New York Regulatory Update

New York Regulatory Update

 

The New York Department of Financial Services (“Department”) promulgated Part 422 of Title 3 of the Codes, Rules and Regulations (the “Rule”), addressing lenders’ obligations to inspect, secure and maintain vacant and abandoned 1-4 family residential real properties.  These rules are effective December 20, 2016.

 

New York Department of Financial Services 3 NYCRR 422

 

Additionally, the Rule establishes a statewide vacant and abandoned property registry in an electronic database to be maintained by the Department.   Recently enacted sections 1308 and 1310 of the New York Real Property Actions and Proceedings Law are the basis for this rule.  Those sections of the law specify certain obligations as follows:

 

Section 1308

  • Applies only to vacant and abandoned 1-4 family residential real property; any duties and responsibilities apply only to the first lien mortgage holder;
  • Does not apply to state or federally chartered banks, savings banks, savings and loan associations, or credit unions, which meet certain criteria;
  • Within 90 days of a borrower’s delinquency, the servicer must complete an exterior inspection of the property to determine occupancy; and thereafter, throughout delinquency, conduct exterior inspection every 25-35 days, at different times of the day;
  • If borrower is delinquent and subject to property inspections (as described above), and the servicer has a reasonable basis to believe that the property is vacant and abandoned (and is not otherwise restricted from accessing the property), the servicer must secure and maintain the property as described below;
  • Within 7 business days of determining that the property is vacant and abandoned, the servicer must post a notice on an easily accessible part of the property that would be reasonably visible to borrower, property owner or occupant; and continue to monitor that the notice remains posted; the notice must provide the servicer’s toll free number and contact information;
  • If there is no response to the posted notice and there is no contact with the borrower, property owner or occupant for 7 consecutive calendar days, or if there is an emergent property condition that could reasonably damage, destroy or harm the property, the servicer must:
  • If the property contains 2 or more points of ingress or egress, replace no more than 1 door lock to provide subsequent access to the property;
  • Secure, replace or board broken doors and windows;
  • Secure any part of the property that may be deemed an attractive nuisance including, but not limited to, a water feature that could create a drowning risk, refrigerator or freezer units, outbuildings, wells or septic tanks;
  • Take reasonable measures to ensure that pipes, ducts, conductors, fans and blowers do not discharge harmful gases, steam, vapor, hot air, grease, smoke, odors or other gaseous or particulate waste directly upon abutting or adjacent public or private property or that of another tenant;
  • Where appropriate, winterize the plumbing and heating systems;
  • Provide basic utilities including, but not limited to, water, electricity, natural gas, propane and sewer service, as appropriate and when allowed by the local utility provider, that are needed for the operation of a sump pump or dehumidifier, or when there are jointly owned or shared utilities with adjoining properties or units, except for turning off water service to prevent flooding or water leaks or when other utility service could reasonably create a hazard to the property or an unauthorized occupant or person entering the property;
  • Remove and remediate any significant health and safety issues, including outstanding code violations;
  • Take reasonable measures to prevent the growth of harmful mold;
  • Respond to government inquiries regarding property condition subject to restrictions regarding financial privacy; and
  • Ensure that the notice required to be posted remains posted.
  • A servicer must not ever remove personal property from the property unless
  • It poses a significant health and safety issue; or
  • There is an uncontested order to do so by a governmental entity.

 

A servicer, who has determined that a property is vacant and abandoned and has secured it, must take reasonable and necessary actions to maintain the property until the earlier of:

  • An occupant has asserted his/her right to occupy the property, or the servicer (or its agents) have received threats of violence;
  • Borrower files for bankruptcy;
  • Court has ordered the servicer to stop maintenance of the property;
  • Homeowners’ association or cooperative has prevented the servicer from gaining access to or maintaining the property;
  • The property is sold or transferred to a new owner;
  • Servicer or investor releases the lien on the property; or
  • Mortgage note is assigned, transferred or sold to another servicer.

