Bill S19-2013

Enacts the Home Equity Fraud Act to control improper activities by home improvement contractors and finance companies

Enacts the "Home Equity Fraud Act" to control improper activities by home improvement contractors and finance companies; prohibits mortgage brokers or agents from acting as home improvement contractors; provides additional protections for mortgagors and home owners.

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  • Jan 8, 2014: REFERRED TO BANKS
  • Jan 9, 2013: REFERRED TO BANKS

Memo

BILL NUMBER:S19

TITLE OF BILL: An act to amend the banking law, the real property law, the real property actions and proceedings law, the general business law and the general obligations law, in relation to enacting the "Home Equity Fraud Act"

PURPOSE OR GENERAL IDEA OF BILL: The purpose of the bill is to end the practice of allowing mortgage, companies, mortgage brokers and home improvement contractors to join together to encourage lower or fixed income New Yorkers with substantial equity in their homes, to obtain mortgages with unaffordable terms which ultimately result in the loss of their homes.

SUMMARY OF SPECIFIC PROVISIONS: Section 1. Short Title

Section 2. Legislative findings

Section 3. Amends the banking law, subdivision 1 of section 595-a by adding four new paragraphs (i), (j), (k) and (l). Requires mortgage bankers and brokers to disclose their affiliation with home improvement contractors and limits the fees they can charge for their services rendered in connection with the financing or refinancing of home equity loans. It also restricts the practice of flipping a mortgage, i.e. refinancing the same mortgage in order to charge additional fees.

Section 4. Amends the banking law, paragraph (d) of subdivision 3 of section 595-a, as relettered by chapter 400 of the laws of 1993, is relettered paragraph (e) and a new paragraph (d) is added. Requires bankers and brokers to disclose whether the loan will be sold and if so to whom it will be sold and thereafter prohibits any sale of the loan until thirty days after such disclosures are made. It also requires bankers and brokers to give all borrowers a notice setting forth their right to designate a third party to receive copies of all written communications regarding the loan.

Section 5. Amends the banking law, section 347 by adding a new subdivision (e). Requires that licensed lenders shall not be allowed to accept any money from home improvement contractors without fully disclosing their relationship and getting the customer's permission.

Section 6. Amends the banking law, section 592-a by adding a new subdivision 3. Provides that Mortgage brokers shall be deemed to be agents of mortgage bankers making the bankers responsible for their actions.

Section 7. Amends the real property law by adding a new section 254-e. Prohibits the inclusion of a provision allowing for balloon payments, negative amortizations and increased interest after default in any mortgage which refinances a primary residence.

Section 8. Amends the real property actions and proceedings law by adding a new section 1308. Requires that all defendants in foreclosure actions be served with a notice stating clearly that the action may result in the loss of their home and listing certain defenses that may be available.

Section 9. Amends the real property actions and proceedings law by adding a new section 1309. Requires that a plaintiff in a foreclosure action to affirmatively plead compliance with all the provisions of section 595-a of the banking law. It also creates certain affirmative defenses to a mortgage foreclosure action, namely: (1) that at the time of the origination of the loan the mortgagor did not have the ability to afford the loan and the financial institution making the loan knew or should have known this, (2) that the lender violated section 595-a of the banking law and (3) that the mortgage document contains a provision prohibited by section 254-e of the real property law. Employment status, fixed income, receipt of public assistance and payments in excess of fifty per cent of income are all factors that can be considered by the court. In addition, the court may award reasonable attorney fees to the defendant in such foreclosure action.

Section 10. Amends the general business law, paragraph (h) of subdivision 1 of section 771. Requires require that the buyer shall have 15 days to cancel a home improvement contract.

Section 11. Amends the general business law by adding a new section 771-b. Makes it illegal for a home improvement contractor to receive anything of value for placing a home improvement loan with a bank unless such relation is disclosed to the customer and the customer's approval is obtained for the transaction. Requires that the buyer shall have 15 days to cancel a home improvement contract and that notice of this right to cancellation shall be given to the customer at signing or the contract shall not be enforceable. In addition, a homeowner may waive the right to cancel a home improvement contract if the home improvement is needed to meet a bona fide emergency.

