Provides that Mortgage brokers shall be deemed to be
agents of mortgage bankers making the bankers responsible for their
actions.

Section 7. Amends the real property law by adding a new section 254-e.
Prohibits the inclusion of a provision allowing for balloon payments,
negative amortizations and increased interest after default in any
mortgage which refinances a primary residence.


Section 8. Amends the real property actions and proceedings law by
adding a new section 1308.
Requires that all defendants in foreclosure actions be served with a
notice stating clearly that the action may result in the loss of
their home and listing certain defenses that may be available.

Section 9. Amends the real property actions and proceedings law by
adding a new section 1309.
Requires that a plaintiff in a foreclosure action to affirmatively
plead compliance with all the provisions of section 595-a of the
banking law. It also creates certain affirmative defenses to a
mortgage foreclosure action, namely: (1) that at the time of the
origination of the loan the mortgagor did not have the ability to
afford the loan and the financial institution making the loan knew or
should have known this, (2) that the lender violated section 595-a of
the banking law and (3) that the mortgage document contains a
provision prohibited by section 254-e of the real property law.
Employment status, fixed income, receipt of public assistance and
payments in excess of fifty per cent of income are all factors that
can be considered by the court. In addition, the court may award
reasonable attorney fees to the defendant in such foreclosure action.

Section 10. Amends the general business law, paragraph (h) of
subdivision 1 of section 771.
Requires require that the buyer shall have 15 days to cancel a home
improvement contract.

Section 11. Amends the general business law by adding a new section
771-b. Makes it illegal for a home improvement contractor to receive
anything of value for placing a home improvement loan with a bank
unless such relation is disclosed to the customer and the customer's
approval is obtained for the transaction. Requires that the buyer
shall have 15 days to cancel a home improvement contract and that
notice of this right to cancellation shall be given to the customer
at signing or the contract shall not be enforceable. In addition, a
homeowner may waive the right to cancel a home improvement contract
if the home improvement is needed to meet a bona fide emergency.

Section 12. Amends the general obligations law by adding a new section
5-336. Provides that loans made in violation of section 595-a of the
banking law are unenforceable and no default judgment can be rendered
on a default of such loan unless the court makes an affirmative
finding that the section has been complied with. It also provides
that the same affirmative defenses which would be available in an
action for foreclosure are available in an action for default of the
underlying note and allows the court to award reasonable attorney fees.

Section 13. Effective Date

EFFECTS OF PRESENT LAW WHICH THIS BILL WOULD ALTER:
This bill would institute a series of changes in statute which will
prohibit the practice of lending money to be secured by a mortgage on
the home of a person who cannot afford the terms of that mortgage. It
would also limit the fees that mortgage bankers and brokers can
charge on refinancing and would limit the enforceability of loans and
mortgages made in violation of the various provisions of this bill.


JUSTIFICATION:
Many seniors on fixed incomes who own homes with substantial equity
have been approached by unscrupulous home improvement contractors
working in conjunction with fringe financial companies. The
contractor talks them into minor repairs on their homes which they
mayor may not need and then arranges for "easy" financing. The
mortgage company or mortgage broker then offers to refinance the
existing mortgage (often increasing the rate), to finance the repairs
and to consolidate all of the existing credit card debt (converting
unsecured debt into secured debt). Before long the senior is signing
documents refinancing their home and incurring the responsibility for
paying a mortgage which the senior cannot afford. By increasing the
principal of the loan and by charging high rates, large fees are
earned by the mortgage brokers and mortgage bankers as well as the
home improvement contractor. Shortly after the closing, the finance
company sells the mortgage to a bank or combines it for sale as
mortgage securities thus relieving itself of the liability and
providing resources for the cycle to begin again. The senior,
meanwhile, is unable to make the mortgage payments and loses their
home to a foreclosure action. Often this problem is compounded
by the fact that most victims cannot afford an attorney to defend
the foreclosure action.

While the industry rate for foreclosures is about 2.6%, the rate for
some of the lenders in New York City who engage in this sort of
scheme is as high as 13%. A recent New York Times article reported
that the New York City Department of Consumer Affairs has noted that
finance companies working with crooked home improvement contractors
have fleeced thousands of lower income minority New Yorkers out of
the equity in their homes by tricking them into loans for repairs.
The lenders research homeowners to find out if they have paid off
their first mortgage and have singled out elderly homeowners with
substantial equity in their homes to make risky loans, knowing that
in case of default they can recoup the loan by taking the home. In
many of these cases, the homeowner is not aware of the fact that he or
she is securing the loan with a mortgage on their home.

