S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   6083
 
                        2021-2022 Regular Sessions
 
                           I N  A S S E M B L Y
 
                              March 10, 2021
                                ___________
 
 Introduced by M. of A. ZINERMAN -- read once and referred to the Commit-
   tee on Banks
 
 AN ACT to amend the banking law, the real property law, the real proper-
   ty  actions  and  proceedings  law,  the  general business law and the
   general obligations law, in relation  to  enacting  the  "Home  Equity
   Fraud Act"

   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. Short title. This act shall be known and may  be  cited  as
 the "Home Equity Fraud Act".
   §  2.  Legislative  findings.  The  legislature hereby finds that many
 senior citizens and minority homeowners in New York have  been  targeted
 by  unethical home improvement contractors, mortgage companies, mortgage
 brokers and finance companies who induce these homeowners into  entering
 into high cost high interest rate mortgage agreements which the homeown-
 er  is often unable to afford with the intent of foreclosing on the home
 and stripping the equity.
   The legislature further finds that in  order  to  entice  people  into
 entering  into these agreements they are promised refinancing of primary
 mortgages, consolidation of loans and outstanding bills  and  are  given
 cash  but often are not told or do not understand that they are securing
 the loan with a mortgage lien on their home which will lead to  foreclo-
 sure  in  the  event  of  default. Often these loans are documented with
 false and misleading documentation provided by brokers which could easi-
 ly be determined to be false if checked by the lender. Despite  prohibi-
 tions  contained  in federal law many of these loans are based on equity
 in the home and not on the borrower's ability  to  pay.  Since  many  of
 these  homeowners  live  on  a fixed income, they are unable to make the
 required payments and end up losing their homes. This  practice  appears
 to  be targeted in neighborhoods with a high concentration of senior and
 minority residents.