Section 12. Amends the general obligations law by adding a new section 5-336. Provides that loans made in violation of section 595-a of the banking law are unenforceable and no default judgment can be rendered on a default of such loan unless the court makes an affirmative finding that the section has been complied with. It also provides that the same affirmative defenses which would be available in an action for foreclosure are available in an action for default of the underlying note and allows the court to award reasonable attorney fees.

Section 13. Effective Date

EFFECTS OF PRESENT LAW WHICH THIS BILL WOULD ALTER: This bill would institute a series of changes in statute which will prohibit the practice of lending money to be secured by a mortgage on the home of a person who cannot afford the terms of that mortgage. It would also limit the fees that mortgage bankers and brokers can charge on refinancing and would limit the enforceability of loans and mortgages made in violation of the various provisions of this bill.

JUSTIFICATION: Many seniors on fixed incomes who own homes with substantial equity have been approached by unscrupulous home improvement contractors working in conjunction with fringe financial companies. The contractor talks them into minor repairs on their homes which they mayor may not need and then arranges for "easy" financing. The mortgage company or mortgage broker then offers to refinance the existing mortgage (often increasing the rate), to finance the repairs and to consolidate all of the existing credit card debt (converting unsecured debt into secured debt). Before long the senior is signing documents refinancing their home and incurring the responsibility for paying a mortgage which the senior cannot afford. By increasing the principal of the loan and by charging high rates, large fees are earned by the mortgage brokers and mortgage bankers as well as the home improvement contractor. Shortly after the closing, the finance company sells the mortgage to a bank or combines it for sale as mortgage securities thus relieving itself of the liability and providing resources for the cycle to begin again. The senior, meanwhile, is unable to make the mortgage payments and loses their home to a foreclosure action. Often this problem is compounded by the fact that most victims cannot afford an attorney to defend the foreclosure action.

While the industry rate for foreclosures is about 2.6%, the rate for some of the lenders in New York City who engage in this sort of scheme is as high as 13%. A recent New York Times article reported that the New York City Department of Consumer Affairs has noted that finance companies working with crooked home improvement contractors have fleeced thousands of lower income minority New Yorkers out of the equity in their homes by tricking them into loans for repairs. The lenders research homeowners to find out if they have paid off their first mortgage and have singled out elderly homeowners with substantial equity in their homes to make risky loans, knowing that in case of default they can recoup the loan by taking the home. In many of these cases, the homeowner is not aware of the fact that he or she is securing the loan with a mortgage on their home.

Often, finance companies engage the services of brokers, who are paid large fees by the customer, and do not check the accuracy of the application document. One 73 year old woman living on social security was described in her loan papers as a 66 year old self-employed investor, earning $7,000 per month. When the loan goes into default the bank claims to be unaware of this deception. This bill would make them responsible for verifying the accuracy of information provided by brokers.

At present, the senior who is a victim of these practices has no legal recourse. This bill will impose a series of changes that will give seniors a weapon to fight this scam. Legitimate banking institutions should have no problem with the requirements of this bill because the procedures it requires are already followed in the course of good lending practices. This bill will make it illegal to prey on seniors and lower income New Yorkers and to take from them their most valuable possession, their home.

PRIOR LEGISLATIVE HISTORY:

2012: S.7271 - Referred to Banks/A.2378 - Referred to Banks 2011: A.2378 - Referred to Banks 2010-2009: A.3386 - Referred to Banks 2008-2007: A.6170 - Referred to Banks 2006-2005: A.1667 - Held for Consideration in Banks 2003-2004: A.5057 - Referred to Banks

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: Minimal cost to the State.

EFFECTIVE DATE: October 1st after it has become law.