Often, finance companies engage the services of brokers, who are paid
large fees by the customer, and do not check the accuracy of the
application document. One 73 year old woman living on social security
was described in her loan papers as a 66 year old self-employed
investor, earning $7,000 per month. When the loan goes into default
the bank claims to be unaware of this deception. This bill would make
them responsible for verifying the accuracy of information provided
by brokers.

At present, the senior who is a victim of these practices has no legal
recourse. This bill will impose a series of changes that will give
seniors a weapon to fight this scam. Legitimate banking institutions
should have no problem with the requirements of this bill because the
procedures it requires are already followed in the course of good
lending practices. This bill will make it illegal to prey on seniors
and lower income New Yorkers and to take from them their most
valuable possession, their home.

PRIOR LEGISLATIVE HISTORY:


2012: S.7271 - Referred to Banks/A.2378 - Referred to Banks
2011: A.2378 - Referred to Banks
2010-2009: A.3386 - Referred to Banks
2008-2007: A.6170 - Referred to Banks
2006-2005: A.1667 - Held for Consideration in Banks
2003-2004: A.5057 - Referred to Banks

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
Minimal cost to the State.

EFFECTIVE DATE:
October 1st after it has become law.

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

                                   19

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                               (PREFILED)

                             January 9, 2013
                               ___________

Introduced  by  Sen.  DIAZ  --  read twice and ordered printed, and when
  printed to be committed to the Committee on Banks

AN ACT to amend the banking law, the real property law, the real proper-
  ty actions and proceedings law,  the  general  business  law  and  the
  general  obligations  law,  in  relation  to enacting the "Home Equity
  Fraud Act"

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

  Section  1.  Short  title. This act shall be known and may be cited as
the "Home Equity Fraud Act".
  S 2. Legislative findings. The  legislature  hereby  finds  that  many
senior  citizens  and minority homeowners in New York have been targeted
by unethical home improvement contractors, mortgage companies,  mortgage
brokers  and finance companies who induce these homeowners into entering
into high cost high interest rate mortgage agreements which the homeown-
er is often unable to afford with the intent of foreclosing on the  home
and stripping the equity.
  The  legislature  further  finds  that  in order to entice people into
entering into these agreements they are promised refinancing of  primary
mortgages,  consolidation  of  loans and outstanding bills and are given
cash but often are not told or do not understand that they are  securing
the  loan with a mortgage lien on their home which will lead to foreclo-
sure in the event of default. Often  these  loans  are  documented  with
false and misleading documentation provided by brokers which could easi-
ly  be determined to be false if checked by the lender. Despite prohibi-
tions contained in federal law many of these loans are based  on  equity
in  the  home  and  not  on the borrower's ability to pay. Since many of
these homeowners live on a fixed income, they are  unable  to  make  the
required  payments  and end up losing their homes. This practice appears

