The Home Equity Theft Prevention Act ("HETPA") became effective on February 1, 2007 and now governs certain sales of homes in foreclosure or default. If you are planning to sell a home in foreclosure or default, you should be aware of your rights under the Act, and know what to expect from a legitimate buyer. The Home Equity Theft Prevention Act was passed in response to recent scams which targeted homeowners in financial distress (often elderly or unsophisticated homeowners).
Home equity theft occurs when investors approach a vulnerable homeowner in foreclosure or default and agree to pay off the arrearage owed on the mortgage by the homeowner, and in return, require the homeowner to sign the deed over to them. Often the homeowner through a reconveyance agreement is allowed to continue to live in the property renting it from the investor with the promise that they can buy back the property at some later date. The reality is, however, that the homeowner is often evicted and the investor sells the property to a third-party, keeping all the equity. In other instances, the investor cashes out on the equity in the home with a new mortgage– usually through a cash-out refinance, leaving the homeowner with a mortgage balance larger than the previous and a monthly payment that is completely unaffordable.
Definitions and Covered Transactions
Under the Act, a Covered Contract is defined as a contract or agreement between an Equity Seller and an Equity Purchaser. The homeowner or property owner at the time of the equity sale is referred to as the Equity Seller. An Equity Purchaser is defined as any person who acquires title to any residence in foreclosure or default.
Only transactions involving an Equity Purchaser are covered by the Act. Most real estate transactions between sellers and Purchasers, however, are not covered by the Act because the law excludes from the definition of Equity Purchaser those who purchase a property as follows:
• To use, and then actually uses, the property as his/her primary residence;
• By a deed from a referee in a foreclosure sale;
• At any sale of property authorized by statute;
• By order or judgment of any court;
• From a spouse, or from a parent, grandparent, child, grandchild or sibling of such person or such person’s spouse;
• As a not-for-profit housing organization or as a public housing agency; or
• As a bona fide purchaser or encumbrancer for value (e.g. a lienholder)
In order to protect homeowners, the contract of sale between an equity seller and equity purchaser must meet the following requirements: Contract must be fully completed (i.e., no blank spaces); Font size of the printed contract must be equal to at least 12-point bold type; If Spanish is primary language of the seller, the agreement must be provided in English and in Spanish; Name, address and phone number of the buyer; Address of the subject property; Consideration to be paid; List of all services that buyer has promised; Terms for payment of the consideration; Time at which possession of the property must be surrendered; Terms of any rental or lease agreement; Terms of any reconveyance agreement; Notice of right to cancellation in the immediate proximity of signature line and must be printed in 14-point type on the agreement; and Notice of cancellation form to be attached to the contract.
5-Day Right of Rescission
The Act also gives the equity seller a five-day right to cancel the contract. Once an equity seller cancels the contract, the equity purchaser must return all contracts and other documents signed by the seller within 10 days of cancellation. Cancellation of the contract releases the equity seller of all obligations to the equity purchaser.
2-Year Right of Rescission - Generally, a violation of the contractual requirements of the Act makes the conveyance voidable and may be rescinded by the homeowner within 2 years of the date the deed was recorded. The statute then gives the purchaser (or its successor) twenty days to reconvey the property on the condition of repayment of any consideration paid to the seller.
6-Year Statute of Limitations - Within 6 years, a homeowner may bring a cause of action for damages or equitable relief, treble damages and attorneys fees and costs for a violation of HETPA. Additionally, an equity purchaser can be held criminally liable for violations of the law as either a Class E Felony or a Class A misdemeanor and subject to a fine of not more than $25,000.00.
For more information, see New York State Banking Department pamphlet on the Home Equity Theft Prevention Act.