BILL NUMBER: S161

SPONSOR: HOYLMAN
 
TITLE OF BILL:

An act to amend the general obligations law, in relation to pre-payment
penalties for mortgages secured by real property owned in a cooperative
form of ownership

 
PURPOSE:

This bill will forbid prepayment penalties and fees from being charged
or collected on a loan or forbearance secured by real property owned in
a cooperative form ownership where over fifty percent of the units are
shareholder occupied and will make such prepayment penalties unenforcea-
ble.

 
SUMMARY OF SPECIFIC PROVISIONS:

Section 1 amends paragraph b of subdivision 3 of section 5-501 of the
general obligations law, as amended by chapter 472 of the laws of 2008.

              

 
JUSTIFICATION:

The Consumer Financial Protection Bureau has rules restricting the abil-
ity to impose prepayment penalties on most new mortgages for individuals
and not commercial properties. The CFPB has limited prepayment penalties
to fixed-mortgages that are considered to be "qualified mortgages". This
rule applies to single family units, including those that are part of
co-ops; therefore if an individual owns a single unit in a 200-unit
building, the protections would apply. However these protections exclude
the 200-unit building as a whole, due to it being considered a commer-
cial property.

Currently in New York State, there are provisions that limit the ability
of a lender to impose a prepayment penalty on loans with an interest
rate that exceeds six percent per annum and which are secured primarily
by a one-to-six family owner-occupied residence or certificates of stock
or other evidence of owner in a corporation or other entity formed for
the purpose of cooperative ownership of real estate. A lender may not
impose a prepayment penalty on such loans on or after one year from the
date the loan was made and, in the case of loans that are not fixed rate
the interest rate must remain fixed for a period of at least five years
for a prepayment penalty to be legally permissible. In all cases, the
mortgage note must expressly provide for a prepayment penalty.

Prepayment penalties and fees can trap families and leave them in situ-
ations with the only option being foreclosure. With similar legislation
passed in Colorado, this elimination, of prepayment penalties would be a
step in the right direction for lowering the increasing number of fore-
closures.

 
LEGISLATIVE HISTORY:

S.4056 of 2021-2022(Hoylman): Died in Judiciary

A.1877 of 2021-2022(Dinowitz): Passed Assembly

S.3347 of 2019-2020(Hoylman): Died in Judiciary
A.2667 of 2019-2020(Dinowitz): Passed Assembly

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediately.