This bill has been amended

Bill S3781-2011

Relates to unauthorized entities, unregistered mortgage brokers and mortgage fraud

Relates to unauthorized entities, unregistered mortgage brokers and mortgage fraud; establishes additional penalties against unlicensed or unregistered persons or entities engaging in activities after receiving a cease and desist notice; relates to the crime of mortgage fraud.

Details

Actions

  • Jan 4, 2012: REFERRED TO BANKS
  • Jan 4, 2012: returned to senate
  • Jan 4, 2012: died in assembly
  • Jun 7, 2011: referred to banks
  • Jun 7, 2011: DELIVERED TO ASSEMBLY
  • Jun 7, 2011: PASSED SENATE
  • Jun 6, 2011: ADVANCED TO THIRD READING
  • Jun 2, 2011: 2ND REPORT CAL.
  • Jun 1, 2011: 1ST REPORT CAL.903
  • Mar 3, 2011: REFERRED TO BANKS

Votes

VOTE: COMMITTEE VOTE: - Banks - Jun 1, 2011
Ayes (19): Griffo, Farley, Bonacic, DeFrancisco, Gallivan, Golden, Johnson, O'Mara, Marcellino, Ranzenhofer, Smith, Breslin, Carlucci, Diaz, Kruger, Krueger, Rivera, Savino, Valesky

Memo

BILL NUMBER:S3781

TITLE OF BILL: An act to amend the banking law and the penal law, in relation to unauthorized entities, unregistered mortgage brokers and mortgage fraud

PURPOSE: To help prevent and address illegal and fraudulent activities in the mortgage industry.

SUMMARY: Section 78-a is added to the Banking Law to provide that the Criminal Investigations Bureau of the Banking Department shall refer any instances of a person, partnership, association, corporation or other entity which is operating without being chartered, licensed or registered as required under this chapter to the Attorney General and to any other federal, state or local agency or entity for appropriate enforcement action. At least every six months, the Attorney General shall provide the Bureau with a written update of the status of any enforcement actions it has taken against such persons or entities.

Paragraph (f) is added to Section 590(5) of the Banking Law to prohibit a mortgage banker, mortgage broker or exempt organization from conducting business with any person, partnership, association, corporation or other entity which it knows or should have known is acting as a mortgage banker or a mortgage broker without being licensed or registered as required by the Banking Law. In addition, a mortgage banker, mortgage broker or exempt organization shall promptly notify the Banking Department if it becomes aware of any such unlicensed or unregistered operations.

Section 598(5) of the Banking Law is amended to increase the maximum amount of civil penalties assessable against an unlicensed or unregistered person engaged illegally in mortgage banking or brokering activities. Currently, such person may be liable fora sum of not less than the amount paid, nor more than four times the amount paid. This amendment would provide that, where a non-exempt unlicensed or unregistered person has continued to engage in such unauthorized activities after receiving a cease and desist notice from the Superintendent of Banks, the maximum amount of liability shall be up to ten times the amount paid.

JUSTIFICATION: New York State has established a comprehensive system for regulating, examining and overseeing the activities and operations of financial institutions. This regulatory system is important for the promotion and protection of the financial system, and for ensuring the protection of consumers.

There continue to be some problems with persons undertaking financial activities without the required approval of the Banking Department. Licensing and regulation are crucial for the protection of consumers. Because some entities are avoiding regulation and are not complying

with the rules established for the protection of consumers, there is a much greater likelihood that consumers will be defrauded.

In particular, a number of people have operated without authorization as mortgage brokers, mortgage bankers and money transmitters. Several homeowners have been subjected to abusive lending practices as a result of the activities of unregulated persons.

Operating without the required authorization under the Banking Law is already a crime, and in some cases civil penalties may also apply. However, additional steps need to be taken to attack this problem. One concern raised in a State Comptroller's audit was the lack of coordination between the Banking Department and the Attorney General's Office in addressing the problem of unregistered mortgage brokers. These entities have often engaged in misleading, deceptive and fraudulent practices, harming many homeowners.

