§ 265-a. Home equity theft prevention. 1. (a) The legislature finds
and declares that homeowners who are in default on their mortgages or in
foreclosure may be vulnerable to fraud, deception, and unfair dealing by
home equity purchasers. The recent rapid escalation of home values
throughout urban and rural areas has resulted in a significant increase
in home equity, which constitutes the greatest financial asset held by
many homeowners of this state. During the time period between the
default on the mortgage and the scheduled foreclosure sale date,
homeowners in financial distress, especially poor, elderly, and
financially unsophisticated homeowners, are vulnerable to aggressive
"equity purchasers" who induce homeowners to sell their homes for a
small fraction of their fair market values, or in some cases even sign
away their homes, through the use of schemes which often involve oral
and written misrepresentations, deceit, intimidation, and other
unreasonable commercial practices.

(b) The legislature declares that it is the express policy of the
state to preserve and guard the precious asset of home equity, and the
social as well as the economic value of homeownership.

(c) The legislature further finds that equity purchasers may have a
significant impact upon the economy and well-being of this state and its
local communities, and therefore the provisions of this section are
necessary to promote the public welfare.

(d) The intent and purposes of this section are to provide a homeowner
with information necessary to make an informed and intelligent decision
regarding the sale or transfer of his or her home to an equity
purchaser; to require that the sales agreement be expressed in writing;
to safeguard equity sellers against deceit and financial hardship; to
ensure, foster and encourage fair dealing in the sale and purchase of
homes in foreclosure or default; to prohibit representations that tend
to mislead; to prohibit or restrict unfair contract terms; to provide a
cooling off period for equity sellers who enter into covered contracts;
to afford equity sellers a reasonable and meaningful opportunity to
rescind sales to equity purchasers; and to preserve and protect home
equity for the homeowners of this state.

2. The following definitions shall apply to this section:

(a) "Bona fide purchaser or encumbrancer for value" means anyone
acting in good faith who purchases the residential real property from
the equity purchaser for valuable consideration or provides the equity
purchaser with a mortgage or provides a subsequent bona fide purchaser
with a mortgage, provided that he or she had no notice of the equity
seller's continuing right to, or equity in, the property prior to the
acquisition of title or encumbrance, or of any violation of this section
by the equity purchaser as related to the subject property.

(b) "Business day" means any calendar day except Sunday or the public
holidays as set forth in section twenty-four of the general construction
law.

(c) "Covered contract" means any contract, agreement, or arrangement,
or any term thereof, between an equity purchaser and equity seller
which:

(i) is incident to the sale of a residence in foreclosure; or

(ii) is incident to the sale of a residence in foreclosure or default
where such contract, agreement or arrangement includes a reconveyance
arrangement; or

(iii) is incident to the sale of a residence that is the collateral
for a "distressed home loan" as defined in paragraph (d) of subdivision
one of section two hundred sixty-five-b of this article.

For purposes of this section, any reference to the "sale" of a
residence by an equity seller to an equity purchaser shall include a
transaction where an equity seller receives consideration from the
equity purchaser, and a transaction involving a transfer of title to the
equity purchaser where no consideration is provided to the equity
seller.

(d) "Default" means that the equity seller is two months or more
behind in his or her mortgage payments.

(e) "Equity purchaser" means any person who or entity which acquires
title to any residence in foreclosure or, where applicable, default, or
the representative of such person or entity as defined in this
subdivision, except a person who acquires such title as follows:

(i) to use, and who uses, such property as his or her primary
residence;

(ii) by a deed from a referee in a foreclosure sale conducted pursuant
to article thirteen of the real property actions and proceedings law;

(iii) at any sale of property authorized by statute;

(iv) by order or judgment of any court;

(v) from a spouse, or from a parent, grandparent, child, grandchild or
sibling of such person or such person's spouse;

(vi) as a not-for-profit housing organization or as a public housing
agency; or

(vii) a bona fide purchaser or encumbrancer for value.

(f) "Equity seller" means a natural person who is a property owner or
homeowner at the time of the equity sale.