Text

STATE OF NEW YORK ________________________________________________________________________ 19 2013-2014 Regular Sessions IN SENATE (PREFILED) January 9, 2013 ___________
Introduced by Sen. DIAZ -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law, the real property law, the real proper- ty actions and proceedings law, the general business law and the general obligations law, in relation to enacting the "Home Equity Fraud Act" THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Short title. This act shall be known and may be cited as the "Home Equity Fraud Act". S 2. Legislative findings. The legislature hereby finds that many senior citizens and minority homeowners in New York have been targeted by unethical home improvement contractors, mortgage companies, mortgage brokers and finance companies who induce these homeowners into entering into high cost high interest rate mortgage agreements which the homeown- er is often unable to afford with the intent of foreclosing on the home and stripping the equity. The legislature further finds that in order to entice people into entering into these agreements they are promised refinancing of primary mortgages, consolidation of loans and outstanding bills and are given cash but often are not told or do not understand that they are securing the loan with a mortgage lien on their home which will lead to foreclo- sure in the event of default. Often these loans are documented with false and misleading documentation provided by brokers which could easi- ly be determined to be false if checked by the lender. Despite prohibi- tions contained in federal law many of these loans are based on equity in the home and not on the borrower's ability to pay. Since many of these homeowners live on a fixed income, they are unable to make the required payments and end up losing their homes. This practice appears
to be targeted in neighborhoods with a high concentration of senior and minority residents. The legislature further finds that it is in the best interest of the citizens of this state that these unethical practices should be prohib- ited by law and that unscrupulous individuals should be denied the abil- ity to utilize the courts of this state to perpetrate these abuses upon senior citizens and minority residents of this state and does therefore enact this Home Equity Fraud Act in order to prevent predatory lending. S 3. Subdivision 1 of section 595-a of the banking law is amended by adding four new paragraphs (i), (j), (k) and (l) to read as follows: (I) ENGAGING IN ANY ACTIVITY, TRANSACTION OR COURSE OF BUSINESS IN CONNECTION WITH A HOME IMPROVEMENT CONTRACT AS DESCRIBED IN SECTION SEVEN HUNDRED SEVENTY OF THE GENERAL BUSINESS LAW OTHER THAN WITH REGARD TO PROVIDING SERVICES DIRECTLY CONNECTED WITH THE MAKING OF A MORTGAGE LOAN PURSUANT TO THE PROVISIONS OF THIS ARTICLE, AND ONLY IF SUCH SERVICES AND THE FEES PAID OR TO BE PAID IN CONNECTION THEREWITH ARE FULLY DISCLOSED AND AGREED TO IN WRITING BY ALL PARTIES TO THE TRANS- ACTION. (J) CHARGING OR PAYING, EITHER DIRECTLY OR INDIRECTLY, A FEE IN EXCESS OF THE GREATER OF FIVE HUNDRED DOLLARS OR THREE PERCENT OF THE MORTGAGE LOAN FOR THE SERVICES RENDERED