In order to encourage and promote better cooperation, this bill would require the Banking Department to inform the Attorney General and other appropriate agencies if it learns of any such unauthorized entities. The Attorney General is directed to provide the Department with regular updates on the status of any enforcement action being taken to prevent the continued operation of unauthorized entities. This should help ensure that the State remains focused on shutting down entities which flaunt the laws and harm consumers.

Given the number of problems with unauthorized mortgage brokers, the bill also establishes an affirmative obligation on licensed mortgage bankers and registered mortgage brokers to not conduct business with these unauthorized entities, and to notify the Banking Department if they become aware of such illegal operations.

The bill would also establish the specific crime of mortgage fraud in order to provide law enforcement officials with the improved ability to address this growing problem. Law enforcement officials and financial regulators have seen a disturbing number of incidents in which a mortgage broker (or a mortgage banker acting in the capacity of a broker) falsifies data and documents in order to secure approval of a loan, thereby enabling the banker or broker to close the loan and collect its fees. This type of fraudulent action may occur either with or without the knowledge of the applicant.

This type of fraud victimizes both the borrower and the lender. In these cases, the homeowner usually receives a loan they can't afford, which typically ruins them financially and ultimately results in the loss of the home. The lender is also victimized as it loses money on these bad loans.

Federal law already imposes strict penalties for knowingly making false statements in an attempt to influence the action of a banking institution on a loan application. However, that law only applies to fraudulent applications submitted to federally-insured banking institutions. This bill creates state level penalties that can be used for crimes affecting both insured banking institutions and other types of mortgage bankers who are not currently protected by the federal law. This new crime targets those brokers and bankers who actively engage in the forging of false supporting documents for a

mortgage loan. By cracking down on this abusive practice, this legislation will help protect both the consumers and lenders who are victimized by this practice.

LEGISLATIVE HISTORY: Bill S.2856 of 2005-06 Passed Senate both years Bill S.2746 of 2007-08 Passed Senate both years Bill S.4871 of 2009-10 Referred to Banks

FISCAL IMPACT: None.

EFFECTIVE DATE: This act shall take effect on the thirtieth day after it shall have become a law.