  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
              

                                                            LBD10188-01-1

 A. 6083                             2
 
   The legislature further finds that it is in the best interest  of  the
 citizens  of this state that these unethical practices should be prohib-
 ited by law and that unscrupulous individuals should be denied the abil-
 ity to utilize the courts of this state to perpetrate these abuses  upon
 senior  citizens and minority residents of this state and does therefore
 enact this Home Equity Fraud Act in order to prevent predatory lending.
   § 3. Subdivision 1 of section 595-a of the banking law is  amended  by
 adding four new paragraphs (i), (j), (k) and (l) to read as follows:
   (I)  ENGAGING  IN  ANY  ACTIVITY, TRANSACTION OR COURSE OF BUSINESS IN
 CONNECTION WITH A HOME IMPROVEMENT  CONTRACT  AS  DESCRIBED  IN  SECTION
 SEVEN HUNDRED SEVENTY OF THE GENERAL BUSINESS LAW OTHER THAN WITH REGARD
 TO  PROVIDING  SERVICES DIRECTLY CONNECTED WITH THE MAKING OF A MORTGAGE
 LOAN PURSUANT TO THE PROVISIONS  OF  THIS  ARTICLE,  AND  ONLY  IF  SUCH
 SERVICES  AND  THE  FEES  PAID OR TO BE PAID IN CONNECTION THEREWITH ARE
 FULLY DISCLOSED AND AGREED TO IN WRITING BY ALL PARTIES  TO  THE  TRANS-
 ACTION.
   (J) CHARGING OR PAYING, EITHER DIRECTLY OR INDIRECTLY, A FEE IN EXCESS
 OF  THE GREATER OF FIVE HUNDRED DOLLARS OR THREE PERCENT OF THE MORTGAGE
 LOAN FOR THE SERVICES RENDERED BY THE MORTGAGE BROKER.
   (K) THE FAILURE OF A MORTGAGE BANKER OR EXEMPT ORGANIZATION TO  ASSURE
 THAT  NO  MORE  THAN  A TOTAL OF SIX PERCENT OF THE VALUE OF THE LOAN IS
 CHARGED FOR ALL SERVICES RENDERED IN CONNECTION WITH QUALIFYING FOR  AND
 RECEIVING THE LOAN, PROVIDED THAT ANY FEES WHICH ARE REQUIRED TO BE PAID
 TO  ANY  PUBLIC  OFFICER  FOR  THE FILING, RECORDING OR RELEASING IN ANY
 PUBLIC OFFICE OF A DOCUMENT SECURING THE LOAN AND THE COSTS OF ANY TITLE
 INSURANCE OR THE FEES OF AN ATTORNEY VOLUNTARILY ENGAGED BY  AND  SOLELY
 REPRESENTING  THE INTERESTS OF THE BORROWER SHALL NOT BE INCLUDED WITHIN
 THIS LIMIT.
   (L) CHARGING A FEE OR ANYTHING OF VALUE IN CONNECTION WITH  THE  REFI-
 NANCING OF A MORTGAGE LOAN UNLESS SUCH REFINANCING IS FOR THE PURPOSE OF
 REDUCING  THE  RATE  ON THE MORTGAGE LOAN IN AN AMOUNT WHICH EXCEEDS THE
 COST OF SUCH REFINANCE AND WHICH WILL ALLOW THE MORTGAGOR TO RECOVER THE
 COST OF REFINANCING THE LOAN WITHIN TWO YEARS OF THE DATE OF SUCH  REFI-
 NANCE.  THIS  PROVISION  SHALL  NOT  APPLY TO ANY ADDITIONAL PROCEEDS IN
 EXCESS OF THE ORIGINAL LOAN RECEIVED BY A MORTGAGOR IN  CONNECTION  WITH
 SUCH REFINANCING.
   §  4.  Paragraph  (d) of subdivision 3 of section 595-a of the banking
 law, as relettered by chapter 400 of the laws  of  1993,  is  relettered
 paragraph (e) and a new paragraph (d) is added to read as follows:
   (D)  EACH  MORTGAGE  BROKER,  MORTGAGE  BANKER AND EXEMPT ORGANIZATION
 SHALL PROVIDE TO EACH APPLICANT FOR A MORTGAGE LOAN  AT  OR  BEFORE  THE
 TIME OF APPLICATION, IN WRITING:
   (1) A DISCLOSURE STATING WHETHER THE MORTGAGE LOAN WILL BE RETAINED BY
 THE  ORIGINAL LENDER OR SOLD AFTER CLOSING TO A THIRD PARTY AND IF IT IS
 TO BE SOLD, THE NAME OF SUCH THIRD PARTY; AND
   (2) A NOTICE GIVING THE APPLICANT THE RIGHT TO DESIGNATE A THIRD PARTY
 TO RECEIVE COPIES OF ALL WRITTEN COMMUNICATIONS REGARDING THE  LOAN  AND
 SETTING FORTH THE PROCEDURE FOR THE APPLICANT TO EXERCISE SUCH RIGHT.
   IN  THE EVENT THAT THE DISCLOSURE AND NOTICES REQUIRED BY THIS SECTION
 ARE NOT MADE, THE MORTGAGE LOAN MADE AS A  RESULT  OF  SUCH  APPLICATION
 SHALL  NOT  BE  SOLD  OR TRANSFERRED NOR ANY ACTION TAKEN TO ENFORCE THE
 LENDER'S RIGHTS UNTIL THIRTY DAYS AFTER SUCH DISCLOSURES  ARE  MADE  AND
 ACKNOWLEDGED BY THE BORROWER.
   §  5. Subdivision (d) of section 347 of the banking law, as amended by
 chapter 22 of the laws of 1990, is amended and  a new subdivision (e) is
 added to read as follows:

 A. 6083                             3
 
   (d) The licensee has engaged in the business of a sales finance compa-
 ny and has done or failed to do any act, except the failure to  pay  the
 fees  required,  which would be grounds for the suspension or revocation
 of its license pursuant to section  four  hundred  ninety-five  of  this
 chapter were it required to obtain such a license[.];
   (E) THE LICENSEE HAS ENGAGED IN ANY ACTIVITY, TRANSACTION OR COURSE OF
 BUSINESS  OR  HAS  PAID OR OBTAINED ANY MONEY OR OTHER THING OF VALUE IN
 CONNECTION WITH A HOME IMPROVEMENT CONTRACT AS DEFINED IN SECTION  SEVEN
 HUNDRED  SEVENTY  OF  THE  GENERAL BUSINESS LAW WITHOUT FULLY DISCLOSING
 SUCH ACTIVITY, TRANSACTION OR COURSE OF BUSINESS AND ANY FEES  OR  THING
 OF  VALUE  PAID OR TO BE PAID IN CONNECTION THEREWITH AND WITHOUT HAVING
 OBTAINED THE AGREEMENT IN WRITING FROM ALL PARTIES TO THE TRANSACTION.
   § 6. Section 592-a of the banking law  is  amended  by  adding  a  new
 subdivision 3 to read as follows:
   3.  ANY  MORTGAGE  BROKER REGISTERED UNDER THIS ARTICLE WHO IN ANY WAY
 PLACES WITH OR OBTAINS A MORTGAGE LOAN FROM A MORTGAGE BANKER OR  EXEMPT
 ORGANIZATION  REGISTERED  UNDER  THIS  ARTICLE SHALL FOR ALL PURPOSES BE
 DEEMED TO BE AN AGENT OF  SUCH  BANKER  OR  EXEMPT  ORGANIZATION.    ANY
 ATTEMPT BY ANY PERSON TO VOID THIS PROVISION BY CONTRACT OR IN ANY OTHER
 WAY SHALL BE VOID AS AGAINST PUBLIC POLICY.
   § 7. The real property law is amended by adding a new section 254-e to
 read as follows:
   § 254-E. CERTAIN MORTGAGE PROVISIONS PROHIBITED. NO MORTGAGE ON A LOAN
 SECURED  PRIMARILY  BY  AN  INTEREST  IN REAL PROPERTY USED AS A PRIMARY
 RESIDENCE BY THE MORTGAGOR AT THE TIME SUCH LOAN IS MADE  SHALL  CONTAIN
 ANY PROVISION WHICH:
   1. ALLOWS FOR A BALLOON PAYMENT; OR
   2.  ALLOWS  FOR A PAYMENT SCHEDULE WITH REGULAR PERIODIC PAYMENTS THAT
 CAUSE THE PRINCIPAL BALANCE TO INCREASE; OR
   3. ALLOWS FOR A PROVISION STATING THAT THE INTEREST RATE OF  THE  LOAN
 UNDERLYING THE MORTGAGE INCREASES AFTER DEFAULT.
   §  8.  The  real  property  actions  and proceedings law is amended by
 adding a new section 1316 to read as follows:
   § 1316. NOTICE TO MORTGAGOR OR OWNER. IN ALL FORECLOSURE  ACTIONS  THE
 MORTGAGEE,  UPON  COMMENCEMENT  OF A FORECLOSURE PROCEEDING, SHALL SERVE
 THE MORTGAGOR AT THE SAME TIME AS SERVICE OF THE SUMMONS AND  COMPLAINT,
 A NOTICE IN THE FOLLOWING FORM:
   "NOTICE TO MORTGAGOR OR OWNER:
   YOU  HAVE BEEN SERVED WITH A SUMMONS AND COMPLAINT IN A MORTGAGE FORE-
 CLOSURE PROCEEDING. IF YOU FAIL TO  RESPOND  TO  THESE  IMPORTANT  LEGAL
 DOCUMENTS, YOU MAY LOSE YOUR HOME.
   READ THIS CAREFULLY:
   YOU  MAY BE ABLE TO PREVENT YOUR HOME FROM BEING LOST IN A FORECLOSURE
 ACTION.
   STATE AND FEDERAL LAWS ALLOW YOU TO DEFEND FORECLOSURE PROCEEDINGS  IN
 CERTAIN CIRCUMSTANCES AND MAY ALLOW YOU TO PREVENT A FORECLOSURE ON YOUR
 HOME.  YOU MAY  BE ABLE TO OFFER DEFENSES IN THIS FORECLOSURE PROCEEDING
 UNDER THE FOLLOWING CIRCUMSTANCES:
   1. IF YOU GAVE A MORTGAGE ON YOUR HOME AS THE RESULT OF A DOOR TO DOOR
 TRANSACTION;
   2. IF YOU GAVE A MORTGAGE ON YOUR HOME IN  ORDER  TO  FINANCE  A  HOME
 IMPROVEMENT CONTRACT;
   3.  IF YOU DID NOT UNDERSTAND THAT YOU WERE SIGNING A MORTGAGE OR WERE
 UNAWARE THAT YOU HAD A MORTGAGE ON YOUR HOME;

