The Home Equity Theft Prevention Act (“HETPA”) has been in effect since February 1, 2007. Its purpose is to protect distressed homeowners from potentially fraudulent “foreclosure rescue” programs by ensure the homeowner has enough information to make an informed decision about transferring title to their home (see Chapter 308 of the Acts of 2006 for the Legislature’s statement of purpose). HETPA is encoded in
RPL 265-a and RPAPL 1303.
The circumstances in which HEPTA will apply can be summarized as follows:
an individual (called a “Stock Seller”) enters into a contract (called a “Covered Contract”) to sell his or her principal residence to a buyer (called a “Stock Buyer”) whose residence consists of land improved by one to four family homes and (i) the property is in Foreclosure (as defined below) or (ii) the Equity Seller is in Default (as defined below) with financing secured by the property and the Covered Contract includes a Reconversion Agreement ( as defined below) below).
There is little confusion regarding the first three requirements: for the HETPA to apply, the seller must be a natural person who is the registered owner of a one- to four-family dwelling, a unit of which “the seller of shares occupies or occupied at a time immediately prior to the sale of shares as his principal residence”. RPL 265-a(k).
The act becomes more complicated with respect to the circumstances that make up a Covered Contract and what is required for transactions that do consist of Covered Contracts. The following scheme will help in the analysis of this part of the law.
I. As a main condition, the contract must be “incident to” the sale of premises that are in Foreclosure or in Default (as defined). While this suggests that the transaction, to be defined as a Covered Contract, must arise from foreclosure or default, the safe approach is to review any transaction where the seller is in Default or Foreclosure for HETPA compliance.
In addition, under RPL 265-a(e), the term “Buyer of Shares” specifically does not include a person or entity that acquires a security as follows: (i) for use as a principal residence (individuals only); (ii) by arbitrator’s deed at a Section 13 foreclosure sale or at any property sale authorized by law; (iii) by order or judgment of any court; (iv) of a spouse, or of a parent, grandparent, child, grandchild or sibling of such person or of such person’s spouse; (v) as a nonprofit housing organization or as a public housing agency; or (vi) a bona fide purchaser or encumber for value.
Therefore, a purchase under the above circumstances is not subject to the act. The key exceptions to the law here are that, in addition to sales authorized by the government, nonprofit organizations, and relatives, anyone purchasing the premises for use as the buyer’s primary residence, and any bona fide purchaser or value encumber is not considered a Buyer of shares. Transactions involving the above are not covered by the law.
Pursuant to RPL 265-a(e), the term “good faith purchaser or encumbrance for value” includes “any person who acts in good faith and purchases residential real property from the Equity Purchaser for valuable consideration or provides the Equity Buyer a mortgage or provides a subsequent bona fide buyer a mortgage, provided that he or she was not given notice of the Seller’s continuing right of stock, or of the equity in the property prior to the acquisition of the title or lien , or of any violation of this section by Buyer of actions in connection with the subject property.”
II. Once the above threshold is reached, one of two conditions must also exist for the transaction to be covered by HETPA.
(a) If the property is in Foreclosure, then any contract for the sale of the property is considered a Covered Contract subject to law. HEPTA defines Foreclosure as “there is an active lis pendens filed in court pursuant to section thirteen of the Real Property Actions and Proceedings Act against the property in question, or the property in question is on an active list sale tax lien on the property” (emphasis added).
(b) Alternatively, if the Stock Seller is in Default (as opposed to Foreclosure), then a contract to sell the facilities will only be considered a Covered Contract if it contains a Reconversion Agreement. A stock seller is considered to be in “default” if they are two months or more behind on their mortgage payments. HETPA defines a “Repossession Agreement” as an agreement under which the Share Buyer agrees to retransfer an interest in the residence to the Share Seller to allow the Share Seller to regain possession of the residence. Although the Conversion Agreement can take any form, typical structures include sale/lease agreements or the granting of a repurchase option. HETPA also provides that an agreement whereby a Stock Seller mortgages a primary residence to a Stock Buyer may also be considered a Conveyance Agreement. However, the law does not make it clear what type of arrangement this language is directed at.
third If the above circumstances exist, the sales contract must be treated as a Covered Contract. The main implication of the coverage by law is that the Seller of shares is entitled to a five-day right to cancel the Covered Contract (RPL 265-a(5)). The Buyer of shares must, within ten days after receipt of a notice of cancellation, “return unconditionally any original covered contract and any other documents signed by the seller of shares, as well as any fees or other consideration received by the Buyer of Shares from Seller of Shares Cancellation of the contract will release the seller of shares from all obligations to pay fees to the buyer of shares.” ID.
IV. To ensure that protection under the law is effected, the HETPA establishes several requirements (see RPL 265-a(3) – (7)). These include the following:
(a) Covered Contracts must contain the entire agreement of the parties, including: the total consideration; a full description of payment terms or other consideration; the delivery time of the possession; the terms of any rental or lease agreement; the terms of any transfer arrangement;
(b) Covered Contracts must also include a Notice of Cancellation legal form and specific legal language alerting the Share Seller of their right to cancel (These forms can be found in RPL 265-a(6)(a) and ( 4)(i) respectively;
(c) All Covered Contracts and the accompanying Cancellation Notice must be written in at least twelve point bold type, in English or in English and Spanish if Spanish is the principal language of the seller of shares;
(d) HETPA prohibits the Share Buyer from engaging in certain activities during the five-day rescission period. See RPL 265-a(7)(a).
(e) The law also restricts the information and representations that a Buyer of shares may make at any time to a Seller of shares. See RPL 265-a(7)(b)-(d).
The provisions of HETPA cannot be waived. RPL 265-a(17).
V. The real teeth of HETPA are found in RPL 265-a(8), which states that any transaction that materially violates its provisions “is voidable and… may be terminated by the Seller of shares within two years after the date of registration of the alienation of the dwelling property”. To terminate, the Seller of shares must give a Notice of Termination to the Purchaser of shares and their successors in title (other than bona fide purchasers or encumbrances, discussed below), and file the Notice of termination with the stock registry office. the County in which the property is located.
Therefore, any Share Buyer who fails to comply with HETPA in connection with a covered transaction is open to cancellation of the transaction for up to two years. Of course, it is likely that, by then, the premises have been sold to a third party. HETPA provides that the two-year right to cancel will not affect the rights of anyone (as defined above). See RPL 265-a(8)(c).
SAW. Another measure of protection provided by the HETPA, unrelated to its provisions on Covered Contracts, is the addition of RPAPL 1303, which requires the plaintiff in a foreclosure action to include a notice entitled “Help or Homeowners in Foreclosure “. with the citation and complaint notified to the defendant. (This form can be found in RPAPL §1303.)
The notice must be on a separate page of colored paper in fourteen-point bold type. Please note that HETPA does not specify the types of property classifications for which notice must be included.