Reverse Mortgages now subject to New York State Pre-Foreclosure Notices and Settlement Conferences
With regard to foreclosure actions of owner occupied one to four family residences, New York recently amended its Real Property Actions and Proceedings Law Section 1304 (R.P.A.P.L. § 1304) requiring a notice be sent to all borrowers at least ninety (90) days prior to commencing a foreclosure and Civil Procedure Law and Rules Section 3408 (C.P.L.R. § 3408) requiring mandatory settlement conferences, to include reverse mortgages, which were previously not subject to these statutes.
Homeowners over the age of sixty-two (62) may obtain a “reverse” mortgage loan, which functions in reverse of the typical loan. Instead of the borrower receiving the loan proceeds, and paying the lender monthly payments of principal and interest, the loan proceeds are disbursed to the borrower, not at closing, but monthly thereafter, in order to provide an “income”, and the borrower is only required to pay the real estate taxes and insurance. This continues until the borrower’s death, at which time the house is sold and the lender repaid from the proceeds of the sale. Obviously, the borrower cannot default in making required payments to the lender, as there are none, however, failure to pay the real estate taxes and insurance is a default under the reverse mortgage and will subject the borrower to foreclosure proceedings.
In the past, foreclosures of reverse mortgages were excluded from the mandates of R.P.A.P.L. § 1304 and C.P.L.R. § 3408, but these types of mortgages are now subject to the requirements of both. There is an exception, however, to the amended version of C.P.L.R. § 3408, which now requires settlement conferences for foreclosures of reverse mortgages. Where the default under a reverse mortgage consists of the failure to pay the principal and interest due on the loan upon the borrower’s death, a settlement conference pursuant to C.P.L.R. § 3408 is not required, since the real estate securing the reverse mortgage is no longer owner-occupied, unless, at the time of the last surviving borrower’s death, their surviving spouse resides at the property or their “successor-in-interest” resides at the property and owns or has a claim to the subject property.