New law to help owners facing foreclosure

The following article was released by Crains New York Business.


By Amanda Fung

Published: December 16, 2009 - 2:39 pm

A landmark foreclosure law designed to help thousands of middle class New Yorkers keep their homes was signed into law Tuesday by Gov. David Paterson.

It is designed to protect property values by requiring lending institutions to maintain foreclosed homes and make them safe and habitable for tenants. The law also expands protections to homeowners with all types of loans. Previously, court-based settlement conferences—where homeowners, court officials and banks sit down to discuss foreclosure proceedings—were only offered to homeowners with sub-prime loans.

In addition, under the new law banks are required to notify tenants at least 90 days before foreclosing on properties to give tenants time to find a new home.

“We still need to do a little more, but overall this is going to go a long way in keeping dreams of homeowners alive,” said state Sen. Jeff Klein (D, Bronx-Westchester), who sponsored the legislation and has been working on it for more than two years.

Before this law was passed, local governments and community groups spent money and time to maintain foreclosed properties to prevent these properties from becoming blighted neighborhood eyesores, Mr. Klein said. Now lending institutions are responsible for maintaining these properties.

The law also aims to prevent foreclosure by allowing banks to decrease the principal of a loan for homes where the home's value has fallen below the original loan amount. In return, when the homeowner sells the property, the banks will get a percentage of that sale price.

“The laws we have passed in New York have stood as a national model for foreclosure mitigation,” Mr. Paterson said, in a statement. “This effort is about keeping New Yorkers in their homes and protecting them during this economic crisis.”

“We commend the government for passing this important legislation,” said Michael Minott, program manager of external education at Neighborhood Housing Services of NYC.

For the first 10 months of 2009, New York state reported more than 58,200 foreclosures, according to Realtytrac.com. Among the top foreclosure counties in the state are Queens with 10,521, Bronx with 3,071 and Manhattan with 1,238. Mr. Minott predicts that the problem will continue to increase as adjustable rate mortgage cause homeowners to experience higher payments. “That will trigger a new wave of default,” he said.

The new law is also expected to crack down on foreclosure and loan modification scams that have arisen due to the market conditions. The law bans any firm from collecting upfront fees from homeowners for loan modifications. Many of these independent loan modification companies charge an unnecessary $2,500 upfront fee, Mr. Klein said.

“Homeowners don't need to hire these companies,” he said. “They can get their lending institution or a U.S. Department of Housing and Urban Development-approved counselor to do it for free.
Noting that many of these opportunistic businesses take the fees and just disappear, Mr. Minott said, “It will hopefully put them out of business.