| The Home Equity Theft Prevention Act ("HETPA") | | | | Seller is deemed to be in "Default" if he or she is two |
| has been in effect since February 1, 2007. Its | | | | months or more behind in his or her mortgage |
| purpose is to protect distressed homeowners from | | | | payments. HETPA defines a "Reconveyance |
| potentially fraudulent "foreclosure rescue" programs | | | | Agreement" as an agreement under which the Equity |
| by assuring that the homeowner has sufficient | | | | Purchaser agrees to reconvey an interest in the |
| information to make an informed decision about the | | | | residence back to the Equity Seller to enable the |
| transfer of title to his or her home (see Chapter 308 | | | | Equity Seller to regain possession of the residence. |
| of the Laws of 2006 for the Legislature's statement | | | | Although the Reconveyance Agreement can be in |
| of purpose). HETPA is codified in | | | | any form, typical structures include sale/leaseback |
| RPL 265-a and RPAPL 1303. | | | | arrangements or the grant of an option to |
| The circumstances under which HEPTA will apply can | | | | repurchase. HETPA also provides that an |
| be summarized as follows:a natural person (called an | | | | arrangement whereby an Equity Seller mortgages a |
| "Equity Seller") enters into a contract (called a | | | | principal residence to an Equity Purchaser may also be |
| "Covered Contract") to sell his or her principal | | | | deemed to be a Reconveyance Agreement . |
| residence to a buyer (called an "Equity Purchaser") | | | | However, the act does not clarify what type of |
| which residence consists of land improved by a one | | | | arrangement is targeted by this language. |
| to four family dwelling and (i) the premises is in | | | | III. If the foregoing circumstances exist, the contract |
| Foreclosure (as defined below) or (ii) the Equity Seller | | | | of sale should be treated as a Covered Contract. |
| is in Default (as defined below) under financing | | | | The main implication of coverage by the act is that |
| secured by the premises and the Covered Contract | | | | the Equity Seller is entitled to a five day right of |
| includes a Reconveyance Agreement (as defined | | | | cancellation of the Covered Contract (RPL 265-a(5)). |
| below). | | | | The Equity Purchaser must, within ten days following |
| There is little confusion regarding the first three | | | | receipt of a notice of cancellation, "return without |
| requirements - in order for HETPA to apply, the seller | | | | condition any original covered contract and any other |
| must be a natural person who is the record title | | | | documents signed by the equity seller as well as any |
| holder of a one to four family dwelling one unit of | | | | fee or other consideration received by the equity |
| which "the equity seller occupies or occupied at a | | | | purchaser from the equity seller. Cancellation of the |
| time immediately prior to the equity sale as his or her | | | | contract shall release the equity seller of all obligations |
| primary residence." RPL 265-a(k). | | | | to pay fees to the equity purchaser." Id. |
| The act becomes trickier with regard to the | | | | IV. To ensure that protection under the act is |
| circumstances comprising a Covered Contract and | | | | effectuated, HETPA sets forth several requirements |
| what is mandated for transactions which do consist | | | | (see RPL 265-a(3) - (7)). These include the following: |
| of Covered Contracts. The following outline will aid in | | | | (a) Covered Contracts must contain the entire |
| the analysis of this portion of the act. | | | | agreement of the parties, including: the total |
| I. As a primary condition, the contract must be | | | | consideration; a complete description of the terms of |
| "incident to" the sale of premises that are either in | | | | payment or other consideration; the time for delivery |
| Foreclosure or in Default (as defined). Although this | | | | of possession; the terms of any rental or lease |
| suggests that the transaction, in order to be defined | | | | agreement; the terms of any reconveyance |
| as a Covered Contract, must arise out of the | | | | arrangement; |
| foreclosure or default, the safe approach is to | | | | (b) Covered Contracts must also include a statutory |
| analyze any transaction in which the seller is in | | | | form of Notice of Cancellation and specific statutory |
| Default or in Foreclosure for compliance with HETPA. | | | | language alerting the Equity Seller to their right to |
| Additionally, under RPL 265-a(e) the term "Equity | | | | cancel (These forms may be found in RPL |
| Purchaser" specifically does notinclude a person or | | | | 265-a(6)(a) and (4)(i) respectively; |
| entity acquiring title as follows: (i) for use as a | | | | (c) All Covered Contracts and Notice of Cancellation |