(g) "Foreclosure" means that there is an active notice of pendency
filed in court pursuant to article thirteen of the real property actions
and proceedings law, or a foreclosure action pursuant to article eleven
or thirteen of the real property actions and proceedings law has been
commenced against the subject property, or an action to enforce a
mortgage note has been commenced against the borrower whose property is
secured by a mortgage loan, or the subject property is on an active
property tax or utility lien sale list.

(h) "Property owner" or "homeowner" means any or all record title
owners of the residential real property in foreclosure or, where
applicable, default at the time of the equity sale.

(i) "Reconveyance arrangement" means:

(i) the transfer of title to residential real property by an equity
seller who is in default or foreclosure, either by transfer of interest
from an equity seller to an equity purchaser or by creation of a
mortgage or other lien or encumbrance during the time of default or
foreclosure that allows the equity purchaser to obtain legal or
equitable title to all or part of the property, and

(ii) the subsequent conveyance, or promise of a subsequent conveyance,
of an interest back to the equity seller by the equity purchaser that
allows the equity seller to regain possession of the property, which
interest shall include but not be limited to a purchase agreement,
option to purchase, or lease.

(j) "Representative" means a person who in any manner solicits,
induces, arranges, or causes any equity seller to transfer title or
solicits any member of the equity seller's family or household to induce
or cause any equity seller to transfer title to the residence in
foreclosure or, where applicable, default to the equity purchaser.

(k) "Residence" and "residential real property" means residential real
property consisting of one- to four-family dwelling units, one of which
the equity seller occupies or occupied at a time immediately prior to
the equity sale as his or her primary residence.

3. Every covered contract and notice of cancellation attached thereto
shall be written in letters of a size equal to at least twelve-point
bold type, in English or in both English and Spanish if Spanish is the
primary language of the equity seller, and shall be fully completed and
signed and dated by the equity seller and equity purchaser. Any
instrument of conveyance shall become effective no sooner than midnight
of the fifth business day after the date on which the covered contract
is executed.

4. All covered contracts shall contain the entire agreement of the
parties and shall include, but not be limited to, the following terms:

(a) The name, business address, and the telephone number of the equity
purchaser;

(b) The address of the residence in foreclosure or, where applicable,
default;

(c) The total consideration to be given by the equity purchaser in
connection with or incident to the sale;

(d) A complete description of the terms of payment or other
consideration including, but not limited to, any services of any nature
which the equity purchaser represents he or she will perform for the
equity seller before or after the sale;

(e) The time, if any, at which physical possession of the residence is
to be transferred to the equity purchaser and the residence vacated by
the equity seller;

(f) The terms of any rental or lease agreement;

(g) The terms of any reconveyance arrangement;

(h) A notice of cancellation as provided in paragraph (a) of
subdivision six of this section; and

(i) The following notice shall appear on the contract in immediate
proximity to the space reserved for the equity seller's signature and
shall be in at least fourteen-point bold type if the covered contract is
printed or in capital letters if the covered contract is typed. The
notice must contain the name of the equity purchaser and the date and
time by which the covered contract must be cancelled. The notice shall
be completed by the equity purchaser:

"NOTICE REQUIRED BY NEW YORK LAW
You may cancel this contract at any time before midnight of
________________________________________.

(Date)
________________________________________________________________________

(Name of Equity Purchaser)
or anyone working for ____________________________ CANNOT ask you to

(Name of Equity Purchaser)
sign or have you sign any deed or any other document until your right to
cancel this contract has ended. See attached notice of cancellation
form for an explanation of this right. You should always consult an
attorney or community organization before signing any legal documents
concerning your home. It is advisable that you find your own attorney,
and not consult with an attorney who has been provided to you by the
purchaser. The law requires that this contract contain the entire
agreement. You should not rely upon any other written or oral agreement
or promise."

The equity purchaser shall accurately enter the date on which the
right to cancel ends. The covered contract required by this section
shall survive delivery of any instrument of conveyance of the residence
in foreclosure or, where applicable, default, and shall have no effect
on persons other than the parties to the covered contract.

