Senate Bill S3420

                                
 
BILL NUMBER: S3420

SPONSOR: SANDERS
 
TITLE OF BILL:

An act to amend the real property law, in relation to prohibiting mort-
gagors from recovering attorney's fees and/or expenses incurred during a
foreclosure

 
PURPOSE:

To prohibit the required payment of mortgagor's legal fees by, a mortga-
gee in a foreclosure proceeding for residential real property.

 
SUMMARY OF PROVISIONS:

Section 282 of the real property law is amended to prohibit mortgagors
from requiring that a mortgagee in a foreclosure proceeding of a resi-
dential real property be required to pay the legal fees of mortgagor.

Section 4 of the bill provides this act shall take effect immediately.
              

 
EXISTING LAW:

None

 
JUSTIFICATION:

As our state and our nation slowly recover from the nation's financial
crisis, many homeowners are still trying to recover from the financial
impact of the crisis. Unemployment and massive foreclosures have crip-
pled our economy and have made the recovery from the crisis very slow.
While the economy strengthens and employment grows, many citizens are
trying to rebuild their lives.

One way many homeowners have tried to rebuild their lives is to work to
save the largest asset many of them own: their home. As the bottom
dropped out of the economy, many citizens lost their jobs and fell
behind on their mortgages. Many people who had owned their homes for
years or even decades found themselves unable to keep up with their
payments even though they may have never missed a payment before the
crisis.

As the job market has strengthened and people returned to work, homeown-
ers found themselves in much worse financial positions as many banks
added late fees, interest and exorbitant legal fees to their mortgage
balance. For example, after a 75 year old U.S. Army veteran in Staten
Island fell into hard times, he fell behind on his mortgage with a
$66,000 balance. His daughter and son-in-law tried to assist the veteran
and were shocked to find that the balance, with fees and legal costs,
had ballooned to $190,000.

Many times during the foreclosure process law firms run up legal bills
of tens of thousands of dollars. Many times these legal fees make it
impossible for a homeowner to make their mortgage current and return to
making regular payments. Many of the law firms involved in the foreclo-
sure process have ongoing relationships with the banks foreclosing on
these properties. There is no incentive for the law firms to keep the
costs of the foreclosure process to a minimum since their client is not
the party paying the legal fees. Most times, when the mortgagee fails to
pay the legal fees and the home is foreclosed, the law firms settle for
much less than their stated fees with the bank.

Therefore, since it is in the best interest of our economy to allow
homeowners recovering from the financial crisis to make their mortgage
current, it is in the best interest of the economy of our state to stop
law firms from passing exorbitant legal fees to homeowners trying to
prevent their home from being foreclosed. In addition, since the law
firms involved have no incentive to keep their fees to a minimum, and in
many cases their incentive is to run up their fees since they do not
have an ongoing relationship with the fee payer, provisions requiring
mortgagees to pay for legal fees in the foreclosure process is against
public policy.

 
LEGISLATIVE HISTORY:

02/17/15 REFERRED TO JUDICIARY

01/06/16 REFERRED TO JUDICIARY

 
FISCAL IMPLICATIONS:

None

 
LOCAL FISCAL IMPLICATIONS:

None

 
EFFECTIVE DATE:
This act shall take effect immediately.