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD00984-01-3

S. 19                               2

to be targeted in neighborhoods with a high concentration of senior  and
minority residents.
  The  legislature  further finds that it is in the best interest of the
citizens of this state that these unethical practices should be  prohib-
ited by law and that unscrupulous individuals should be denied the abil-
ity  to utilize the courts of this state to perpetrate these abuses upon
senior citizens and minority residents of this state and does  therefore
enact this Home Equity Fraud Act in order to prevent predatory lending.
  S  3.  Subdivision 1 of section 595-a of the banking law is amended by
adding four new paragraphs (i), (j), (k) and (l) to read as follows:
  (I) ENGAGING IN ANY ACTIVITY, TRANSACTION OR  COURSE  OF  BUSINESS  IN
CONNECTION  WITH  A  HOME  IMPROVEMENT  CONTRACT AS DESCRIBED IN SECTION
SEVEN HUNDRED SEVENTY OF THE GENERAL BUSINESS LAW OTHER THAN WITH REGARD
TO PROVIDING SERVICES DIRECTLY CONNECTED WITH THE MAKING OF  A  MORTGAGE
LOAN  PURSUANT  TO  THE  PROVISIONS  OF  THIS  ARTICLE, AND ONLY IF SUCH
SERVICES AND THE FEES PAID OR TO BE PAID  IN  CONNECTION  THEREWITH  ARE
FULLY  DISCLOSED  AND  AGREED TO IN WRITING BY ALL PARTIES TO THE TRANS-
ACTION.
  (J) CHARGING OR PAYING, EITHER DIRECTLY OR INDIRECTLY, A FEE IN EXCESS
OF THE GREATER OF FIVE HUNDRED DOLLARS OR THREE PERCENT OF THE  MORTGAGE
LOAN FOR THE SERVICES RENDERED BY THE MORTGAGE BROKER.
  (K)  THE FAILURE OF A MORTGAGE BANKER OR EXEMPT ORGANIZATION TO ASSURE
THAT NO MORE THAN A TOTAL OF SIX PERCENT OF THE VALUE  OF  THE  LOAN  IS
CHARGED  FOR ALL SERVICES RENDERED IN CONNECTION WITH QUALIFYING FOR AND
RECEIVING THE LOAN, PROVIDED THAT ANY FEES WHICH ARE REQUIRED TO BE PAID
TO ANY PUBLIC OFFICER FOR THE FILING,  RECORDING  OR  RELEASING  IN  ANY
PUBLIC OFFICE OF A DOCUMENT SECURING THE LOAN AND THE COSTS OF ANY TITLE
INSURANCE  OR  THE FEES OF AN ATTORNEY VOLUNTARILY ENGAGED BY AND SOLELY
REPRESENTING THE INTERESTS OF THE BORROWER SHALL NOT BE INCLUDED  WITHIN
THIS LIMIT.
  (L)  CHARGING  A FEE OR ANYTHING OF VALUE IN CONNECTION WITH THE REFI-
NANCING OF A MORTGAGE LOAN UNLESS SUCH REFINANCING IS FOR THE PURPOSE OF
REDUCING THE RATE ON THE MORTGAGE LOAN IN AN AMOUNT  WHICH  EXCEEDS  THE
COST OF SUCH REFINANCE AND WHICH WILL ALLOW THE MORTGAGOR TO RECOVER THE
COST  OF REFINANCING THE LOAN WITHIN TWO YEARS OF THE DATE OF SUCH REFI-
NANCE. THIS PROVISION SHALL NOT APPLY  TO  ANY  ADDITIONAL  PROCEEDS  IN
EXCESS  OF  THE ORIGINAL LOAN RECEIVED BY A MORTGAGOR IN CONNECTION WITH
SUCH REFINANCING.
  S 4. Paragraph (d) of subdivision 3 of section 595-a  of  the  banking
law,  as  relettered  by  chapter 400 of the laws of 1993, is relettered
paragraph (e) and a new paragraph (d) is added to read as follows:
  (D) EACH MORTGAGE BROKER,  MORTGAGE  BANKER  AND  EXEMPT  ORGANIZATION
SHALL  PROVIDE  TO  EACH  APPLICANT FOR A MORTGAGE LOAN AT OR BEFORE THE
TIME OF APPLICATION, IN WRITING:
  (1) A DISCLOSURE STATING WHETHER THE MORTGAGE LOAN WILL BE RETAINED BY
THE ORIGINAL LENDER OR SOLD AFTER CLOSING TO A THIRD PARTY AND IF IT  IS
TO BE SOLD, THE NAME OF SUCH THIRD PARTY; AND
  (2) A NOTICE GIVING THE APPLICANT THE RIGHT TO DESIGNATE A THIRD PARTY
TO  RECEIVE  COPIES OF ALL WRITTEN COMMUNICATIONS REGARDING THE LOAN AND
SETTING FORTH THE PROCEDURE FOR THE APPLICANT TO EXERCISE SUCH RIGHT.
  IN THE EVENT THAT THE DISCLOSURE AND NOTICES REQUIRED BY THIS  SECTION
ARE  NOT  MADE,  THE  MORTGAGE LOAN MADE AS A RESULT OF SUCH APPLICATION
SHALL NOT BE SOLD OR TRANSFERRED NOR ANY ACTION  TAKEN  TO  ENFORCE  THE
LENDER'S  RIGHTS  UNTIL  THIRTY DAYS AFTER SUCH DISCLOSURES ARE MADE AND
ACKNOWLEDGED BY THE BORROWER.