5. (a) In addition to the right of rescission described in subdivision
eight of this section, the equity seller has the right to cancel any
covered contract with an equity purchaser until midnight of the
fourteenth business day following the day on which the equity seller and
equity purchaser sign a covered contract that complies with this
section.

(b) Cancellation occurs when the equity seller, or a representative of
the equity seller, personally delivers written notice of cancellation to
the address specified in the covered contract or sends a letter via
facsimile or other means of written communication, United States mail,
or through an established commercial letter delivery service, indicating
cancellation to the business address of the equity purchaser listed on
the covered contract. Proof of facsimile delivery or proof of mailing
creates a presumption that the notice of cancellation has been
delivered.

(c) A notice of cancellation given by the equity seller pursuant to
paragraph (a) of this subdivision need not take the particular form as
provided with the covered contract and, however expressed, is effective
if it indicates the intention of the equity seller not to be bound by
the covered contract.

(d) Within ten days following receipt of a notice of cancellation
given in accordance with this subdivision, the equity purchaser shall
return without condition any original covered contract and any other
documents signed by the equity seller as well as any fee or other
consideration received by the equity purchaser from the equity seller.
Cancellation of the contract shall release the equity seller of all
obligations to pay fees to the equity purchaser.

6. (a) The covered contract shall be accompanied by a form completed
by the equity purchaser in duplicate, captioned "notice of cancellation"
in at least twelve-point bold type if the covered contract is printed or
in capital letters if the covered contract is typed. This form shall be
attached to the covered contract, shall be easily detachable, and shall
contain in type of at least twelve-point if the covered contract is
printed or in capital letters if the covered contract is typed, the
following statement written in the same language as used in the covered
contract:

"NOTICE OF CANCELLATION
This contract was entered into on ____________________________________

(Enter date covered contract signed)
You may cancel this contract for the sale of your house, without any
penalty or obligation, at any time before midnight of
___________________________. (Enter date)
To cancel this transaction, personally deliver a signed and dated copy
of this cancellation notice, or send it by facsimile, United States
mail, or an established commercial letter delivery service, indicating
cancellation to ____________________________________________________, at
(Name of purchaser) ___________________________________
(Street address of purchaser's place of business and facsimile number if
any) NOT LATER THAN midnight of _______________________________________.

(Enter date)
If you wish to cancel this contract, sign and date both copies and
return one copy immediately to the purchaser.
I hereby cancel this transaction.
__________________________________/_______________________________"

(Seller's signature) (Date)

(b) The equity purchaser shall provide each equity seller with two
copies of the covered contract and attached notice of cancellation. The
equity purchaser shall accurately enter the date on which the right to
cancel ends.

7. (a) Before midnight of the fourteenth business day after the date
on which the covered contract is executed, the equity purchaser shall
not do any of the following:

(i) accept from any equity seller an execution of, or induce any
equity seller to execute, any instrument of conveyance of any interest
in the residence in foreclosure or, where applicable, default;

(ii) record with the county clerk any document, including, but not
limited to, any instrument of conveyance, signed by the equity seller;

(iii) transfer or encumber or purport to transfer or encumber any
interest in the residence in foreclosure or, where applicable, default
to any third party;

(iv) pay the equity seller any consideration; or

(v) suggest, encourage, or provide any form which allows the equity
seller to waive his or her right to cancel or rescind under this
section.

(b) An equity purchaser shall make no false or misleading statement
regarding the value of the residence in foreclosure or, where
applicable, default; the amount of proceeds the equity seller will
receive after a foreclosure sale; the timing of the judicial foreclosure
process; any contract term; the equity seller's rights or obligations
incident to or arising out of the sale transaction; the nature of any
document which the equity purchaser induces the equity seller to sign;
or any other false or misleading statement concerning the sale of the
residence in foreclosure or, where applicable, default, or concerning
the reconveyance arrangement.