BY THE MORTGAGE BROKER. (K) THE FAILURE OF A MORTGAGE BANKER OR EXEMPT ORGANIZATION TO ASSURE THAT NO MORE THAN A TOTAL OF SIX PERCENT OF THE VALUE OF THE LOAN IS CHARGED FOR ALL SERVICES RENDERED IN CONNECTION WITH QUALIFYING FOR AND RECEIVING THE LOAN, PROVIDED THAT ANY FEES WHICH ARE REQUIRED TO BE PAID TO ANY PUBLIC OFFICER FOR THE FILING, RECORDING OR RELEASING IN ANY PUBLIC OFFICE OF A DOCUMENT SECURING THE LOAN AND THE COSTS OF ANY TITLE INSURANCE OR THE FEES OF AN ATTORNEY VOLUNTARILY ENGAGED BY AND SOLELY REPRESENTING THE INTERESTS OF THE BORROWER SHALL NOT BE INCLUDED WITHIN THIS LIMIT. (L) CHARGING A FEE OR ANYTHING OF VALUE IN CONNECTION WITH THE REFI- NANCING OF A MORTGAGE LOAN UNLESS SUCH REFINANCING IS FOR THE PURPOSE OF REDUCING THE RATE ON THE MORTGAGE LOAN IN AN AMOUNT WHICH EXCEEDS THE COST OF SUCH REFINANCE AND WHICH WILL ALLOW THE MORTGAGOR TO RECOVER THE COST OF REFINANCING THE LOAN WITHIN TWO YEARS OF THE DATE OF SUCH REFI- NANCE. THIS PROVISION SHALL NOT APPLY TO ANY ADDITIONAL PROCEEDS IN EXCESS OF THE ORIGINAL LOAN RECEIVED BY A MORTGAGOR IN CONNECTION WITH SUCH REFINANCING. S 4. Paragraph (d) of subdivision 3 of section 595-a of the banking law, as relettered by chapter 400 of the laws of 1993, is relettered paragraph (e) and a new paragraph (d) is added to read as follows: (D) EACH MORTGAGE BROKER, MORTGAGE BANKER AND EXEMPT ORGANIZATION SHALL PROVIDE TO EACH APPLICANT FOR A MORTGAGE LOAN AT OR BEFORE THE TIME OF APPLICATION, IN WRITING: (1) A DISCLOSURE STATING WHETHER THE MORTGAGE LOAN WILL BE RETAINED BY THE ORIGINAL LENDER OR SOLD AFTER CLOSING TO A THIRD PARTY AND IF IT IS TO BE SOLD, THE NAME OF SUCH THIRD PARTY; AND (2) A NOTICE GIVING THE APPLICANT THE RIGHT TO DESIGNATE A THIRD PARTY TO RECEIVE COPIES OF ALL WRITTEN COMMUNICATIONS REGARDING THE LOAN AND SETTING FORTH THE PROCEDURE FOR THE APPLICANT TO EXERCISE SUCH RIGHT. IN THE EVENT THAT THE DISCLOSURE AND NOTICES REQUIRED BY THIS SECTION ARE NOT MADE, THE MORTGAGE LOAN MADE AS A RESULT OF SUCH APPLICATION SHALL NOT BE SOLD OR TRANSFERRED NOR ANY ACTION TAKEN TO ENFORCE THE LENDER'S RIGHTS UNTIL THIRTY DAYS AFTER SUCH DISCLOSURES ARE MADE AND ACKNOWLEDGED BY THE BORROWER.
S 5. Subdivision (d) of section 347 of the banking law, as amended by chapter 22 of the laws of 1990, is amended and a new subdivision (e) is added to read as follows: (d) The licensee has engaged in the business of a sales finance compa- ny and has done or failed to do any act, except the failure to pay the fees required, which would be grounds for the suspension or revocation of its license pursuant to section four hundred ninety-five of this chapter were it required to obtain such a license[.]; (E) THE LICENSEE HAS ENGAGED IN ANY ACTIVITY, TRANSACTION OR COURSE OF BUSINESS OR HAS PAID OR OBTAINED ANY MONEY OR OTHER THING OF VALUE IN CONNECTION WITH A HOME IMPROVEMENT CONTRACT AS DEFINED IN SECTION SEVEN HUNDRED SEVENTY OF THE GENERAL BUSINESS LAW WITHOUT FULLY DISCLOSING SUCH ACTIVITY, TRANSACTION OR COURSE OF BUSINESS AND ANY FEES OR THING OF VALUE PAID OR TO BE PAID IN CONNECTION THEREWITH AND WITHOUT HAVING OBTAINED THE AGREEMENT IN WRITING FROM ALL PARTIES TO THE TRANSACTION. S 