S. 19                               3

  S 5. Subdivision (d) of section 347 of the banking law, as amended  by
chapter 22 of the laws of 1990, is amended and  a new subdivision (e) is
added to read as follows:
  (d) The licensee has engaged in the business of a sales finance compa-
ny  and  has done or failed to do any act, except the failure to pay the
fees required, which would be grounds for the suspension  or  revocation
of  its  license  pursuant  to  section four hundred ninety-five of this
chapter were it required to obtain such a license[.];
  (E) THE LICENSEE HAS ENGAGED IN ANY ACTIVITY, TRANSACTION OR COURSE OF
BUSINESS OR HAS PAID OR OBTAINED ANY MONEY OR OTHER THING  OF  VALUE  IN
CONNECTION  WITH A HOME IMPROVEMENT CONTRACT AS DEFINED IN SECTION SEVEN
HUNDRED SEVENTY OF THE GENERAL BUSINESS  LAW  WITHOUT  FULLY  DISCLOSING
SUCH  ACTIVITY,  TRANSACTION OR COURSE OF BUSINESS AND ANY FEES OR THING
OF VALUE PAID OR TO BE PAID IN CONNECTION THEREWITH AND  WITHOUT  HAVING
OBTAINED THE AGREEMENT IN WRITING FROM ALL PARTIES TO THE TRANSACTION.
  S  6.  Section  592-a  of  the  banking law is amended by adding a new
subdivision 3 to read as follows:
  3. ANY MORTGAGE BROKER REGISTERED UNDER THIS ARTICLE WHO  IN  ANY  WAY
PLACES  WITH OR OBTAINS A MORTGAGE LOAN FROM A MORTGAGE BANKER OR EXEMPT
ORGANIZATION REGISTERED UNDER THIS ARTICLE SHALL  FOR  ALL  PURPOSES  BE
DEEMED  TO  BE  AN  AGENT  OF  SUCH BANKER OR EXEMPT ORGANIZATION.   ANY
ATTEMPT BY ANY PERSON TO VOID THIS PROVISION BY CONTRACT OR IN ANY OTHER
WAY SHALL BE VOID AS AGAINST PUBLIC POLICY.
  S 7. The real property law is amended by adding a new section 254-e to
read as follows:
  S 254-E. CERTAIN MORTGAGE PROVISIONS PROHIBITED. NO MORTGAGE ON A LOAN
SECURED PRIMARILY BY AN INTEREST IN REAL  PROPERTY  USED  AS  A  PRIMARY
RESIDENCE  BY  THE MORTGAGOR AT THE TIME SUCH LOAN IS MADE SHALL CONTAIN
ANY PROVISION WHICH:
  1. ALLOWS FOR A BALLOON PAYMENT; OR
  2. ALLOWS FOR A PAYMENT SCHEDULE WITH REGULAR PERIODIC  PAYMENTS  THAT
CAUSE THE PRINCIPAL BALANCE TO INCREASE; OR
  3.  ALLOWS  FOR A PROVISION STATING THAT THE INTEREST RATE OF THE LOAN
UNDERLYING THE MORTGAGE INCREASES AFTER DEFAULT.
  S 8. The real property actions  and  proceedings  law  is  amended  by
adding a new section 1308 to read as follows:
  S  1308.  NOTICE TO MORTGAGOR OR OWNER. IN ALL FORECLOSURE ACTIONS THE
MORTGAGEE, UPON COMMENCEMENT OF A FORECLOSURE  PROCEEDING,  SHALL  SERVE
THE  MORTGAGOR AT THE SAME TIME AS SERVICE OF THE SUMMONS AND COMPLAINT,
A NOTICE IN THE FOLLOWING FORM:
  "NOTICE TO MORTGAGOR OR OWNER:
  YOU HAVE BEEN SERVED WITH A SUMMONS AND COMPLAINT IN A MORTGAGE  FORE-
CLOSURE  PROCEEDING.  IF  YOU  FAIL  TO RESPOND TO THESE IMPORTANT LEGAL
DOCUMENTS, YOU MAY LOSE YOUR HOME.
  READ THIS CAREFULLY:
  YOU MAY BE ABLE TO PREVENT YOUR HOME FROM BEING LOST IN A  FORECLOSURE
ACTION.
  STATE  AND FEDERAL LAWS ALLOW YOU TO DEFEND FORECLOSURE PROCEEDINGS IN
CERTAIN CIRCUMSTANCES AND MAY ALLOW YOU TO PREVENT A FORECLOSURE ON YOUR
HOME. YOU MAY  BE ABLE TO OFFER DEFENSES IN THIS FORECLOSURE  PROCEEDING
UNDER THE FOLLOWING CIRCUMSTANCES:
  1. IF YOU GAVE A MORTGAGE ON YOUR HOME AS THE RESULT OF A DOOR TO DOOR
TRANSACTION;
  2.  IF  YOU  GAVE  A  MORTGAGE ON YOUR HOME IN ORDER TO FINANCE A HOME
IMPROVEMENT CONTRACT;

