Monday, January 29, 2007

NY Home Equity Theft Law

I'm trying to purchase a house from a homeowner in foreclosure and my attorney just pointed out a new New York statute called the Home Equity Theft Prevention Act. NY is one of the unfriendliest places to do business in the country and this law certainly is an abomination. Ostensibly the law is a result of people that prey on homeowners in foreclosure by getting the homeowner to Deed their home to them with the "promise" that they can continue to live there indefinitely. The buyer then re-finances the home for way over value, then stops making payments on the new loan and forcing the homeowner into foreclosure again.

This is certainly an unscrupulous practice. However, the provisions of the law give the homeowner two years to come back and recover their house. As a result, Title Insurance companies are going to be reluctant, if not completely refuse, to insure the home. This will prevent people from being able to sell their homes and prevent foreclosure.

While in principle, this seems like a reasonable way to save the poor or ignorant from unscrupulous buyers, it goes too far. "Let the buyer beware" is no longer a maxim in our society. "I'm a victim" is the rule of the day.

If an offer is too good to be true, then it's probably illegal. So, everyone must pay for those who want to take the easy way out.

UDATE: The Title company has advised me that they will provide Title Insurance for this property only if the contract was signed before Feb 1. This will work for this property but I have 4 properties I am negotiating short sales on, so I don't know if this new law will kill my business. I'm not violating any part of the law, but the Title companies are hedging.


The Home Equity Theft Reporter said...

I agree that the new law seems too go to far. However, historically, the Federal & State governments have shown a willingness to step in and "create" a "method of policing" in an industry when the industry (in this case, the foreclosure rescue industry)has demonstrated an inability or unwillingness to police themselves.

(ie. Federal laws regulating stock market transactions, stock exchange insider operations, and essentially, every consumer protection law represents a response to an industry abuse that has gone unaddressed by the industry in question).

In this regard, the government stepping in and getting involved shouldn't come as a surprise to those in the foreclosure rescue industry.

Unfortunately in this case, the law not only affects both the people who do "foreclosure rescue" for a living, but also everyone else, including novice and occasional real estate investors, who are being made to "pay for the sins of others."

Paul said...
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ForeclosureFish said...

Yes, this is another one of the new laws that states are passing to protect homeowners, which really only prevent free movement of business throughout the state. Laws should be designed to protect people against the unscrupulous acts of some individuals, but they should not restrict business transactions between two competent parties.

I guess the real reason is that so many states have found out that the common foreclosure victim is not always a competent party, and, unfortunately, some people have taken advantage of that fact to strip homes of their equity and leave the former homeowners with no other resources. States have had no other option to deal with the complaints, other than to protect homeowners from themselves more than anything else.

All we can really do is keep trying to find good, informed, competent homeowners to help out of their situations, and make sure they seem to know what is happening.

With one of the more draconian pilot programs in Illinois that was designed to protect homeowners from just about anything that could have gone wrong in the mortgage process, it was nice to see a large number of lenders effectively boycotting originating any loans in the areas affected by the program. Nothing can get a law suspended quicker than 50% drops in housing prices over a 6 month period.

Maybe we should consider teaching financial basics in high school, as many more consumers will own a home and have credit cards and other bills than will go into fields where they use such archane subjects as geometry. But as long as we keep trying to protect people from their own willful ignorance, we'll just end up giving away more and more of our rights to conduct business in any fashion: ethical or otherwise.

Paul said...

great comment - thanks
Yes, consumers need to 1)become educated about basics - like budgeting and 2) take responsibility for their actions. Several of the foreclosues I have dealt with are people that borrowed way more than the house was worth and spent the money on fancy cars, big TV's, etc.