 

“Reasonable and necessary actions” includes those actions set forth above, as well as maintaining the property consistent with the standards in the New York Property Maintenance Code, to the extent that the servicer is able to obtain required permits or approvals.

 

A servicer who peacefully enters a vacant and abandoned property in order to maintain it in accordance with the above requirements is immune from liability when making reasonable efforts to comply.

 

This section is subject to federal laws, court orders and investor and insurer guidelines.

 

Even if Section 1308 does not apply to an entity, any agreement between that entity and the Department that is associated with the maintenance and repair of vacant and abandoned property will remain in full force and effect for as long as the terms and conditions of the agreement remain in effect.

 

Section 1310

  • The Department must establish and maintain a statewide vacant and abandoned property registry in an electronic database;
  • A lender, assignee or mortgage loan servicer must submit or cause to be submitted to the Department information about vacant and abandoned residential real property, as defined by the Department, within 21 business days of when it learned, or should have learned, that a property is vacant and abandoned;
  • If any information in an initial submission to the registry has materially changed, the lender, assignee or servicer must make an amended submission not later than 30 days after it learns, or reasonably should have learned, of the new information.

 

3 NYCRR 422 – implementation of Sections 1308 and 1310

 

Definitions set forth in the Rule include, among others:

  • “Mortgage” means a lien upon residential real property as is commonly given to secure advances on, or the unpaid purchase price of, real property under the laws of New York, together with the credit instrument or instruments, if any, secured thereby.
  • “Residential real property” means real property located in New York improved by any building or structure that is or may be used, in whole or in part, by not less than one nor more than 4 families.
  • “Vacant and abandoned” means residential real property as to which at least one of the following 3 conditions applies:
  • At 3 consecutive inspections of such property by the mortgagee or its agent, with each inspection conducted 25-35 days apart and at different times of the day.
  • No occupant was present and there was no evidence of occupancy on the property to indicate that any persons are residing there; and
  • The residential real property was not being maintained in a manner consistent with the standards set forth in New York property maintenance code; or
  • A court or other appropriate state or local governmental entity has formally determined, following due notice to the borrower at the property address and any other known addresses, that such residential real property is vacant and abandoned; or
  • Each borrower and owner has separately issued a sworn written statement, expressing his or her intent to vacate and abandon the property and an inspection of the property shows no evidence of occupancy to indicate that any persons are residing there.

 

The obligations imposed by Section 1308 shall apply to every vacant and abandoned residential real property, irrespective of when the mortgage on the property was originated or became delinquent or when the property became vacant and abandoned, except as described below.

 

For each calendar year, the obligations do not apply during that calendar year to a mortgagee that is able to establish all of the following:

  • It is a state or federally chartered bank, savings bank, savings and loan association, or credit union;
  • It engages in mortgage origination and mortgage ownership during the calendar year; and
  • It had less than 3/10 of one percent of the total loans in New York which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending 2 years prior to the current calendar year (the method of calculating this is set forth in the rule).

 

The obligations under Section 1308 do not apply to residential real property when the mortgage became delinquent before December 20, 2016, if a mortgagee is able to establish all of the following:

  • It is a state or federally chartered bank, savings bank, savings and loan association, or credit union;
  • It engages in mortgage origination and mortgage ownership during the calendar year; and
  • It has between 3/10 of one percent and 5/10 of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending 2 years prior to the current calendar year (the method of calculating this is set forth in the rule).

 

The burden of proving an exemption is upon the mortgagee claiming it.  A mortgagee must submit to the Department by February 28, 2017 for the 2017 calendar year and for each calendar year thereafter, by December 31 of the preceding year, on the form required by the Department, a statement providing the basis for satisfying all of the relevant requirements (as set forth above).  The Rule sets forth the deadlines for establishing an exemption or for taking the required actions, if not exempt.