S. 19                               4

  3. IF YOU DID NOT UNDERSTAND THAT YOU WERE SIGNING A MORTGAGE OR  WERE
UNAWARE THAT YOU HAD A MORTGAGE ON YOUR HOME;
  4. IF YOU WERE ON PUBLIC ASSISTANCE AT THE TIME YOU GAVE A MORTGAGE ON
YOUR HOME, OR WERE RETIRED AND COLLECTING SOCIAL SECURITY OR SSI AND THE
PERSON WHO TOOK THE MORTGAGE ON YOUR HOME KNEW YOU HAD A FIXED INCOME;
  5.  IF  YOU  WERE  ON  A LIMITED FIXED INCOME AT THE TIME YOU GAVE THE
MORTGAGE ON YOUR HOME.
  ALSO, YOUR MORTGAGE DOCUMENTS MAY CONTAIN LANGUAGE STATING YOUR RIGHTS
UNDER THE CONTRACT IN CASES WHERE YOU ARE SUBJECT TO FORECLOSURE.
  IF YOU THINK THAT YOU MAY HAVE A DEFENSE TO THIS FORECLOSURE  PROCEED-
ING  YOU  MUST ACT PROMPTLY - FAILURE TO ANSWER THE ENCLOSED SUMMONS AND
COMPLAINT WILL ALLOW THE MORTGAGEE'S OR  BANK'S  ATTORNEYS  TO  ENTER  A
DEFAULT JUDGMENT AGAINST YOU.
  THE  FRONT  OF  THE  SUMMONS  WILL  TELL YOU HOW MANY DAYS YOU HAVE TO
ANSWER BEFORE THE MORTGAGEE OR BANK MAY ENTER A DEFAULT JUDGMENT AGAINST
YOU.
  YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY.   THE
LAW,  (NEW  YORK  REAL  PROPERTY ACTIONS AND PROCEEDINGS LAW ARTICLE 13)
PROVIDES DEFENSES FOR CERTAIN MORTGAGORS AND HOMEOWNERS.
  THE PHONE NUMBERS AND  OFFICE  ADDRESSES  FOR  YOUR  LOCAL  LEGAL  AID
OFFICES  ARE  CONTAINED  IN YOUR TELEPHONE DIRECTORY. IF YOUR PHONE BOOK
HAS GOVERNMENT PAGES, THE PHONE NUMBER  AND  OFFICE  ADDRESSES  OF  YOUR
LOCAL LEGAL AID OFFICES SHOULD BE LISTED THERE ALSO.
  ONLY  A  QUALIFIED  ATTORNEY  CAN  TELL YOU ALL OF YOUR RIGHTS IN THIS
PROCEEDING.
  YOU MUST ACT PROMPTLY OR YOU MAY LOSE YOUR HOME."
  S 9. The real property actions  and  proceedings  law  is  amended  by
adding a new section 1309 to read as follows:
  S  1309.  PLEADING  REQUIRED.  1. ANY COMPLAINT SERVED IN A PROCEEDING
INITIATED PURSUANT TO THIS ARTICLE RELATING TO A MORTGAGE LOAN WHICH WAS