 A. 6083                             4
 
   4. IF YOU WERE ON PUBLIC ASSISTANCE AT THE TIME YOU GAVE A MORTGAGE ON
 YOUR HOME, OR WERE RETIRED AND COLLECTING SOCIAL SECURITY OR SSI AND THE
 PERSON WHO TOOK THE MORTGAGE ON YOUR HOME KNEW YOU HAD A FIXED INCOME;
   5.  IF  YOU  WERE  ON  A LIMITED FIXED INCOME AT THE TIME YOU GAVE THE
 MORTGAGE ON YOUR HOME.
   ALSO, YOUR MORTGAGE DOCUMENTS MAY CONTAIN LANGUAGE STATING YOUR RIGHTS
 UNDER THE CONTRACT IN CASES WHERE YOU ARE SUBJECT TO FORECLOSURE.
   IF YOU THINK THAT YOU MAY HAVE A DEFENSE TO THIS FORECLOSURE  PROCEED-
 ING  YOU  MUST ACT PROMPTLY - FAILURE TO ANSWER THE ENCLOSED SUMMONS AND
 COMPLAINT WILL ALLOW THE MORTGAGEE'S OR  BANK'S  ATTORNEYS  TO  ENTER  A
 DEFAULT JUDGMENT AGAINST YOU.
   THE  FRONT  OF  THE  SUMMONS  WILL  TELL YOU HOW MANY DAYS YOU HAVE TO
 ANSWER BEFORE THE MORTGAGEE OR BANK MAY ENTER A DEFAULT JUDGMENT AGAINST
 YOU.
   YOU MAY CONSULT AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY.   THE
 LAW,  (NEW  YORK  REAL  PROPERTY ACTIONS AND PROCEEDINGS LAW ARTICLE 13)
 PROVIDES DEFENSES FOR CERTAIN MORTGAGORS AND HOMEOWNERS.
   THE PHONE NUMBERS AND  OFFICE  ADDRESSES  FOR  YOUR  LOCAL  LEGAL  AID
 OFFICES  ARE  CONTAINED  IN YOUR TELEPHONE DIRECTORY. IF YOUR PHONE BOOK
 HAS GOVERNMENT PAGES, THE PHONE NUMBER  AND  OFFICE  ADDRESSES  OF  YOUR
 LOCAL LEGAL AID OFFICES SHOULD BE LISTED THERE ALSO.
   ONLY  A  QUALIFIED  ATTORNEY  CAN  TELL YOU ALL OF YOUR RIGHTS IN THIS
 PROCEEDING.
   YOU MUST ACT PROMPTLY OR YOU MAY LOSE YOUR HOME."
   § 9. The real property actions  and  proceedings  law  is  amended  by
 adding a new section 1317 to read as follows:
   §  1317.  PLEADING  REQUIRED.  1. ANY COMPLAINT SERVED IN A PROCEEDING
 INITIATED PURSUANT TO THIS ARTICLE RELATING TO A MORTGAGE LOAN WHICH WAS
 INITIATED BY A MORTGAGE BANKER OR EXEMPT ORGANIZATION REGISTERED  PURSU-
 ANT  TO  SECTION FIVE HUNDRED NINETY-ONE OF THE BANKING LAW MUST CONTAIN
