From the NY Times:
NEW YORK STATE’S Home Equity Theft Prevention Act, which took effect on Feb. 1, is meant to protect homeowners who have defaulted on their mortgages from predators intent on bilking them out of their property. But lawyers and title insurers say the law may have some unintended consequences.
“The Legislature’s intentions were good,” said John Martin, the general counsel for All New York Title in White Plains. “But this law is going to cause problems for the very people it was intended to protect.”
The law applies to the owner of a one- to four-family home who is facing foreclosure or who is more than two months behind on mortgage payments. If he sells the house to avoid foreclosure, under some circumstances he can rescind the sale for up to two years.
The law was intended to curtail scams in which a buyer approaches an owner in financial distress, offers to buy the house for less than it is worth while allowing the owner to remain in it, and then promises to sell the house back if the owner makes payments to the buyer.
While the law does protect homeowners from such tactics, Mr. Martin said, it will also make it difficult for owners facing foreclosure to find investors to help them out.
Under the new law, if a homeowner in default sells to an “equity purchaser” — basically, someone who is not going to use the house as his principal residence — the owner has two years to rescind the sale if the buyer has not fully complied with the law.
“And there are a host of requirements to comply with,” said Bruce Bergman, a mortgage lawyer in Garden City, N.Y. He pointed out that the law is so detailed it specifies the type size to be used in various parts of the sales contract. “Even if a purchaser crosses every t and dots every i,” he said, “he can never be sure that his compliance with the law won’t be attacked. Title insurers have the same concerns.”
William Friedman, a real estate lawyer in Hempstead, N.Y., said lawyers who represent real estate investors will face the problems with the new law head-on. “How can I let a client buy a property knowing that the seller can come back two years from now and demand the rescission of the sale?” he said. “This is going to be a monster problem.”