Provides that where a home improvement contractor is acting as a mortgage broker without being registered as required under the Banking Law, a mortgage banker, mortgage broker or exempt organization may not engage in such transaction with the contractor, and shall promptly notify the banking department that such person is acting as an unregistered broker.
Ayes (12): Foley, Onorato, Breslin, Krueger, Klein, Adams, Stewart-Cousins, Kruger, Diaz, Savino, Peralta, Farley
Ayes W/R (5): Johnson O, DeFrancisco, Bonacic, Marcellino, Ranzenhofer
Nays (1): Golden
Excused (1): Morahan
BILL NUMBER: S2843
TITLE OF BILL : An act to amend the banking law and the general business law, in relation to home improvement contractors
PURPOSE : To help address and prevent abusive practices which have resulted from relationships between some home improvement contractors and some mortgage lenders or mortgage brokers.
SUMMARY OF PROVISIONS : A new Section 595-c is added to the Banking Law. Subdivision one of this new section provides that a mortgage banker, exempt organization (i.e. a banking institution or insurance company) or mortgage broker shall not pay a referral fee or other compensation to a home improvement contractor, in connection with a mortgage loan, unless the following conditions are met:
* the contractor is an agent or employee of the lender or broker;
* the lender or broker has given prior notice to the Banking Department of such relationship;
* the consumer is provided conspicuous notice in writing about the relationship between the contractor and lender or broker; and
* such relationship is subject to any additional requirements or conditions as provided in regulations of the Banking Board.
Subdivision two of this new section specifically provides that where a home improvement contractor is acting as a mortgage broker without being registered as required under the Banking Law, a mortgage banker, mortgage broker or exempt organization may not engage in such transaction with the contractor, and shall promptly notify the Banking Department that such person is acting as an unregistered broker.
Subdivision three of this new section authorizes the Superintendent of Banks to impose special conditions and restrictions on a mortgage banker, mortgage broker or exempt organization if there has been a pattern of bona fide complaints of abusive practices involving a relationship between such entity and a home improvement contractor with whom it has a formal or informal business arrangement.
Subdivision four of this new section defines "home improvement contractor" and "home improvement contract."
The bill also amends Section 771 of the General Business Law in regard to the written agreement which a home improvement contractor must provide to the homeowner. This amendment provides that, where the contractor is referring or recommending the homeowner to a lender for a loan that will be secured by the property, the written agreement must include a conspicuous statement that "If you obtain or use any type of mortgage loan to finance this project, you could lose your home and any money you have put into it if you do not meet your obligations under the loan."
JUSTIFICATION : State and federal regulators have been focusing on the problem of abusive lending practices, in which some lenders and mortgage brokers use unfair, deceptive or fraudulent means to target vulnerable homeowners for excessive high cost loans. The elderly, in particular, are a frequent target, since they may own their homes or have a high level of equity that can be exploited.
One continuing problem involves abusive or questionable practices which have resulted' from relationships between some home improvement contractors and some mortgage lenders or mortgage brokers.
Some homeowners have been subjected to high pressure sales tactics, often by door-to-door salespeople, to agree to home repairs and to finance such improvements. These contractors or salespeople may pressure, intimidate, and mislead homeowners into taking out a high-priced home equity loan, or refinancing an existing mortgage as a high cost loan, to pay for these repairs. In the most egregious cases, homeowners may not realize that, in agreeing to the home improvement contract, they are also signing documents which commit them to a mortgage loan or a refinancing.
There has also been concern about contractors which have been acting in the capacity of a mortgage broker, without being registered and regulated as required by the Banking Law. Through the regulation of mortgage brokers, the State seeks to ensure that consumers are treated fairly and are protected from abusive practices. When a contractor or other person evades regulation and acts as a broker, there is a much greater likelihood of deceptive and fraudulent practices.
As a result of these practices, a homeowner who may have had a relatively low-balance, low rate loan may now be burdened with a high-balance, high-rate loan that they cannot afford. Furthermore, in many cases the home improvement work may be poor and inferior, or may not even be undertaken or completed.
This bill seeks to improve accountability and ensure that mortgage bankers and mortgage brokers are responsible for the activities of any home improvement contractors with whom they have relationships. This bill enables the Banking Department to impose special conditions and restrictions in any cases where it identifies a pattern of abusive practices between a lender or broker and home improvement contractors.
LEGISLATIVE HISTORY :
2007-08: S.2613-A/52-A; 2005-06: S.7148/A.2152, passed Assembly both years; 2003-04: A.4980; 2001-02: A.5969; 1999-00: A.4046; 1997-98: S.256/A.124; 1995-96: A.3150; 1993-94: S.4007.
FISCAL IMPLICATIONS : None.