 AN AFFIRMATIVE ALLEGATION, WHICH ALLEGATION MUST BE PROVEN TO THE SATIS-
 FACTION OF THE COURT, THAT SUCH MORTGAGE BANKER OR  EXEMPT  ORGANIZATION
 HAS  COMPLIED WITH ALL OF THE PROVISIONS OF SECTION FIVE HUNDRED NINETY-
 FIVE-A OF THE BANKING LAW.
   2.  IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN WHICH THE MORTGAGE  TO
 BE  FORECLOSED  AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH
 WAS OWNED BY THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF
 SUCH MORTGAGE IT SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT  THE  TIME
 OF THE LOAN ORIGINATION THE MORTGAGOR DID NOT HAVE THE FINANCIAL ABILITY
 TO REPAY THE LOAN AND THAT THE FINANCIAL INSTITUTION KNEW OR SHOULD HAVE
 KNOWN  THAT  THE MORTGAGOR WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE
 MORTGAGE BROKER, MORTGAGE BANKER OR EXEMPT ORGANIZATION WHICH ORIGINATED
 THE LOAN VIOLATED ANY PROVISION OF SECTION FIVE HUNDRED NINETY-FIVE-A OF
 THE BANKING LAW; OR (C)  THE  MORTGAGE  DOCUMENT  CONTAINS  A  PROVISION
 PROHIBITED BY SECTION TWO HUNDRED FIFTY-FOUR-E OF THE REAL PROPERTY LAW.
 THE  COURT  MAY  CONSIDER  FACTORS INCLUDING BUT NOT LIMITED TO THE FACT
 THAT THE MORTGAGOR WAS  NOT  EMPLOYED  AND  UNLIKELY  TO  OBTAIN  FUTURE
 EMPLOYMENT,  THE FACT THAT THE MORTGAGOR WAS LIVING ON A FIXED INCOME OR
 WAS THE RECIPIENT OF FEDERAL OR STATE ENTITLEMENT OF  PUBLIC  ASSISTANCE
 OR  THAT  THE PAYMENTS REQUIRED BY SUCH MORTGAGE LOAN, TOGETHER WITH THE
 PAYMENTS REQUIRED BY ANY OTHER LOAN SECURED BY THE PREMISES TO BE  FORE-
 CLOSED, WERE MORE THAN FIFTY PERCENT OF THE MORTGAGOR'S AFTER TAX MONTH-
 LY  INCOME AS OF THE DATE OF THE LOAN. FOR PURPOSES OF THIS SECTION, THE
 TERM FINANCIAL INSTITUTION SHALL INCLUDE ANY BANKING ORGANIZATION, MORT-
 GAGE BROKER, MORTGAGE BANKER OR LICENSED LENDERS INVOLVED IN THE  ORIGI-
 NATION OF THE MORTGAGE BEING FORECLOSED AND ANY ASSIGNEE OR SUCCESSOR OF