6. Section 592-a of the banking law is amended by adding a new subdivision 3 to read as follows: 3. ANY MORTGAGE BROKER REGISTERED UNDER THIS ARTICLE WHO IN ANY WAY PLACES WITH OR OBTAINS A MORTGAGE LOAN FROM A MORTGAGE BANKER OR EXEMPT ORGANIZATION REGISTERED UNDER THIS ARTICLE SHALL FOR ALL PURPOSES BE DEEMED TO BE AN AGENT OF SUCH BANKER OR EXEMPT ORGANIZATION. ANY ATTEMPT BY ANY PERSON TO VOID THIS PROVISION BY CONTRACT OR IN ANY OTHER WAY SHALL BE VOID AS AGAINST PUBLIC POLICY. S 7. The real property law is amended by adding a new section 254-e to read as follows: S 254-E. CERTAIN MORTGAGE PROVISIONS PROHIBITED. NO MORTGAGE ON A LOAN SECURED PRIMARILY BY AN INTEREST IN REAL PROPERTY USED AS A PRIMARY RESIDENCE BY THE MORTGAGOR AT THE TIME SUCH LOAN IS MADE SHALL CONTAIN ANY PROVISION WHICH: 1. ALLOWS FOR A BALLOON PAYMENT; OR 2. ALLOWS FOR A PAYMENT SCHEDULE WITH REGULAR PERIODIC PAYMENTS THAT CAUSE THE PRINCIPAL BALANCE TO INCREASE; OR 3. ALLOWS FOR A PROVISION STATING THAT THE INTEREST RATE OF THE LOAN UNDERLYING THE MORTGAGE INCREASES AFTER DEFAULT. S 8. The real property actions and proceedings law is amended by adding a new section 1308 to read as follows: S 1308. NOTICE TO MORTGAGOR OR OWNER. IN ALL FORECLOSURE ACTIONS THE MORTGAGEE, UPON COMMENCEMENT OF A FORECLOSURE PROCEEDING, SHALL SERVE THE MORTGAGOR AT THE SAME TIME AS SERVICE OF THE SUMMONS AND COMPLAINT, A NOTICE IN THE FOLLOWING FORM: "NOTICE TO MORTGAGOR OR OWNER: YOU HAVE BEEN SERVED WITH A SUMMONS AND COMPLAINT IN A MORTGAGE FORE- CLOSURE PROCEEDING. IF YOU FAIL TO RESPOND TO THESE IMPORTANT LEGAL DOCUMENTS, YOU MAY LOSE YOUR HOME. READ THIS CAREFULLY: YOU MAY BE ABLE TO PREVENT YOUR HOME FROM BEING LOST IN A FORECLOSURE ACTION. STATE AND FEDERAL LAWS ALLOW YOU TO DEFEND FORECLOSURE PROCEEDINGS IN CERTAIN CIRCUMSTANCES AND MAY ALLOW YOU TO PREVENT A FORECLOSURE ON YOUR HOME. YOU MAY BE ABLE TO OFFER DEFENSES IN THIS FORECLOSURE PROCEEDING UNDER THE FOLLOWING CIRCUMSTANCES: 1. IF YOU GAVE A MORTGAGE ON YOUR HOME AS THE RESULT OF A DOOR TO DOOR TRANSACTION; 2. IF YOU GAVE A MORTGAGE ON YOUR HOME IN ORDER TO FINANCE A HOME IMPROVEMENT CONTRACT;
3. IF YOU DID NOT UNDERSTAND THAT YOU WERE SIGNING A MORTGAGE OR WERE UNAWARE THAT YOU HAD A MORTGAGE ON YOUR HOME; 4. IF YOU WERE ON PUBLIC ASSISTANCE AT THE TIME YOU GAVE A MORTGAGE ON YOUR HOME, OR WERE RETIRED AND COLLECTING SOCIAL SECURITY OR SSI AND THE PERSON WHO TOOK THE MORTGAGE ON YOUR HOME KNEW YOU HAD A FIXED INCOME; 5. IF YOU WERE ON A LIMITED FIXED INCOME AT THE TIME YOU GAVE THE MORTGAGE ON YOUR HOME. ALSO, YOUR MORTGAGE DOCUMENTS MAY CONTAIN LANGUAGE STATING YOUR RIGHTS UNDER THE CONTRACT IN CASES WHERE YOU ARE SUBJECT TO FORECLOSURE. IF YOU THINK THAT YOU MAY HAVE A DEFENSE TO THIS FORECLOSURE PROCEED- ING YOU MUST ACT PROMPTLY - FAILURE TO ANSWER THE ENCLOSED SUMMONS AND COMPLAINT WILL ALLOW THE MORTGAGEE'S OR BANK'S ATTORNEYS TO ENTER A DEFAULT JUDGMENT AGAINST YOU. THE FRONT OF THE SUMMONS WILL TELL YOU HOW MANY DAYS YOU HAVE TO ANSWER BEFORE THE MORTGAGEE OR BANK MAY ENTER A DEFAULT JUDGMENT AGAINST YOU. YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY. THE LAW, (NEW YORK REAL PROPERTY ACTIONS AND PROCEEDINGS