INITIATED BY A MORTGAGE BANKER OR EXEMPT ORGANIZATION REGISTERED  PURSU-
ANT  TO  SECTION FIVE HUNDRED NINETY-ONE OF THE BANKING LAW MUST CONTAIN
AN AFFIRMATIVE ALLEGATION, WHICH ALLEGATION MUST BE PROVEN TO THE SATIS-
FACTION OF THE COURT, THAT SUCH MORTGAGE BANKER OR  EXEMPT  ORGANIZATION
HAS  COMPLIED WITH ALL OF THE PROVISIONS OF SECTION FIVE HUNDRED NINETY-
FIVE-A OF THE BANKING LAW.
  2.  IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN WHICH THE MORTGAGE  TO
BE  FORECLOSED  AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH
WAS OWNED BY THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF
SUCH MORTGAGE IT SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT  THE  TIME
OF THE LOAN ORIGINATION THE MORTGAGOR DID NOT HAVE THE FINANCIAL ABILITY
TO REPAY THE LOAN AND THAT THE FINANCIAL INSTITUTION KNEW OR SHOULD HAVE
KNOWN  THAT  THE MORTGAGOR WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE
MORTGAGE BROKER, MORTGAGE BANKER OR EXEMPT ORGANIZATION WHICH ORIGINATED
THE LOAN VIOLATED ANY PROVISION OF SECTION FIVE HUNDRED NINETY-FIVE-A OF
THE BANKING LAW; OR (C)  THE  MORTGAGE  DOCUMENT  CONTAINS  A  PROVISION
PROHIBITED BY SECTION TWO HUNDRED FIFTY-FOUR-E OF THE REAL PROPERTY LAW.
THE  COURT  MAY  CONSIDER  FACTORS INCLUDING BUT NOT LIMITED TO THE FACT
THAT THE MORTGAGOR WAS  NOT  EMPLOYED  AND  UNLIKELY  TO  OBTAIN  FUTURE
EMPLOYMENT,  THE FACT THAT THE MORTGAGOR WAS LIVING ON A FIXED INCOME OR
WAS THE RECIPIENT OF FEDERAL OR STATE ENTITLEMENT OF  PUBLIC  ASSISTANCE
OR  THAT  THE PAYMENTS REQUIRED BY SUCH MORTGAGE LOAN, TOGETHER WITH THE
PAYMENTS REQUIRED BY ANY OTHER LOAN SECURED BY THE PREMISES TO BE  FORE-
CLOSED, WERE MORE THAN FIFTY PERCENT OF THE MORTGAGOR'S AFTER TAX MONTH-
LY  INCOME AS OF THE DATE OF THE LOAN. FOR PURPOSES OF THIS SECTION, THE
TERM FINANCIAL INSTITUTION SHALL INCLUDE ANY BANKING ORGANIZATION, MORT-