 A. 6083                             5
 
 SUCH  PERSON  OR  ENTITY.    IN ANY ACTION BROUGHT UNDER THIS ARTICLE IN
 WHICH ANY SUCH AFFIRMATIVE DEFENSE IS PROVEN TO THE SATISFACTION OF  THE
 FINDER  OF  FACT,  THE  COURT  MAY AWARD REASONABLE ATTORNEY FEES TO THE
 DEFENDANT.
   §  10.  Paragraph  (h)  of subdivision 1 of section 771 of the general
 business law, as amended by chapter 32 of the laws of 1989,  is  amended
 to read as follows:
   (h)  A notice to the owner that, in addition to any right otherwise to
 revoke an offer, the owner may  cancel  the  home  improvement  contract
 until  midnight  of  the [third] FIFTEENTH business day after the day on
 which the owner has signed an agreement or offer to purchase relating to
 such contract.  Cancellation occurs when written notice of  cancellation
 is  given to the home improvement contractor. Notice of cancellation, if
 given by mail, shall be deemed given when deposited in a mailbox proper-
 ly addressed and postage prepaid. Notice of cancellation shall be suffi-
 cient if it indicates the intention  of  the  owner  not  to  be  bound.
 Notwithstanding the foregoing, this paragraph shall not apply to a tran-
 saction  in  which  the  owner  has  initiated  the contact and the home
 improvement is needed to meet a bona fide emergency of  the  owner,  and
 the  owner  furnishes  the  home  improvement contractor with a separate
 dated and signed personal statement in the owner's handwriting  describ-
 ing the situation requiring immediate remedy and expressly acknowledging
 and  waiving  the  right  to cancel the home improvement contract within
 [three] FIFTEEN business days. For the purposes of  this  paragraph  the
 term "owner" shall mean an owner or any representative of an owner.
   §  11.  The  general  business  law is amended by adding a new section
 771-c to read as follows:
   § 771-C.  RESPONSIBILITIES OF HOME IMPROVEMENT CONTRACTORS. 1. NO HOME
 IMPROVEMENT CONTRACTOR SHALL ENGAGE  IN  ANY  ACTIVITY,  TRANSACTION  OR
 COURSE  OF  BUSINESS  OR PAY OR RECEIVE ANY FEE, PAYMENT, MONEY OR OTHER
 THING OF VALUE IN CONNECTION WITH THE FINANCING OF  A  HOME  IMPROVEMENT
 CONTRACT  WITHOUT  FULLY DISCLOSING SUCH ACTIVITY, TRANSACTION OR COURSE
 OF BUSINESS AND ANY FEES, PAYMENT OR OTHER THING OF VALUE PAID OR TO  BE
 PAID  IN  CONNECTION THEREWITH AND WITHOUT HAVING OBTAINED THE AGREEMENT
 IN WRITING FROM ALL PARTIES TO THE TRANSACTION TO SUCH ACTIVITY AND  THE
 PAYMENT THEREFOR.
   2.  IN  ADDITION  TO  ANY RIGHT OTHERWISE TO REVOKE A HOME IMPROVEMENT
 CONTRACT, THE BUYER MAY CANCEL  SUCH  CONTRACT  UNTIL  MIDNIGHT  OF  THE
 FIFTEENTH  DAY  AFTER  THE  HOME IMPROVEMENT CONTRACT WAS SIGNED BY BOTH
 PARTIES. CANCELLATION SHALL OCCUR WHEN WRITTEN NOTICE OF CANCELLATION IS
 GIVEN TO THE HOME IMPROVEMENT CONTRACTOR.  NOTICE  OF  CANCELLATION,  IF
 GIVEN BY MAIL, SHALL BE DEEMED GIVEN WHEN DEPOSITED IN A MAILBOX PROPER-
 LY  ADDRESSED  AND POSTAGE PREPAID. NOTICE OF CANCELLATION NEED NOT TAKE
 ANY PRESCRIBED FORM AND SHALL BE SUFFICIENT IF IT INDICATES  THE  INTEN-
 TION  OF  THE SIGNATORY NOT TO BE BOUND.  NOTWITHSTANDING THE FOREGOING,
 THIS SUBDIVISION SHALL NOT APPLY TO A TRANSACTION IN WHICH THE OWNER HAS
 INITIATED THE CONTACT AND THE HOME IMPROVEMENT IS NEEDED TO MEET A  BONA
 FIDE  EMERGENCY  OF THE OWNER, AND THE OWNER FURNISHES THE HOME IMPROVE-
 MENT CONTRACTOR WITH A SEPARATE DATED AND SIGNED PERSONAL  STATEMENT  IN
 THE  OWNER'S  HANDWRITING  DESCRIBING  THE SITUATION REQUIRING IMMEDIATE
 REMEDY AND EXPRESSLY ACKNOWLEDGING AND WAIVING THE RIGHT TO  CANCEL  THE
 HOME IMPROVEMENT CONTRACT WITHIN FIFTEEN BUSINESS DAYS. FOR THE PURPOSES
 OF  THIS  SUBDIVISION THE TERM "OWNER" SHALL MEAN AN OWNER OR ANY REPRE-
 SENTATIVE OF AN OWNER.
   3. NO HOME IMPROVEMENT CONTRACT SHALL BE  ENFORCEABLE  UNLESS  AT  THE
 TIME  IT  IS  SIGNED  BY  THE HOMEOWNER, THE HOME IMPROVEMENT CONTRACTOR