LAW ARTICLE 13) PROVIDES DEFENSES FOR CERTAIN MORTGAGORS AND HOMEOWNERS. THE PHONE NUMBERS AND OFFICE ADDRESSES FOR YOUR LOCAL LEGAL AID OFFICES ARE CONTAINED IN YOUR TELEPHONE DIRECTORY. IF YOUR PHONE BOOK HAS GOVERNMENT PAGES, THE PHONE NUMBER AND OFFICE ADDRESSES OF YOUR LOCAL LEGAL AID OFFICES SHOULD BE LISTED THERE ALSO. ONLY A QUALIFIED ATTORNEY CAN TELL YOU ALL OF YOUR RIGHTS IN THIS PROCEEDING. YOU MUST ACT PROMPTLY OR YOU MAY LOSE YOUR HOME." S 9. The real property actions and proceedings law is amended by adding a new section 1309 to read as follows: S 1309. PLEADING REQUIRED. 1. ANY COMPLAINT SERVED IN A PROCEEDING INITIATED PURSUANT TO THIS ARTICLE RELATING TO A MORTGAGE LOAN WHICH WAS INITIATED BY A MORTGAGE BANKER OR EXEMPT ORGANIZATION REGISTERED PURSU- ANT TO SECTION FIVE HUNDRED NINETY-ONE OF THE BANKING LAW MUST CONTAIN AN AFFIRMATIVE ALLEGATION, WHICH ALLEGATION MUST BE PROVEN TO THE SATIS- FACTION OF THE COURT, THAT SUCH MORTGAGE BANKER OR EXEMPT ORGANIZATION HAS COMPLIED WITH ALL OF THE PROVISIONS OF SECTION FIVE HUNDRED NINETY- FIVE-A OF THE BANKING LAW. 2. IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN WHICH THE MORTGAGE TO BE FORECLOSED AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH WAS OWNED BY THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF SUCH MORTGAGE IT SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT THE TIME OF THE LOAN ORIGINATION THE MORTGAGOR DID NOT HAVE THE FINANCIAL ABILITY TO REPAY THE LOAN AND THAT THE FINANCIAL INSTITUTION KNEW OR SHOULD HAVE KNOWN THAT THE MORTGAGOR WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE MORTGAGE BROKER, MORTGAGE BANKER OR EXEMPT ORGANIZATION WHICH ORIGINATED THE LOAN VIOLATED ANY PROVISION OF SECTION FIVE HUNDRED NINETY-FIVE-A OF THE BANKING LAW; OR (C) THE MORTGAGE DOCUMENT CONTAINS A PROVISION PROHIBITED BY SECTION TWO HUNDRED FIFTY-FOUR-E OF THE REAL PROPERTY LAW. THE COURT MAY CONSIDER FACTORS INCLUDING BUT NOT LIMITED TO THE FACT THAT THE MORTGAGOR WAS NOT EMPLOYED AND UNLIKELY TO OBTAIN FUTURE EMPLOYMENT, THE FACT THAT THE MORTGAGOR WAS LIVING ON A FIXED INCOME OR WAS THE RECIPIENT OF FEDERAL OR STATE ENTITLEMENT OF PUBLIC ASSISTANCE OR THAT THE PAYMENTS REQUIRED BY SUCH MORTGAGE LOAN, TOGETHER WITH THE PAYMENTS REQUIRED BY ANY OTHER LOAN SECURED BY THE PREMISES TO BE FORE- CLOSED, WERE MORE THAN FIFTY PERCENT OF THE MORTGAGOR'S AFTER TAX MONTH- LY INCOME AS OF THE DATE OF THE LOAN. FOR PURPOSES OF THIS SECTION, THE TERM FINANCIAL INSTITUTION SHALL INCLUDE ANY BANKING ORGANIZATION, MORT-
GAGE BROKER, MORTGAGE BANKER OR LICENSED LENDERS INVOLVED IN THE ORIGI- NATION OF THE MORTGAGE BEING FORECLOSED AND ANY ASSIGNEE OR SUCCESSOR OF SUCH PERSON OR ENTITY. IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN WHICH ANY SUCH AFFIRMATIVE DEFENSE IS PROVEN TO THE SATISFACTION OF THE FINDER OF FACT, THE COURT MAY AWARD REASONABLE ATTORNEY FEES TO THE DEFENDANT. S 10. Paragraph (h) of subdivision 1 of section 771 of the general business law, as amended by chapter 32 of the laws of 1989, is amended to read as follows: (h) A notice to the owner that, in addition to any right otherwise to revoke an offer, the owner may cancel the home