EFFECTIVE DATE : Section one will take effect 120 days after it shall have become a law; section two will take effect 180 days after it shall have become a law.
STATE OF NEW YORK ________________________________________________________________________ 2843 2009-2010 Regular Sessions IN SENATE March 4, 2009 ___________Introduced by Sens. STACHOWSKI, VOLKER -- read twice and ordered print- ed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law and the general business law, in relation to home improvement contractors THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. The banking law is amended by adding a new section 595-c to read as follows: S 595-C. RESTRICTIONS ON RELATIONSHIPS WITH HOME IMPROVEMENT CONTRAC- TORS. 1. A MORTGAGE BANKER, EXEMPT ORGANIZATION OR MORTGAGE BROKER SHALL NOT PAY A REFERRAL FEE OR OTHER COMPENSATION TO A HOME IMPROVEMENT CONTRACTOR IN CONNECTION WITH THE MAKING OF A MORTGAGE LOAN, UNLESS: THE HOME IMPROVEMENT CONTRACTOR IS AN AGENT OR EMPLOYEE OF SUCH MORTGAGE BANKER, EXEMPT ORGANIZATION OR MORTGAGE BROKER; SUCH RELATIONSHIP HAS BEEN PREVIOUSLY REPORTED TO THE DEPARTMENT; SUCH RELATIONSHIP IS SEPA- RATELY AND CONSPICUOUSLY DISCLOSED IN WRITING TO THE CONSUMER; AND SUCH RELATIONSHIP IS SUBJECT TO ANY ADDITIONAL CONDITIONS OR REQUIREMENTS AS PROVIDED IN REGULATIONS PROMULGATED BY THE BANKING BOARD. FOR PURPOSES OF THIS SUBDIVISION, THE TERM COMPENSATION SHALL NOT MEAN OR INCLUDE THE PAYMENT OF LOAN PROCEEDS FOR WORK PERFORMED OR MATERIALS PURCHASED. 2. IF A HOME IMPROVEMENT CONTRACTOR IS SOLICITING, PROCESSING, PLACING OR NEGOTIATING A MORTGAGE LOAN WITHOUT BEING REGISTERED OR SPECIFICALLY EXEMPTED FROM REGISTRATION, A MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT ORGANIZATION MAY NOT ENGAGE IN SUCH MORTGAGE TRANSACTION WITH THE CONTRACTOR AND SHALL PROMPTLY NOTIFY THE DEPARTMENT THAT SUCH CONTRACTOR IS ACTING AS AN UNREGISTERED MORTGAGE BROKER. 3. IF THE SUPERINTENDENT DETERMINES, IN HIS OR HER SOLE DISCRETION, THAT THERE IS A PATTERN OF BONA FIDE COMPLAINTS OF ABUSIVE PRACTICES INVOLVING A RELATIONSHIP BETWEEN A MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT ORGANIZATION AND A HOME IMPROVEMENT CONTRACTOR OR CONTRACTORS WITH WHOM IT HAS A FORMAL OR INFORMAL BUSINESS ARRANGEMENT, THE SUPER-EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD07654-02-9 S. 2843 2
INTENDENT MAY, AFTER NOTICE AND A HEARING, IMPOSE CONDITIONS ON SUCH MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT ORGANIZATION, INCLUDING BUT NOT LIMITED TO: REQUIRING THE TERMINATION OF ANY RELATIONSHIP OR BUSI- NESS ARRANGEMENT WITH A SPECIFIC CONTRACTOR WHICH HAS RESULTED IN ABUSIVE PRACTICES; REQUIRING VERIFICATION PRIOR TO MAKING ANY LOANS THAT A CONTRACTOR IS LICENSED AND MEETING ANY OTHER REQUIREMENTS OF ANY LOCAL LAWS; OBTAINING A COPY OF THE SIGNED WRITTEN AGREEMENT REQUIRED UNDER SECTION SEVEN HUNDRED SEVENTY-ONE OF THE GENERAL BUSINESS LAW AND VERI- FYING THAT THE APPLICANT HAS RECEIVED SUCH A COPY; NOTIFYING THE APPLI- CANT OF THEIR RIGHT TO CONSULT WITH THE ATTORNEY GENERAL'S OFFICE, CONSUMER PROTECTION BOARD OR BETTER BUSINESS BUREAU TO DETERMINE IF ANY COMPLAINTS HAVE BEEN FILED AGAINST A CONTRACTOR; REQUIRING THE DISCLO- SURE OF THE RESPONSIBILITIES OF HOME IMPROVEMENT CONTRACTORS AND THE RIGHTS OF CONSUMERS AND OPTIONS FOR PURSUING REMEDIES IN THE EVENT OF PROBLEMS; REQUIRING THE INSPECTION OF ANY WORK DONE TO DATE; AND ANY OTHER RESTRICTIONS OR CONDITIONS THAT THE SUPERINTENDENT DEEMS NECESSARY AND APPROPRIATE TO PROTECT CONSUMERS. 