On April 12, 2018, New York Governor Mario Cuomo signed A90508C into law. The new legislation, part of a larger omnibus budget bill, corrects technical glitches with the effective date made in 2017 and now includes reverse mortgages within the statutory definition of "home loan" applicable to foreclosures of one-to-four family residential real property. The new legislation amends the New York Real Property Actions and Proceedings Law (N.Y. RPAPL § 1304) and the Civil Practice Law and Rules (N.Y. CPLR 3408), mandating:

The law has a retroactive effective date of April 20, 2017 (the date that last year's defective reverse mortgage bill was intended to take effect), except that the new reverse mortgage pre-foreclosure notice requirements became effective May 12, 2018.

Although privately sponsored reverse mortgages exist, most reverse mortgages are part of the United States Department of Housing and Urban Development (HUD) Home Equity Conversion Mortgage (HECM) program and are insured by the Federal Housing Authority (FHA). Reverse mortgages are generally available to individuals who:

A reverse mortgage allows older homeowners to take loans using the equity in their homes as collateral. A reverse mortgage is intended to provide senior citizens living on fixed incomes with the resources to continue living in their homes by providing annuity-type payments secured by a lien on their property. The loans do not need to be repaid until the borrower dies or the home is sold, at which time the loan becomes due. At that time, any equity remaining in the property after the repayment of the loan and lender fees goes to the homeowner or their heirs.

Under the terms of a reverse mortgage, borrowers do not make payments of principal and interest on the loan while living in the home, but generally remain responsible for property charges which if unpaid can result in loan defaults, such as:

While reverse mortgages have been criticized for being predatory in nature particularly due to the high rate of foreclosures on reverse mortgages, they are increasingly popular with seniors who have equity in their homes and want to supplement their income. In New York, the Governor's Office launched initiatives to educate and protect vulnerable elderly residents from the risks associated with reverse mortgages, including advocating legislation to extend to reverse mortgage borrowers consumer protections available to other residential borrowers.

By including reverse mortgages within the statutory definition of home loan, N.Y. CPLR 3408 now applies to require the reverse mortgage lender and borrower to participate in a mandatory settlement conference in the foreclosure action of the real property secured by the mortgage.

N.Y. CPLR 3408(a) contains exceptions from the settlement conference requirement for certain reverse mortgage defaults triggered by the death of the last surviving spouse.

N.Y. RPAPL § 1304(1-a) requires reverse mortgage lenders or mortgage loan servicers to provide borrowers with a statutory form notice at least 90 days before filing a foreclosure action. This notice must:

In addition to clearly stating the reasons for the loan default and giving the borrower the opportunity to cure them before the foreclosure case is initiated, the form includes borrower's rights information, and toll-free helpline and online contacts for the New York State Department of Financial Services. For an overview of various alternatives to foreclosure proceedings for residential mortgage loans in New York, see Practice Note, Residential Foreclosure Alternatives (NY).

The notice must be sent separately from any other mailing or notice to the borrower by registered or certified mail and by first-class mail at:

Notice is considered given on the date it is mailed. This is the only pre-foreclosure notice that the statute requires for reverse mortgage foreclosures. Reverse mortgage lenders are not required to also send the pre-foreclosure notices that apply to other home loans under the statute.

By including reverse mortgages under the statutory definition of home loan, reverse mortgage lenders must now file a "certificate of merit" with the foreclosure complaint as provided in N.Y. CPLR 3012-b. A certificate of merit is signed by the plaintiff's attorney, certifying that to the best of the attorney's knowledge, information, and belief, after consultation with the lender and review of the pertinent loan documents, that:

The effect of the new legislation will now require reverse mortgage lenders to make an informational filing with the Superintendent of Banks for the New York State Department of Financial Services (DFS) within three business days of mailing the pre-foreclosure 90-day notice to the borrower.

The DFS places this information in its electronic database to track state-wide foreclosure filings and to identify at-risk borrowers that could benefit from loan counseling or other foreclosure prevention services.

N.Y. RPAPL § 1306 sets forth the information that the lender must provide the DFS and requires that compliance with its provisions be affirmatively alleged in any foreclosure complaint.

This legislation is significant because it recognizes reverse mortgages to be home loans and extends to elderly reverse mortgage borrowers many of the consumer protections already available to New York conventional home loan borrowers. The new legislation also creates new regulatory demands on reverse mortgage lenders. Failure to follow any of the new requirements could result in a lender's loss of its entitlement to a foreclosure judgment.

For more information on changes to residential foreclosure requirements in New York that now apply to reverse mortgages, see Legal Update, New York Enacts Law Affecting Mandatory Foreclosure Settlement Conferences.

For more information on recent changes to HUD rules and other legal developments affecting HECM reverse mortgages, see Legal Update, HUD Changes Reverse Mortgage Rules and Congress Proposes Legislation to Protect Elderly Borrowers.