improvement contract until midnight of the [third] FIFTEENTH business day after the day on which the owner has signed an agreement or offer to purchase relating to such contract. Cancellation occurs when written notice of cancellation is given to the home improvement contractor. Notice of cancellation, if given by mail, shall be deemed given when deposited in a mailbox proper- ly addressed and postage prepaid. Notice of cancellation shall be suffi- cient if it indicates the intention of the owner not to be bound. Notwithstanding the foregoing, this paragraph shall not apply to a tran- saction in which the owner has initiated the contact and the home improvement is needed to meet a bona fide emergency of the owner, and the owner furnishes the home improvement contractor with a separate dated and signed personal statement in the owner's handwriting describ- ing the situation requiring immediate remedy and expressly acknowledging and waiving the right to cancel the home improvement contract within [three] FIFTEEN business days. For the purposes of this paragraph the term "owner" shall mean an owner or any representative of an owner. S 11. The general business law is amended by adding a new section 771-b to read as follows: S 771-B. RESPONSIBILITIES OF HOME IMPROVEMENT CONTRACTORS. 1. NO HOME IMPROVEMENT CONTRACTOR SHALL ENGAGE IN ANY ACTIVITY, TRANSACTION OR COURSE OF BUSINESS OR PAY OR RECEIVE ANY FEE, PAYMENT, MONEY OR OTHER THING OF VALUE IN CONNECTION WITH THE FINANCING OF A HOME IMPROVEMENT CONTRACT WITHOUT FULLY DISCLOSING SUCH ACTIVITY, TRANSACTION OR COURSE OF BUSINESS AND ANY FEES, PAYMENT OR OTHER THING OF VALUE PAID OR TO BE PAID IN CONNECTION THEREWITH AND WITHOUT HAVING OBTAINED THE AGREEMENT IN WRITING FROM ALL PARTIES TO THE TRANSACTION TO SUCH ACTIVITY AND THE PAYMENT THEREFOR. 2. IN ADDITION TO ANY RIGHT OTHERWISE TO REVOKE A HOME IMPROVEMENT CONTRACT, THE BUYER MAY CANCEL SUCH CONTRACT UNTIL MIDNIGHT OF THE FIFTEENTH DAY AFTER THE HOME IMPROVEMENT CONTRACT WAS SIGNED BY BOTH PARTIES. CANCELLATION SHALL OCCUR WHEN WRITTEN NOTICE OF CANCELLATION IS GIVEN TO THE HOME IMPROVEMENT CONTRACTOR. NOTICE OF CANCELLATION, IF GIVEN BY MAIL, SHALL BE DEEMED GIVEN WHEN DEPOSITED IN A MAILBOX PROPER- LY ADDRESSED AND POSTAGE PREPAID. NOTICE OF CANCELLATION NEED NOT TAKE ANY PRESCRIBED FORM AND SHALL BE SUFFICIENT IF IT INDICATES THE INTEN- TION OF THE SIGNATORY NOT TO BE BOUND. NOTWITHSTANDING THE FOREGOING, THIS SUBDIVISION SHALL NOT APPLY TO A TRANSACTION IN WHICH THE OWNER HAS INITIATED THE CONTACT AND THE HOME IMPROVEMENT IS NEEDED TO MEET A BONA FIDE EMERGENCY OF THE OWNER, AND THE OWNER FURNISHES THE HOME IMPROVE- MENT CONTRACTOR WITH A SEPARATE DATED AND SIGNED PERSONAL STATEMENT IN THE OWNER'S HANDWRITING DESCRIBING THE SITUATION REQUIRING IMMEDIATE REMEDY AND EXPRESSLY ACKNOWLEDGING AND WAIVING THE RIGHT TO CANCEL THE HOME IMPROVEMENT CONTRACT WITHIN FIFTEEN BUSINESS DAYS. FOR THE PURPOSES OF THIS SUBDIVISION THE TERM "OWNER" SHALL MEAN AN OWNER OR ANY REPRE- SENTATIVE OF AN OWNER.