 

The Rule also specifies the requirements for compliance with Section 1310.  Within 21 business days of when a mortgagee or mortgage loan servicer learns, or should have learned, that a property is vacant and abandoned, the mortgagee or mortgage loan servicer must submit or cause to be submitted on the form prescribed by the Department the following information:

  • Address of the subject property;
  • Current name, address and contact information for the lender, assignee or mortgage loan servicer responsible for maintaining the subject property;
  • Whether a foreclosure proceeding has been commenced as to the subject property, and if so, the date the proceeding was commenced and the status of the proceeding;
  • Name, last known address and contact information for the mortgagor(s) of record; and
  • Any additional information requested by the Department.

 

A mortgagee or mortgage loan servicer learns, or should have learned, that a property is vacant and abandoned when it knew or should have known one or more of the conditions set forth in the definition of “Vacant and Abandoned.”

 

The information submitted to the Department will be included in the statewide vacant and abandoned property registry.

 

The current law (Section 1306) requires a lender, assignee, or mortgage loan servicer to file notice with the Department within 3 business days of the mailing of the 90-day notice (“You Could Lose Your Home”) that must be sent before commencing foreclosure action.   The Rule requires that, at the time of this 1306 filing, the mortgagee must state whether the relevant property has been inspected and whether the mortgagee has any reason to believe that the property is vacant and abandoned and the basis for that belief.  All mortgagees subject to this requirement must provide quarterly reporting as described below.  If property was previously reported as vacant and abandoned, the mortgagee must provide the information required by this Rule by February 1, 2017.

 

Every mortgagee that is not exempt from Section 1308 must file with the Department, on a form that may be prescribed by the Department, a quarterly report containing the following information:

  • Identification of all loans secured by a mortgage on residential real property held by the mortgagee where the borrower has been delinquent for 90 or more days;
  • For each loan, the following:
  • Address of the subject property;
  • Date on which each inspection to determine occupancy was conducted
  • Date on which a determination was made that the property was vacant and abandoned;
  • Date on which the required notice was posted on the property;
  • Identification of all actions to secure and maintain the property that have been taken, the date each action was taken, and the nature of each action;
  • Whether a foreclosure proceeding has been commenced and, if so, the date of commencement and the status.
  • Any additional information requested by the Department.

 

The quarterly report must be filed within 30 days of the end of the calendar quarter, except none is required for quarter ending December 31, 2016.

 

Every mortgagee not exempt from Section 1308, must maintain for production and inspection all books and records documenting all actions to secure and maintain the property, the date each action was taken, the nature of each action, the identity and employer of the person who performed each action, and all other information necessary to evidence compliance.

 

The obligations under Section 1310 for reporting apply to both the mortgagee and the servicer of every vacant and abandoned property, provided that only one filing is required for each property.

 

If a specific provision of Section 1308 is directly inconsistent with a federal law or court order, that provision will not be applied to the mortgagee.   If a specific provision of Section 1308 imposes an obligation on a mortgagee that is greater than what is imposed by federal law or court order or if there is no similar provision in federal law or a court order, the provision is not deemed to be directly inconsistent.

 

If Fannie Mae or Freddie Mac requires that the servicing of a specific mortgage comply with the investor or insurer guidelines issued by Fannie Mae or Freddie Mac, respectively, compliance with the property preservation requirements in those guidelines shall be deemed to be compliance with Section 1308.  If the requirements in investor or insurer guidelines issued by Fannie Mae or Freddie Mac, respectively, change after December 20, 2016, compliance with such future requirements shall be deemed to be in compliance with Section 1308 only if those new requirements impose the same or greater requirements as compared to the requirements included in the guidelines in effect on December 20, 2016.

 

Information maintained in the registry under Section 1310 is deemed and treated as confidential and is exempt from disclosure under New York’s Freedom of Information Law.   The Department, in its sole discretion, may release any information in the registry if it is determined that such disclosure is in the best interest of the public.