| primary residence (natural persons only); (ii) by | | | | attached thereto must be written in at least |
| referee's deed in an Article 13 foreclosure sale or at | | | | twelve-point bold type, in English or in both English |
| any sale of property authorized by statute; (iii) by | | | | and Spanish if Spanish is the primary language of the |
| order or judgment of any court; (iv) from a spouse, | | | | equity seller; |
| or from a parent, grandparent, child, grandchild or | | | | (d) HETPA prohibits the Equity Purchaser from |
| sibling of such person or such person's spouse; (v) as | | | | engaging in certain activities during the five day |
| a not-for-profit housing organization or as a public | | | | rescission period. See RPL 265-a(7)(a). |
| housing agency; or (vi) a bona fide purchaser or | | | | (e) The act also restricts the information and |
| encumbrancer for value. | | | | representations that may be made at any time by an |
| Thus, a purchase under the foregoing circumstances | | | | Equity Purchaser to an Equity Seller. See RPL |
| is not subject to the act. The key exceptions to the | | | | 265-a(7)(b)-(d). |
| act here are that, in addition to government | | | | The provisions of HETPA may not be waived. RPL |
| sanctioned sales, non-profits and relatives, anyone | | | | 265-a(17). |
| purchasing the premises for use as the purchaser's | | | | V. The real teeth in HETPA comes in RPL 265-a(8), |
| own primary residence and any bona fide purchaser | | | | which provides that any transaction which is in |
| or encumbrancer for value is not deemed to be an | | | | material violation of its provisions "is voidable and . . . |
| Equity Purchaser. Transactions involving the foregoing | | | | may be rescinded by the Equity Seller within two |
| are not covered by the act. | | | | years of the date of the recording of the |
| Pursuant to RPL 265-a(e), the term "bona fide | | | | conveyance of the residential real property". In order |
| purchaser or encumbrancer for value" includes | | | | to rescind, the Equity Seller must give a Notice of |
| "anyone acting in good faith who purchases the | | | | Rescission to the Equity Purchaser and his or her |
| residential real property from the Equity Purchaser | | | | successors in interest (other than bona fide |
| for valuable consideration or provides the Equity | | | | purchasers or encumbrancers, discussed below), and |
| Purchaser with a mortgage or provides a subsequent | | | | record the Notice of Rescission in the recording |
| bona fide purchaser with a mortgage, provided that | | | | office of the County in which the property is located. |
| he or she had no notice of the Equity Seller's | | | | Therefore, any Equity Purchaser who fails to maintain |
| continuing right in, or equity in, the property prior to | | | | compliance with HETPA in connection with a covered |
| the acquisition of title or encumbrance, or of any | | | | transaction leaves itself open to cancellation of the |
| violation of this section by the Equity Purchaser as | | | | transaction for up to two years. Of course, it is likely |
| related to the subject property." | | | | that, by that time, the premises will have been sold |
| II. Once the foregoing threshold is met, one of two | | | | to a third party. HETPA provides that the two year |
| conditions must also exist in order for the transaction | | | | right of cancellation shall not affect the rights of any |
| to be covered by HETPA. | | | | (as defined above). See RPL 265-a(8)(c). |
| (a) If the premises are in Foreclosure, then any | | | | VI. One other protective measure that HETPA |
| contract for the sale of the premises is deemed to | | | | provides, which is unrelated to its provisions regarding |
| be a Covered Contract subject to the act. HEPTA | | | | Covered Contracts, is the addition of RPAPL 1303, |
| defines Foreclosure to mean that "there is an active | | | | which requires the plaintiff in a mortgage foreclosure |
| lis pendens filed in court pursuant to article thirteen of | | | | action to include a notice entitled "Help or |
| the real property actions and proceedings law against | | | | Homeowners in Foreclosure." with the summons and |
| the subject property, or the subject property is on | | | | complaint served upon the defendant. (This form |
| an active property tax lien sale list" (emphasis added). | | | | may be found in RPAPL §1303.) |
| (b) Alternatively, if the Equity Seller is in Default (as | | | | The notice must be on a separate page of colored |
| opposed to Foreclosure), then a contract to sell the | | | | paper in bold, fourteen-point type. Note that HETPA |
| premises will only be deemed a Covered Contract if | | | | does not specify the types of property classifications |
| it contains a Reconveyance Agreement. An Equity | | | | for which the notice must be included. |