 A. 6083                             6
 
 SHALL FURNISH TO THE  HOMEOWNER  A  NOTICE  CONTAINING  A  STATEMENT  IN
 SUBSTANTIALLY THE FOLLOWING FORM:
   YOU  THE  HOMEOWNER,  MAY  CANCEL  THIS  CONTRACT AT ANY TIME PRIOR TO
 MIDNIGHT OF THE FIFTEENTH BUSINESS DAY AFTER THE DATE OF THIS  CONTRACT.
 SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION.
   §  12.  The general obligations law is amended by adding a new section
 5-338 to read as follows:
   § 5-338. CERTAIN HOME EQUITY LOAN CONTRACTS; ENFORCEABILITY. 1.    ANY
 LOAN  MADE  IN  VIOLATION  OF  SECTION FIVE HUNDRED NINETY-FIVE-A OF THE
 BANKING LAW SHALL BE UNENFORCEABLE AND  NO  DEFAULT  JUDGMENT  SHALL  BE
 ENTERED  IN ANY ACTION AS A RESULT OF THE ALLEGED DEFAULT OF THE DEFEND-
 ANT TO MAKE PAYMENTS PURSUANT TO A LOAN AGREEMENT  WHICH  AROSE  AS  THE
 RESULT  OF  THE REFINANCE OF A PERSONAL RESIDENCE OWNED BY THE DEFENDANT
 WHETHER OR NOT SECURED BY A MORTGAGE UNLESS THE COURT MAKES AN  AFFIRMA-
 TIVE  FINDING  OF  FACT  IN  WRITING THAT THE PROVISIONS OF SECTION FIVE
 HUNDRED NINETY-FIVE-A OF THE BANKING LAW HAVE NOT BEEN VIOLATED.
   2. IN ANY ACTION BROUGHT SEEKING ENFORCEMENT OF A LOAN AGREEMENT WHICH
 AROSE FROM THE REFINANCING OF A PERSONAL RESIDENCE WHICH  WAS  OWNED  BY
 THE DEFENDANT FOR MORE THAN FIVE YEARS PRIOR TO THE DATE OF SUCH LOAN IT
 SHALL BE AN AFFIRMATIVE DEFENSE THAT: (A) AT THE TIME OF THE LOAN ORIGI-
 NATION THE BORROWER DID NOT HAVE THE FINANCIAL ABILITY TO REPAY THE LOAN
 AND  THAT  THE  FINANCIAL INSTITUTION KNEW OR SHOULD HAVE KNOWN THAT THE
 BORROWER WOULD NOT BE ABLE TO REPAY SUCH LOAN; (B) THE MORTGAGE  BROKER,
 MORTGAGE  BANKER  OR  EXEMPT  ORGANIZATION  WHICH  ORIGINATED  THE  LOAN
 VIOLATED ANY PROVISION OF SECTION  FIVE  HUNDRED  NINETY-FIVE-A  OF  THE
 BANKING  LAW; OR (C) ANY MORTGAGE DOCUMENT SIGNED CONTEMPORANEOUSLY WITH
 THE LOAN CONTAINS A PROVISION PROHIBITED BY SECTION TWO  HUNDRED  FIFTY-
 FOUR-E  OF THE REAL PROPERTY LAW. THE COURT MAY CONSIDER FACTORS INCLUD-
 ING BUT NOT LIMITED TO THE FACT THAT THE MORTGAGOR WAS NOT EMPLOYED  AND
 UNLIKELY  TO  OBTAIN  FUTURE EMPLOYMENT, THE FACT THAT THE MORTGAGOR WAS
 LIVING ON A FIXED INCOME OR WAS THE RECIPIENT OF FEDERAL OR STATE  ENTI-
 TLEMENT OF PUBLIC ASSISTANCE OR THAT THE PAYMENTS REQUIRED BY SUCH LOAN,
 TOGETHER  WITH  THE  PAYMENTS  REQUIRED BY ANY OTHER LOAN SECURED BY THE
 PREMISES SECURING SUCH LOAN, WERE MORE THAN FIFTY PERCENT OF THE BORROW-
 ER'S AFTER TAX MONTHLY INCOME AS OF THE DATE OF THE LOAN.  FOR  PURPOSES
 OF  THIS SECTION, THE TERM FINANCIAL INSTITUTION SHALL INCLUDE ANY BANK-
 ING ORGANIZATION, MORTGAGE BROKER, MORTGAGE BANKER  OR  LICENSED  LENDER
 INVOLVED  IN THE ORIGINATION OF THE LOAN FOR WHICH ENFORCEMENT IS SOUGHT
 AND ANY ASSIGNEE OR SUCCESSOR OF SUCH PERSON OR ENTITY.    IN  ANY  SUCH
 ACTION  IN  WHICH SUCH AFFIRMATIVE DEFENSE IS PROVEN TO THE SATISFACTION
 OF THE FINDER OF FACT, THE COURT MAY AWARD REASONABLE ATTORNEY  FEES  TO
 THE DEFENDANT.
   § 13. This act shall take effect on the first of October next succeed-
 ing  the date on which it shall have become a law.  Effective immediate-
 ly, the addition, amendment and/or repeal  of  any  rule  or  regulation
 necessary  for  the implementation of this act on its effective date are
 authorized to be made on or before such effective date.