(c) An equity purchaser is prohibited from representing, directly or
indirectly, that:

(i) the equity purchaser is acting as an advisor or a consultant, or
in any other manner represents that the equity purchaser is acting on
behalf of the equity seller;

(ii) the equity purchaser has certification or licensure that the
equity purchaser does not have, or that the equity purchaser is not a
member of a licensed profession if he or she is actually such a member;

(iii) the equity purchaser is assisting the equity seller to save the
house unless the equity purchaser has a good faith basis for the
representation; or

(iv) the equity purchaser is assisting the equity seller in preventing
a completed foreclosure unless the equity purchaser has a good faith
basis for the representation.

(d) It is unlawful for any equity purchaser to initiate, enter into,
negotiate, or consummate any covered contract involving residential real
property in foreclosure or, where applicable, default if such equity
purchaser, by the terms of such covered contract, takes undue advantage
of the equity seller.

8. (a) Any transaction involving residential real property in
foreclosure or, where applicable, default which is in material violation
of subdivision three, four, six, seven or eleven of this section is
voidable and the transaction may be rescinded by the equity seller
within two years of the date of the recording of the conveyance of the
residential real property in foreclosure or, where applicable, default.

(b) Such rescission shall be effected by giving written notice to the
equity purchaser and his or her successor in interest, if the successor
is not a bona fide purchaser or encumbrancer for value as set forth in
paragraph (c) of this subdivision, and by recording such notice with the
county clerk of the county in which the property is located, within two
years of the date of the recording of the conveyance to the equity
purchaser. The notice of rescission shall contain the name of the equity
seller and the name of the equity purchaser in addition to any successor
in interest holding record title to the residential real property and
shall particularly describe such residential real property. The equity
purchaser and his or her successor in interest if the successor is not a
bona fide purchaser or encumbrancer for value as set forth in paragraph
(c) of this subdivision, shall have twenty days after the delivery of
the notice in which to reconvey title to the property free and clear of
encumbrances created subsequent to the rescinded transaction and which
are due to the actions of the equity purchaser. As a condition of the
reconveyance of title, the equity seller shall return to the equity
purchaser any consideration received from the equity purchaser as part
of the original transaction. Upon failure to reconvey title within such
time, the equity seller may bring an action to enforce the rescission
and for cancellation of the covered contract and deed.

(c) The provisions of this subdivision shall not affect the interest
of a bona fide purchaser or encumbrancer for value if such purchase or
encumbrance occurred prior to the recording of the notice of rescission
pursuant to paragraph (b) of this subdivision. Knowledge that the
property was residential real property in foreclosure or, where
applicable, default shall not impair the status of such persons or
entities as bona fide purchasers or encumbrancers for value. This
subdivision shall not be deemed to abrogate any duty of inquiry which
exists as to rights or interests of persons in possession of the
residential real property in foreclosure or, where applicable, default.

(d) In any action brought to enforce a rescission pursuant to this
section, a court may award to a prevailing equity seller costs and
reasonable attorneys' fees.

9. An equity seller may bring an action for the recovery of damages or
equitable relief against an equity purchaser for a violation of
subdivision three, four, six, seven or eleven of this section. A court
may award to a prevailing equity seller actual damages plus reasonable
attorneys' fees and costs. In addition, the court may award equitable
relief, or increase the award in an amount not to exceed three times the
equity seller's actual damages, or both, if the court deems such award
proper. Any action brought pursuant to this section shall be commenced
within six years after the date of the alleged violation.

10. (a)(i) Any equity purchaser who, with intent to defraud, violates
subdivision seven of this section or engages in any practice which would
operate as a criminal fraud or deceit upon an equity seller shall, upon
conviction, be guilty of a class E felony and subject to a fine of not
more than twenty-five thousand dollars, imprisonment in accordance with
the penal law, or both.

(ii) Any equity purchaser who knowingly violates subdivision seven of
this section shall, upon conviction, be guilty of a class A misdemeanor
and subject to a fine of not more than twenty-five thousand dollars,
imprisonment in accordance with the penal law, or both. A second offense
within five years shall be a class E felony and subject to a fine of not
more than twenty-five thousand dollars, imprisonment in accordance with
the penal law, or both.