Text

STATE OF NEW YORK ________________________________________________________________________ 3781 2011-2012 Regular Sessions IN SENATE March 3, 2011 ___________
Introduced by Sen. SMITH -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law and the penal law, in relation to unau- thorized entities, unregistered mortgage brokers and mortgage fraud 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 78-a to read as follows: S 78-A. UNAUTHORIZED ENTITIES. THE CRIMINAL INVESTIGATIONS BUREAU SHALL REFER ANY INSTANCES OF A PERSON, PARTNERSHIP, ASSOCIATION, CORPO- RATION OR OTHER ENTITY WHICH IS OPERATING WITHOUT BEING CHARTERED, LICENSED OR REGISTERED AS REQUIRED UNDER THIS CHAPTER TO THE ATTORNEY GENERAL AND TO ANY OTHER FEDERAL, STATE OR LOCAL AGENCY OR ENTITY FOR APPROPRIATE ENFORCEMENT ACTION. AT LEAST EVERY SIX MONTHS, THE ATTORNEY GENERAL SHALL PROVIDE THE BUREAU WITH A WRITTEN UPDATE OF THE STATUS OF ANY ENFORCEMENT ACTIONS IT HAS TAKEN AGAINST SUCH PERSONS OR ENTITIES. S 2. Subdivision 5 of section 590 of the banking law is amended by adding a new paragraph (f) to read as follows: (F) NO MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT ORGANIZATION SHALL CONDUCT BUSINESS WITH ANY PERSON, PARTNERSHIP, ASSOCIATION, CORPORATION OR OTHER ENTITY WHICH IT KNOWS OR SHOULD HAVE KNOWN IS ACTING AS A MORT- GAGE BANKER OR A MORTGAGE BROKER WITHOUT BEING LICENSED OR REGISTERED AS REQUIRED BY THIS ARTICLE. A MORTGAGE BANKER, MORTGAGE BROKER OR EXEMPT ORGANIZATION SHALL PROMPTLY NOTIFY THE DEPARTMENT OF ANY SUCH UNLICENSED OR UNREGISTERED OPERATIONS. S 3. Subdivision 5 of section 598 of the banking law, as added by chapter 571 of the laws of 1986, is amended to read as follows: 5. Civil penalties assessable against unlicensed or unregistered persons or entities. If any non-exempt unlicensed or unregistered person or entity engages in activities encompassed by this article, he shall be liable to any person or entity affected by such activities for a sum of
money of not less than the amount of money paid to an affected person or entity in connection with such activities, nor more than four times such sum; PROVIDED HOWEVER THAT WHERE A NON-EXEMPT UNLICENSED OR UNREGISTERED PERSON HAS CONTINUED TO ENGAGE IN SUCH UNAUTHORIZED ACTIVITIES AFTER RECEIVING A CEASE AND DESIST NOTICE FROM THE SUPERINTENDENT, THE MAXIMUM AMOUNT OF LIABILITY SHALL BE UP TO TEN TIMES SUCH SUM. Such sum may be sued for and recovered by any person or entity for his use and benefit in any court of competent jurisdiction. S 4. The article heading of article 187 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: [RESIDENTIAL] MORTGAGE FRAUD S 5. Section 187.00 of the penal law, as amended by chapter 507 of the laws of 2009, is amended to read as follows: S 187.00 Definitions. As used in this article: 1. "Person" means any individual or entity. 2. ["Residential mortgage] "MORTGAGE loan" means a loan or agreement to extend credit, including the renewal, refinancing or modification of any such loan, made to a person OR AN ENTITY, which loan is primarily secured by either a mortgage, deed of trust, or other lien upon any interest in [residential] real property or any certificate of stock or other evidence of ownership in, and a proprietary lease from, a corpo- ration or partnership formed for the purpose of cooperative ownership of [residential] real property. 3. ["Residential real property" means real property improved by a one-to-four family dwelling, or a residential unit in a building includ- ing units owned as condominiums or on a cooperative basis, used or occu- pied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons, but shall not refer to unimproved real property upon which such dwellings are to be constructed. 4. "Residential mortgage] "MORTGAGE fraud" is committed by a person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be used in soliciting an applicant for, applying for, underwriting or closing a [residential] mortgage loan, or filing with a county clerk of any county in the state arising out of and related to the closing of a [residen- tial] mortgage loan, any written statement which: (a) contains materially false information concerning any fact material thereto; or (b) conceals, for the purpose of misleading, information concerning any fact material thereto. S 6. Section 187.05 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: S 187.05 [Residential mortgage] MORTGAGE fraud in the fifth degree. A person is guilty of [residential] mortgage fraud in the fifth degree when he or she commits [residential] mortgage fraud. [Residential mortgage] MORTGAGE fraud in the fifth degree is a class A misdemeanor. S 7. Section 187 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: S 187.10 [Residential mortgage] MORTGAGE fraud in the fourth degree. A person is guilty of [residential] mortgage fraud in the fourth degree when he or she commits [residential] mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one thousand dollars.
[Residential mortgage] MORTGAGE fraud in the fourth degree is a class E felony. S 8. Section 187.15 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: S 187.15 [Residential mortgage] MORTGAGE fraud in the third degree. A person is guilty of [residential] mortgage fraud in the third degree when he or she commits [residential] mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of three thousand dollars. [Residential mortgage] MORTGAGE fraud in the third degree is a class D felony. S 9. Section 187.20 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: S 187.20 [Residential mortgage] MORTGAGE fraud in the second degree. A person is guilty of [residential] mortgage fraud in the second degree when he or she commits [residential] mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of fifty thousand dollars. [Residential mortgage] MORTGAGE fraud in the second degree is a class C felony. S 10. Section 187.25 of the penal law, as added by chapter 472 of the laws of 2008, is amended to read as follows: S 187.25 [Residential mortgage] MORTGAGE fraud in the first degree. A person is guilty of [residential] mortgage fraud in the first degree when he or she commits [residential] mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one million dollars. [Residential mortgage] MORTGAGE fraud in the first degree is a class B felony. S 11. This act shall take effect on the thirtieth day after it shall have become a law.

Comments

Open Legislation comments facilitate discussion of New York State legislation. All comments are subject to moderation. Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity or hate speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Comment moderation is generally performed Monday through Friday.

By contributing or voting you agree to the Terms of Participation and verify you are over 13.

Discuss!

blog comments powered by Disqus