4. FOR THE PURPOSES OF THIS SECTION: (A) "HOME IMPROVEMENT" MEANS THE REPAIRING, REMODELING, ALTERING, CONVERTING, OR MODERNIZING OF, OR ADDING TO, RESIDENTIAL PROPERTY AND SHALL INCLUDE, BUT NOT BE LIMITED TO, THE CONSTRUCTION, ERECTION, REPLACEMENT, OR IMPROVEMENT OF DRIVEWAYS, SWIMMING POOLS, SIDING, INSU- LATION, ROOFING, WINDOWS, TERRACES, PATIOS, LANDSCAPING, FENCES, PORCH- ES, GARAGES, SOLAR ENERGY SYSTEMS, FLOORING, BASEMENTS, AND OTHER IMPROVEMENTS OF THE RESIDENTIAL PROPERTY AND ALL STRUCTURES OR LAND ADJACENT TO IT. "HOME IMPROVEMENT" SHALL ALSO MEAN THE INSTALLATION OF HOME IMPROVEMENT GOODS OR THE FURNISHING OF HOME IMPROVEMENT SERVICES. "HOME IMPROVEMENT" SHALL NOT INCLUDE: (1) THE SALE OR CONSTRUCTION OF A NEW HOME; (2) THE SALE OF GOODS BY A SELLER WHO NEITHER ARRANGES TO PERFORM NOR PERFORMS, DIRECTLY OR INDIRECTLY, ANY WORK OR LABOR IN CONNECTION WITH THE INSTALLATION OR APPLICATION OF THE GOODS; (3) THE SALE OR INSTALLATION OF APPLIANCES, SUCH AS STOVES, REFRIGERA- TORS, FREEZERS, ROOM AIR CONDITIONERS, DISHWASHERS, CLOTHES WASHERS OR DRYERS, WHICH ARE DESIGNED TO BE REMOVABLE FROM THE PREMISES WITHOUT MATERIAL ALTERATION THEREOF; (4) THE SALE OR INSTALLATION OF DECORATIVE GOODS OR SERVICES, SUCH AS DRAPERIES AND CARPETS; OR (5) THE PERFORMANCE OF REPAIRS, REPLACEMENTS, OR OTHER SERVICES PURSU- ANT TO AN EXPRESS OR IMPLIED WARRANTY, OR A MAINTENANCE AGREEMENT. (B) "HOME IMPROVEMENT CONTRACTOR" MEANS A PERSON, FIRM OR CORPORATION WHICH OWNS OR OPERATES A HOME IMPROVEMENT BUSINESS OR WHO UNDERTAKES, OFFERS TO UNDERTAKE OR AGREES TO PERFORM ANY HOME IMPROVEMENT FOR A FEE AND FOR WHOM THE TOTAL CASH PRICE OF ALL OF HIS HOME IMPROVEMENT CONTRACTS WITH ALL HIS CUSTOMERS EXCEEDS ONE THOUSAND FIVE HUNDRED DOLLARS DURING ANY PERIOD OF TWELVE CONSECUTIVE MONTHS. HOME IMPROVEMENT CONTRACTOR DOES NOT INCLUDE A PERSON, FIRM, CORPORATION, LANDLORD, COOP- ERATIVE CORPORATION, CONDOMINIUM BOARD OF MANAGERS, JOINT TENANT OR CO-TENANT THAT OWNS, IN WHOLE OR IN PART, THE PROPERTY TO BE IMPROVED. S 2. Subdivision 1 of section 771 of the general business law is amended by adding a new paragraph (i) to read as follows: (I) WHERE THE CONTRACTOR IS REFERRING OR RECOMMENDING THE OWNER TO A BANKING INSTITUTION, MORTGAGE BANKER OR OTHER FINANCING ENTITY FOR A LOAN TO BE SECURED BY A MORTGAGE ON OR A SECURITY INTEREST IN THE REAL PROPERTY, THE FOLLOWING NOTICE TO THE OWNER IN CLEAR AND CONSPICUOUS BOLD FACE TYPE: "IF YOU OBTAIN OR USE ANY TYPE OF MORTGAGE LOAN TOS. 2843 3
FINANCE THIS PROJECT, YOU COULD LOSE YOUR HOME AND ANY MONEY YOU HAVE PUT INTO IT IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THE LOAN." S 3. This act shall take effect on the one hundred twentieth day after it shall have become a law, provided that any such rules and regulations as shall be necessary to implement the provisions of this act are authorized to be promulgated prior to such effective date; and provided that section two of this act shall take effect on the one hundred eight- ieth day after it shall have become a law.