(b) An equity purchaser who, when acting in good faith, violates
subdivision seven of this section, shall not be deemed to have violated
such subdivision if the equity purchaser:

(i) establishes by a preponderance of the evidence that the compliance
failure was not intentional and resulted from a bona fide error
notwithstanding the maintenance of procedures reasonably adapted to
avoid such errors;

(ii) notifies the equity seller within ninety days of the contract
date of the compliance failure; and

(iii) makes appropriate restitution to the equity seller and
appropriate adjustments to the transaction within ninety days of the
contract date. Examples of bona fide errors include, but are not
limited to, clerical, calculation, computer malfunction and programming,
and printing errors. An error of legal judgment with respect to a
person's obligations under this section is not a bona fide error, nor is
a failure to provide notices or other material information required by
this section.

11. (a) In any transaction in which an equity seller purports to grant
a residence in foreclosure or default to an equity purchaser by any
instrument which appears to be an absolute conveyance and reserves to
himself or herself or is given by the equity purchaser an option to
repurchase, such transaction shall create a presumption that the
transaction is a loan transaction, which may be overcome by clear and
convincing evidence to the contrary, and that the purported absolute
conveyance is a mortgage.

(b) An equity purchaser shall not enter into a reconveyance
arrangement unless:

(i) The equity purchaser verifies by appropriate documentation that
the equity seller has or is likely to have a reasonable ability to pay
for the subsequent conveyance of an interest back to the equity seller.
In the case of a lease with an option to purchase, payment ability also
includes the reasonable ability to purchase the property within the term
of the option to purchase. There is a rebuttable presumption that the
equity purchaser has not verified reasonable payment ability if the
equity purchaser has not obtained documents other than a statement by
the equity seller of assets, liabilities and income. The standard for
determining a reasonable ability to pay shall be the same standard as
set forth in paragraph (k) of subdivision two of section six-l of the
banking law;

(ii) the equity purchaser and the equity seller complete a closing for
any reconveyance arrangement in which the equity purchaser obtains a
deed or mortgage from an equity seller. For purposes of this section,
"closing" means an in-person meeting to complete final documents
incident to the sale of the real property or creation of a mortgage on
the real property conducted by an attorney who is not employed by or an
affiliate of the equity purchaser;

(iii) the equity purchaser obtains the written consent from the equity
seller before the equity purchaser grants any interest in the property
to anyone else during such time as the equity seller maintains an
interest in the property, including an option to repurchase; and

(iv) the equity purchaser notifies all existing mortgage lien holders
of his or her intent to accept conveyance of an interest in the property
from the equity seller, and fully complies with all terms and conditions
contained in the mortgage lien documents, including but not limited to
due-on-sale provisions or meeting all qualification requirements for
assuming the repayment of the mortgage.

(c) An equity purchaser shall not enter into repurchase or lease terms
as part of the reconveyance arrangement that are unfair or commercially
unreasonable, and is prohibited from engaging in any other unfair or
unconscionable conduct.

(d) As part of a reconveyance arrangement, an equity purchaser shall
either:

(i) ensure that title to the residence is reconveyed to the equity
seller; or

(ii) make a payment to the equity seller such that the equity seller
has received consideration in an amount of at least eighty-two percent
of the fair market value of the property within one hundred twenty days
of either the eviction or voluntary relinquishment of possession of the
residence by the equity seller. The equity purchaser shall make a
detailed accounting of the basis for the payment amount, or a detailed
accounting of the reasons for failure to make a payment, including
providing written documentation of expenses, within such one hundred
twenty-day period. The accounting shall be on a form prescribed by the
department of financial services. For purposes of this subparagraph, the
following applies:

(A) there is a rebuttable presumption that an appraisal by a person
licensed or certified by an agency of the federal government or this
state to appraise real estate establishes the fair market value of the
property;