3. NO HOME IMPROVEMENT CONTRACT SHALL BE ENFORCEABLE UNLESS AT THE TIME IT IS SIGNED BY THE HOMEOWNER, THE HOME IMPROVEMENT CONTRACTOR SHALL FURNISH TO THE HOMEOWNER A NOTICE CONTAINING A STATEMENT IN SUBSTANTIALLY THE FOLLOWING FORM: YOU THE HOMEOWNER, MAY CANCEL THIS CONTRACT AT ANY TIME PRIOR TO MIDNIGHT OF THE FIFTEENTH BUSINESS DAY AFTER THE DATE OF THIS CONTRACT. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION. S 12. The general obligations law is amended by adding a new section 5-336 to read as follows: S 5-336. CERTAIN HOME EQUITY LOAN CONTRACTS; ENFORCEABILITY. 1. ANY LOAN MADE IN VIOLATION OF SECTION FIVE HUNDRED NINETY-FIVE-A OF THE BANKING LAW SHALL BE UNENFORCEABLE AND NO DEFAULT JUDGMENT SHALL BE ENTERED IN ANY ACTION AS A RESULT OF THE ALLEGED DEFAULT OF THE DEFEND- ANT TO MAKE PAYMENTS PURSUANT TO A LOAN AGREEMENT WHICH AROSE AS THE RESULT OF THE REFINANCE OF A PERSONAL RESIDENCE OWNED BY THE DEFENDANT WHETHER OR NOT SECURED BY A MORTGAGE UNLESS THE COURT MAKES AN AFFIRMA- TIVE FINDING OF FACT IN WRITING THAT THE PROVISIONS OF SECTION FIVE HUNDRED NINETY-FIVE-A OF THE BANKING LAW HAVE NOT BEEN VIOLATED. 2. IN ANY ACTION BROUGHT SEEKING ENFORCEMENT OF A LOAN AGREEMENT WHICH AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH WAS OWNED BY THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF SUCH LOAN IT SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT THE TIME OF THE LOAN ORIGI- NATION THE BORROWER DID NOT HAVE THE FINANCIAL ABILITY TO REPAY THE LOAN AND THAT THE FINANCIAL INSTITUTION KNEW OR SHOULD HAVE KNOWN THAT THE BORROWER WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE MORTGAGE BROKER, MORTGAGE BANKER OR EXEMPT ORGANIZATION WHICH ORIGINATED THE LOAN VIOLATED ANY PROVISION OF SECTION FIVE HUNDRED NINETY-FIVE-A OF THE BANKING LAW; OR (C) ANY MORTGAGE DOCUMENT SIGNED CONTEMPORANEOUSLY WITH THE LOAN CONTAINS A PROVISION PROHIBITED BY SECTION TWO HUNDRED FIFTY-FOUR-E OF THE REAL PROPERTY LAW. THE COURT MAY CONSIDER FACTORS INCLUDING BUT NOT LIMITED TO THE FACT THAT THE MORTGAGOR WAS NOT EMPLOYED AND UNLIKELY TO OBTAIN FUTURE EMPLOYMENT, THE FACT THAT THE MORTGAGOR WAS LIVING ON A FIXED INCOME OR WAS THE RECIPIENT OF FEDERAL OR STATE ENTITLEMENT OF PUBLIC ASSISTANCE OR THAT THE PAYMENTS REQUIRED BY SUCH LOAN, TOGETHER WITH THE PAYMENTS REQUIRED BY ANY OTHER LOAN SECURED BY THE PREMISES SECURING SUCH LOAN, WERE MORE THAN FIFTY PERCENT OF THE BORROWER'S AFTER TAX MONTHLY INCOME AS OF THE DATE OF THE LOAN. FOR PURPOSES OF THIS SECTION, THE TERM FINANCIAL INSTITUTION SHALL INCLUDE ANY BANKING ORGANIZATION, MORTGAGE BROKER, MORTGAGE BANKER OR LICENSED LENDER INVOLVED IN THE ORIGINATION OF THE LOAN FOR WHICH ENFORCEMENT IS SOUGHT AND ANY ASSIGNEE OR SUCCESSOR OF SUCH PERSON OR ENTITY. IN ANY SUCH ACTION IN WHICH SUCH AFFIRMATIVE DEFENSE IS PROVEN TO THE SATISFACTION OF THE FINDER OF FACT, THE COURT MAY AWARD REASON- ABLE ATTORNEY FEES TO THE DEFENDANT. S 13. This act shall take effect on the first of October next succeed- ing the date on which it shall have become a law; provided, however, that any rules, regulations or actions necessary to implement the provisions of this act on its effective date are immediately authorized and directed to be promulgated, repealed or amended on or before such effective date.

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