Relates to prohibiting mortgagors from recovering attorney's fees and/or expenses incurred during a foreclosure

BILL NUMBER:S3767

Title of bill

An act to amend the real property law, in relation to prohibiting mortgagors from recovering attorney's fees and/or expenses incurred during a foreclosure

Purpose

To prohibit the required payment of mortgagor's legal fees by, a mortgagee in a foreclosure proceeding for residential real property.

Summary of provisions

Section 282 of the real property law is amended to prohibit mortgagors from requiring that a mortgagee in a foreclosure proceeding of a residential real property be required to pay the legal fees of mortgagor.

Justification

As our state and our nation slowly recover from the nation's financial crisis, many homeowners are still trying to recover from the financial impact of the crisis. Unemployment and massive foreclosures have crippled our economy and have made the recovery from the crisis very slow. While the economy strengthens and employment grows, many citizens are trying to rebuild their lives.

One way many homeowners have tried to rebuild their lives is to work to save the largest asset many of them own: their home. As the bottom dropped out of the economy, many citizens lost their jobs and fell behind on their mortgages. Many people who had owned their homes for years or even decades found themselves unable to keep up with their payments even though they may have never missed a payment before the crisis.

As the job market has strengthened and people returned to work, homeowners found themselves in much worse financial positions as many banks added late fees, interest and exorbitant legal fees to their mortgage balance. For example, after a 75 year old U.S. Army veteran in Staten Island fell into hard times, he fell behind on his mortgage with a $66,000 balance. His daughter and son-in-law tried to assist the veteran and were shocked to find that the balance, with fees and legal costs, had ballooned to $190,000.

Many times during the foreclosure process law firms run up legal bills of tens of thousands of dollars. Many times these legal fees make it impossible for a homeowner to make their mortgage current and return to making regular payments. Many of the law firms involved in the foreclosure process have ongoing relationships with the banks foreclosing on these properties. There is no incentive for the law firms to keep the costs of the foreclosure process to a minimum since their client is not the party paying the legal fees. Most times, when the mortgagee fails to pay the legal fees and the home is foreclosed, the law firms settle for much less than their stated fees with the bank.

Therefore, since it is in the best interest of our economy to allow homeowners recovering from the financial crisis to make their mortgage current, it is in the best interest of the economy of our state to stop law firms from passing exorbitant legal fees to homeowners trying to prevent their home from being foreclosed. In addition, since the law firms involved have no incentive to keep their fees to a minimum, and in many cases their incentive is to run up their fees since they do not have an ongoing relationship with the fee payer, provisions requiring mortgagees to pay for legal fees in the foreclosure process is against public policy.

Legislative history

New bill.

Fiscal implications

No cost.

Effective date

This act shall take effect immediately.