The Home Equity Theft Prevention Act (HETPA), effective as of February 1, 2007, is intended to prevent abusive and fraudulent practices by purchasers of distressed properties who falsely promise to “save” residential properties and to reconvey them to the homeowners at a future date. The Act regulates certain sales of distressed properties by imposing stringent procedural and substantive requirements for sales contracts (“covered contracts”) between homeowners (“equity sellers”) and purchasers (“equity purchasers”). Because the Act is broadly worded, imposes potential civil and criminal penalties for violations on both equity purchasers as well as lending institutions, and creates a right of rescission extending for two years after a sale, lenders and title companies are reluctant to insure or lend funds to transactions falling within the Act. In addition, HETPA adds a new procedural step in a mortgage foreclosure proceeding, i.e., the service of a statutory form of notice, which applies in all residential foreclosures, and which is part of a new wave of procedural requirements required in mortgage foreclosures.

 

Laws added or amended. HETPA amends Banking Law § 595, which sets forth penalties for mortgage bankers, mortgage brokers or banking organizations which fail to comply with HEPTA. HEPTA also adds two new statutes – i.e., Real Property Law § 265-a, which contains the bulk of the new substantive and procedural requirements for sales of distressed properties, and RPAPL § 1303, which requires the service of a statutory form of notice in all foreclosures of owner-occupied one-to-four family dwellings. 

 

Effect on title insurance when the transaction falls within HEPTA. Most title companies will not insure a transaction which falls within the act and constitutes a regulated transaction. It is therefore important in many cases to be prepared to establish to the satisfaction of the title company that the a transaction involving a distressed property is exempt, such as a sale to a purchaser who uses the property as his or her personal residence. Title companies often used form affidavits in these circumstances. See Benders Forms for the Consolidated Laws of New York, RPL § 265-a, FORM 3: Purchaser’s Exemption Affidavit under the Home Equity Theft Prevention Act; FORM 4: Equity Seller and Equity Purchaser Closing Affidavit: Home Equity Theft Prevention Act.