S. 19                               5

GAGE BROKER, MORTGAGE BANKER OR LICENSED LENDERS INVOLVED IN THE  ORIGI-
NATION OF THE MORTGAGE BEING FORECLOSED AND ANY ASSIGNEE OR SUCCESSOR OF
SUCH  PERSON  OR  ENTITY.    IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN
WHICH  ANY SUCH AFFIRMATIVE DEFENSE IS PROVEN TO THE SATISFACTION OF THE
FINDER OF FACT, THE COURT MAY AWARD  REASONABLE  ATTORNEY  FEES  TO  THE
DEFENDANT.
  S  10.  Paragraph  (h)  of subdivision 1 of section 771 of the general
business law, as amended by chapter 32 of the laws of 1989,  is  amended
to read as follows:
  (h)  A notice to the owner that, in addition to any right otherwise to
revoke an offer, the owner may  cancel  the  home  improvement  contract
until  midnight  of  the [third] FIFTEENTH business day after the day on
which the owner has signed an agreement or offer to purchase relating to
such contract.  Cancellation occurs when written notice of  cancellation
is  given to the home improvement contractor. Notice of cancellation, if
given by mail, shall be deemed given when deposited in a mailbox proper-
ly addressed and postage prepaid. Notice of cancellation shall be suffi-
cient if it indicates the intention  of  the  owner  not  to  be  bound.
Notwithstanding the foregoing, this paragraph shall not apply to a tran-
saction  in  which  the  owner  has  initiated  the contact and the home
improvement is needed to meet a bona fide emergency of  the  owner,  and
the  owner  furnishes  the  home  improvement contractor with a separate
dated and signed personal statement in the owner's handwriting  describ-
ing the situation requiring immediate remedy and expressly acknowledging
and  waiving  the  right  to cancel the home improvement contract within
[three] FIFTEEN business days. For the purposes of  this  paragraph  the
term "owner" shall mean an owner or any representative of an owner.
  S  11.  The  general  business  law is amended by adding a new section
771-b to read as follows:
  S 771-B.  RESPONSIBILITIES OF HOME IMPROVEMENT CONTRACTORS. 1. NO HOME
IMPROVEMENT CONTRACTOR SHALL ENGAGE  IN  ANY  ACTIVITY,  TRANSACTION  OR
COURSE  OF  BUSINESS  OR PAY OR RECEIVE ANY FEE, PAYMENT, MONEY OR OTHER
THING OF VALUE IN CONNECTION WITH THE FINANCING OF  A  HOME  IMPROVEMENT
CONTRACT  WITHOUT  FULLY DISCLOSING SUCH ACTIVITY, TRANSACTION OR COURSE
OF BUSINESS AND ANY FEES, PAYMENT OR OTHER THING OF VALUE PAID OR TO  BE
PAID  IN  CONNECTION THEREWITH AND WITHOUT HAVING OBTAINED THE AGREEMENT
IN WRITING FROM ALL PARTIES TO THE TRANSACTION TO SUCH ACTIVITY AND  THE
PAYMENT THEREFOR.
  2.  IN  ADDITION  TO  ANY RIGHT OTHERWISE TO REVOKE A HOME IMPROVEMENT
CONTRACT, THE BUYER MAY CANCEL  SUCH  CONTRACT  UNTIL  MIDNIGHT  OF  THE
FIFTEENTH  DAY  AFTER  THE  HOME IMPROVEMENT CONTRACT WAS SIGNED BY BOTH
PARTIES. CANCELLATION SHALL OCCUR WHEN WRITTEN NOTICE OF CANCELLATION IS
GIVEN TO THE HOME IMPROVEMENT CONTRACTOR.  NOTICE  OF  CANCELLATION,  IF
GIVEN BY MAIL, SHALL BE DEEMED GIVEN WHEN DEPOSITED IN A MAILBOX PROPER-
LY  ADDRESSED  AND POSTAGE PREPAID. NOTICE OF CANCELLATION NEED NOT TAKE
ANY PRESCRIBED FORM AND SHALL BE SUFFICIENT IF IT INDICATES  THE  INTEN-
TION  OF  THE SIGNATORY NOT TO BE BOUND.  NOTWITHSTANDING THE FOREGOING,
THIS SUBDIVISION SHALL NOT APPLY TO A TRANSACTION IN WHICH THE OWNER HAS
INITIATED THE CONTACT AND THE HOME IMPROVEMENT IS NEEDED TO MEET A  BONA
FIDE  EMERGENCY  OF THE OWNER, AND THE OWNER FURNISHES THE HOME IMPROVE-
MENT CONTRACTOR WITH A SEPARATE DATED AND SIGNED PERSONAL  STATEMENT  IN
THE  OWNER'S  HANDWRITING  DESCRIBING  THE SITUATION REQUIRING IMMEDIATE
REMEDY AND EXPRESSLY ACKNOWLEDGING AND WAIVING THE RIGHT TO  CANCEL  THE
HOME IMPROVEMENT CONTRACT WITHIN FIFTEEN BUSINESS DAYS. FOR THE PURPOSES
OF  THIS  SUBDIVISION THE TERM "OWNER" SHALL MEAN AN OWNER OR ANY REPRE-
SENTATIVE OF AN OWNER.