(B) the time for determining the fair market value amount shall be
determined in the reconveyance arrangement as either at the time of the
execution of the reconveyance arrangement or at resale to a bona fide
purchaser. If the covered contract states that the fair market value
shall be determined at the time of resale, the fair market value shall
be the resale price if it is sold within one hundred twenty days of the
eviction or voluntary relinquishment of the property by the equity
seller. If the covered contract states that the fair market value shall
be determined at the time of resale, and the resale is not completed
within one hundred twenty days of the eviction or voluntary
relinquishment of the property by the equity seller, the fair market
value shall be determined by an appraisal conducted within ten days
after the end of such one hundred twenty-day period and payment, if
required, shall be made to the equity seller. If payment is not made to
the equity seller at such time, the fair market value shall be
recalculated as the resale price on resale and payment shall be made to
the equity seller within fifteen days of resale. A detailed accounting
of the basis for the payment amount shall be made within fifteen days of
resale, including providing written documentation of expenses. The
accounting shall be on a form prescribed by the department of financial
services;

(C) "consideration" shall mean any payment or thing of value provided
to the equity seller, including unpaid lease payments owed by the equity
seller prior to the date of eviction or voluntary relinquishment of the
property, reasonable costs paid to third parties necessary to complete
the reconveyance transaction, payment of money to satisfy a debt or
legal obligation of the equity seller or the reasonable cost of repairs
for damage to the dwelling caused by the equity seller beyond ordinary
wear and tear; but shall not include amounts imputed as any fee paid
directly or indirectly to the equity purchaser, or his or her
representative, incident to a reconveyance arrangement, except for
reasonable costs paid to third parties necessary to complete the
reconveyance.

(D) "resale" means a bona fide market sale of the property subject to
the reconveyance arrangement by the equity purchaser to an unaffiliated
third party.

(E) "resale price" means the purchase price of the property on resale.

(e) This subdivision shall not be deemed to abrogate any duty of
inquiry which exists as to rights or interests of persons in possession
of the residential real property in foreclosure or default.

(f) All deeds or conveyances subject to a reconveyance arrangement
shall state explicitly on the face of the document that the conveyance
is subject to a reconveyance arrangement, and shall state the terms of
the reconveyance arrangement. Moreover, all reconveyance arrangements
must be simultaneously recorded by the equity purchaser with the subject
deed in the county clerk's office where the property is located.

12. Any provision of a covered contract which attempts or purports to
limit the liability of the equity purchaser under this section shall be
null and void. Inclusion of such provision shall at the option of the
equity seller render the covered contract void. The equity purchaser
shall be liable to the equity seller for all damages proximately caused
by such provision. Any provision in a covered contract which attempts or
purports to require arbitration of any dispute arising under this
section shall be void at the option of the equity seller.

13. In addition to the other remedies provided, whenever there shall
be a violation of this section, application may be made by the attorney
general in the name of the people of the state of New York to a court or
justice having jurisdiction by a special proceeding to issue an
injunction, and upon notice to the defendant of not less than five days,
to enjoin and restrain the continuance of such violations; and if it
shall appear to the satisfaction of the court or justice that the
defendant has, in fact, violated this section, an injunction may be
issued by such court or justice, enjoining and restraining any further
violation, without requiring proof that any person has, in fact, been
injured or damaged thereby. In any such proceeding, the court may make
allowances to the attorney general as provided in paragraph six of
subdivision (a) of section eighty-three hundred three of the civil
practice law and rules, and direct restitution. Whenever the court shall
determine that a violation of this section has occurred, the court may
impose a civil penalty of not more than twenty-five thousand dollars for
each violation. In connection with any such proposed application, the
attorney general is authorized to take proof and make a determination of
the relevant facts and to issue subpoenas in accordance with the civil
practice law and rules.

14. This section shall not apply to a prior lien holder where the lien
was properly recorded prior to the execution of any covered contract by
both the equity seller and the equity purchaser nor shall any provision
of this section be deemed to impair any equity or other available rights
of any such prior lien holder.

15. The provisions of this section shall be liberally construed to
effectuate the intent and to achieve the purposes set forth in
subdivision one of this section.

16. The provisions of this section are not exclusive and are in
addition to any other requirements, rights, remedies, and penalties
provided by law.

17. Any waiver of the provisions of this section shall be void and
unenforceable as contrary to the public policy.

18. If any provision of this section, or if any application thereof to
any person or circumstances is held unconstitutional, the remainder of
this section and the application of its provisions to other persons and
circumstances shall not be affected thereby.