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Borrower’s Death Does NOT Automatically Accelerate a Reverse Mortgage

Does the death of the borrower automatically accelerate a reverse mortgage? In a decision that is good news for reverse mortgage lenders, a recent New York appellate court answered no. In Mortgage Solutions v. Fattizzo, _ AD3d_, (2d Dep’t, May 1, 2019), the New York Supreme Court, Appellate Division, Second Department, considered whether the statute of limitations for enforcing reverse mortgage loans begins to run upon the death of the borrower. Defendant contended that the foreclosure action, filed August 6, 2014, was time-barred by the six year New York Statute of Limitations because the cause of action accrued on the date the borrower died, February 19, 2008.

The Court focused on the language in the reverse mortgage at issue – “[l]ender may require immediate payment in full of all outstanding principal and accrued interest if …” (emphasis added) – and noted that it confers upon the holder of the note and mortgage the option, but not the obligation, to accelerate payment of the debt. The Court held that an affirmative act by the lender was needed to accelerate the debt.

Accordingly, in New York, absent different language in the mortgage, the death of the borrower does not automatically amount to accrual of a cause of action for purposes of the statute of limitations. This is a departure from prior New York case law, although the same conclusion recently reached under Florida law.

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Reverse Mortgage Update: New York Law Mandates New Foreclosure Notices and Certificate of Merit

New York has signed into law an amendment redefining a reverse mortgage as a “home loan.” With this amendment, statutory pre-foreclosure ninety day notices (RPAPL 1304) and a “certificate of merit” (CPLR 3012-b) will be required in all New York reverse mortgage foreclosures. Additionally, New York’s foreclosure settlement conference law (CPLR 3408) now incorporates by reference the new “home loan” definition.

The legislation was signed by Gov. Andrew Cuomo on April 12, 2018 but “shall be deemed to have been in full force and effect on and after April 20, 2017.” However, the pre-foreclosure notice requirement specific to reverse mortgages has an effective date of May 12, 2018.

Under the new legislation, for actions commenced after May 12, 2018, lenders, assignees or servicers are required to provide a pre-foreclosure notice at least 90 days before commencing legal action against the borrower or borrowers at the property address and any other addresses of record. The language of the notice is set by statute.

Although the 90-day waiting period does not apply, or ceases to apply under certain circumstances (i.e. where a borrower no longer occupies the residence as a principal dwelling),the 90 Day Notice is a condition precedent which, if not strictly complied with, may subject a foreclosure action to dismissal. Further, the foreclosing party is required by statute to deliver the notices by first class and certified mail. Relevant case law makes clear that evidencing the proof of mailing may require tracking documentation for first class mail and certified receipts for notices sent by certified mail.

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What Will The Proposed New York Cybersecurity Requirements For Financial Institutions Really Make Companies Do?

In early September 2016, the New York Department of Financial Services (“DFS”) proposed a set of data security regulations (the “Proposal”) that would govern financial institutions, banks, and insurance companies subject to the jurisdiction of the agency (“covered entities”).  After receiving public comments, DFS revised and resubmitted the Proposal on December 28, 2016.  If the Proposal ultimately goes into effect it would require that covered entities have a written information security policy (“WISP”) and outline specific provisions (substantive and procedural) that must be contained in that document.  While the Proposal has garnered a great deal of public attention, the majority of the provisions in the latest version are not unique.

Prior to the Proposal at least four states already required that if a company collected financial information about consumers within their jurisdiction some, or all, of the company’s security program must be reduced to writing; three states required that an employee be specifically designated to maintain a security program.  More importantly, the Federal Gramm Leach Bliley Act (“GLBA”) contains broad requirements that mimic many of the Proposals provisions.  This includes, for example, the requirement that a financial institution conduct a risk assessment and maintain data breach response procedures.

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Bank Regulators take Aim at Payday Lenders and AML Control

In two recent posts on BryanCavePayments.com, Bryan Cave attorneys have addressed new developments related to the CFPB’s efforts to regulate payday lenders through their banking relationships as well as statements from New York’s top banking regulators suggesting that bank executives should be held personally liable for anti-money laundering violations.

On April 1st (but unfortunately not part of any April Fools joke), John Reveal published a post on the CFPB’s efforts against payday lenders.

In May 2014, the Department of Justice (DOJ) and the FDIC were criticized by the U.S. House of Representatives’ Committee on Oversight and Government Reform in May 2014 Report for using the DOJ’s “Operation Choke Point” to force banks out of providing services to payday lenders and other “lawful and legitimate merchants”. The Committee’s report noted, among other things, that the DOJ was inappropriately demanding, without legal authority, that “bankers act as the moral arbiters and policemen of the commercial world”.

Now the CFPB has announced that it is considering rules that would end “payday debt traps”.  At least the CFPB is following standard regulatory processes in doing so rather than trying to regulate payday lenders by punishing their bankers.  The CFPB’s announcement, published March 26, 2015 (available here), outlines its proposals in preparation for convening a Small Business Review Panel to gather feedback from small lenders, which the CFPB refers to as “the next step in the rulemaking process”.

The CFPB’s proposal considers payday loans, deposit advance products, vehicle title loans, and certain other loans, and includes separate proposals for loans with maturities of 45 days or less, and for longer-term loans.  Broadly speaking, the CFPB is considering two different approaches – prevention and protection – that lenders could choose from.

You can read the rest of John’s post here.

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