S. 19                               6

  3. NO HOME IMPROVEMENT CONTRACT SHALL BE  ENFORCEABLE  UNLESS  AT  THE
TIME  IT  IS  SIGNED  BY  THE HOMEOWNER, THE HOME IMPROVEMENT CONTRACTOR
SHALL FURNISH TO THE  HOMEOWNER  A  NOTICE  CONTAINING  A  STATEMENT  IN
SUBSTANTIALLY THE FOLLOWING FORM:
  YOU  THE  HOMEOWNER,  MAY  CANCEL  THIS  CONTRACT AT ANY TIME PRIOR TO
MIDNIGHT OF THE FIFTEENTH BUSINESS DAY AFTER THE DATE OF THIS  CONTRACT.
SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION.
  S  12.  The general obligations law is amended by adding a new section
5-336 to read as follows:
  S 5-336. CERTAIN HOME EQUITY LOAN CONTRACTS; ENFORCEABILITY. 1.    ANY
LOAN  MADE  IN  VIOLATION  OF  SECTION FIVE HUNDRED NINETY-FIVE-A OF THE
BANKING LAW SHALL BE UNENFORCEABLE AND  NO  DEFAULT  JUDGMENT  SHALL  BE
ENTERED  IN ANY ACTION AS A RESULT OF THE ALLEGED DEFAULT OF THE DEFEND-
ANT TO MAKE PAYMENTS PURSUANT TO A LOAN AGREEMENT  WHICH  AROSE  AS  THE
RESULT  OF  THE REFINANCE OF A PERSONAL RESIDENCE OWNED BY THE DEFENDANT
WHETHER OR NOT SECURED BY A MORTGAGE UNLESS THE COURT MAKES AN  AFFIRMA-
TIVE  FINDING  OF  FACT  IN  WRITING THAT THE PROVISIONS OF SECTION FIVE
HUNDRED NINETY-FIVE-A OF THE BANKING LAW HAVE NOT BEEN VIOLATED.
  2. IN ANY ACTION BROUGHT SEEKING ENFORCEMENT OF A LOAN AGREEMENT WHICH
AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH  WAS  OWNED  BY
THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF SUCH LOAN IT
SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT THE TIME OF THE LOAN ORIGI-
NATION THE BORROWER DID NOT HAVE THE FINANCIAL ABILITY TO REPAY THE LOAN
AND  THAT  THE  FINANCIAL INSTITUTION KNEW OR SHOULD HAVE KNOWN THAT THE
BORROWER WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE MORTGAGE  BROKER,
MORTGAGE  BANKER  OR  EXEMPT  ORGANIZATION  WHICH  ORIGINATED  THE  LOAN
VIOLATED ANY PROVISION OF SECTION  FIVE  HUNDRED  NINETY-FIVE-A  OF  THE
BANKING  LAW; OR (C) ANY MORTGAGE DOCUMENT SIGNED CONTEMPORANEOUSLY WITH
THE  LOAN  CONTAINS  A  PROVISION  PROHIBITED  BY  SECTION  TWO  HUNDRED
FIFTY-FOUR-E  OF  THE  REAL PROPERTY LAW. THE COURT MAY CONSIDER FACTORS
INCLUDING BUT NOT LIMITED  TO  THE  FACT  THAT  THE  MORTGAGOR  WAS  NOT
EMPLOYED  AND  UNLIKELY  TO  OBTAIN FUTURE EMPLOYMENT, THE FACT THAT THE
MORTGAGOR WAS LIVING ON A FIXED INCOME OR WAS THE RECIPIENT  OF  FEDERAL
OR  STATE ENTITLEMENT OF PUBLIC ASSISTANCE OR THAT THE PAYMENTS REQUIRED
BY SUCH LOAN, TOGETHER WITH THE PAYMENTS  REQUIRED  BY  ANY  OTHER  LOAN
SECURED BY THE PREMISES SECURING SUCH LOAN, WERE MORE THAN FIFTY PERCENT
OF  THE  BORROWER'S AFTER TAX MONTHLY INCOME AS OF THE DATE OF THE LOAN.
FOR PURPOSES OF THIS  SECTION,  THE  TERM  FINANCIAL  INSTITUTION  SHALL
INCLUDE  ANY  BANKING  ORGANIZATION, MORTGAGE BROKER, MORTGAGE BANKER OR
LICENSED LENDER INVOLVED IN  THE  ORIGINATION  OF  THE  LOAN  FOR  WHICH
ENFORCEMENT  IS  SOUGHT  AND ANY ASSIGNEE OR SUCCESSOR OF SUCH PERSON OR
ENTITY.  IN ANY SUCH ACTION IN WHICH SUCH AFFIRMATIVE DEFENSE IS  PROVEN
TO  THE  SATISFACTION OF THE FINDER OF FACT, THE COURT MAY AWARD REASON-
ABLE ATTORNEY FEES TO THE DEFENDANT.
  S 13. This act shall take effect on the first of October next succeed-
ing the date on which it shall have become  a  law;  provided,  however,
that  any  rules,  regulations  or  actions  necessary  to implement the
provisions of this act on its effective date are immediately  authorized
and  directed  to  be promulgated, repealed or amended on or before such
effective date.

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