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By Dan Rose
Updated on March 25, 2024

Governor Kathy Hochul took a significant step in protecting New York residents from the increasingly prevalent crime of deed theft, a deceitful practice where property owners are tricked into relinquishing the titles to their homes. The signed legislation, identified as S.6577/A.6656, is a comprehensive effort to strengthen existing measures and introduce new safeguards against this detrimental act and has been praised by local NY real estate lawyers.

One of the core aspects of this legislation is its empowerment of law enforcement agencies, particularly the Attorney General and local District Attorneys, to intervene in legal proceedings related to property ownership when investigating cases of deed theft. This new authority allows them to temporarily halt eviction proceedings, ownership disputes, and foreclosures during ongoing investigations. Courts are now mandated to grant these halts when there’s an active government investigation or civil/criminal actions underway.

Furthermore, the bill broadens the scope of crimes that empower prosecutors to nullify fraudulent sale and loan documents. This expansion provides a more robust legal framework to counter the various tactics employed by fraudulent entities engaged in deed theft.

Additionally, the legislation introduces several critical amendments to existing laws. It establishes RPAPL 756-A, a provision that not only allows but compels courts to assess ongoing investigations periodically and grants powers to law enforcement agencies to request stays in legal proceedings involving contested property titles. This provision aims to ensure that investigations into deed theft are not impeded by ongoing legal disputes.

Moreover, the legislation modifies other crucial laws such as RPAPL 1501 and RPL 266. RPAPL 1501 shifts the burden of proof onto individuals convicted of crimes related to deed theft, significantly impacting their ability to prove legitimate ownership post-conviction. RPL 266 impairs the rights of purchasers upon notification of fraudulent activities during property transactions.

The scope of the legislation extends even further by amending CPL 420.45 and CPLR 6501. These amendments empower the Attorney General and District Attorneys to take legal action to void fraudulent deeds and file notices of pendency, further bolstering their ability to safeguard property titles.

The impact of this legislation also extends to mortgage lenders and servicers. With its implementation, these entities must be vigilant about potential deed theft cases, thoroughly review documents for any signs of fraudulent activity, and anticipate potential delays in foreclosure proceedings due to the temporary halts enabled by the new law.

Ultimately, while the primary objective of this legislation is to protect homeowners from falling victim to deed theft, its implications go beyond safeguarding individual properties. By creating a more robust legal framework, the bill seeks to diminish fraudulent activities, thereby ensuring the legitimacy and security of property transactions in New York.

The legislation makes changes to Real Property Law (RPL) 266, focusing on protecting purchasers and encumbrancers acting in good faith. It outlines that their rights will be affected if they had prior knowledge of fraud, whether through direct awareness of fraudulent deeds or through a reasonable expectation of knowing about such fraud. Additionally, it presumes that a buyer isn’t acting in good faith if the property’s original owner’s mortgage remains unpaid after the property transfer, and the buyer doesn’t officially take on that mortgage.

Furthermore, it expands the scope of New York’s Home Equity Theft Prevention Act (HETPA), initially designed to protect homeowners facing foreclosure or properties listed in New York City’s tax lien sale. Now, HETPA extends its coverage to homeowners with active utility liens. Additionally, the legislation modifies the definition of “distressed home loan” in RPL 265-b to encompass a loan where an installment payment is overdue by more than 60 days.

Another amendment concerns Criminal Procedure Law (CPL) section 420.45, allowing the New York Attorney General or local District Attorney to seek annulment of fraudulent deeds. The motion must be filed in the Supreme Court of the property’s county, with notices provided to all involved parties. This motion, once filed, is recorded by the county clerk within ten days, signaling a title dispute to the public.

Moreover, the legislation modifies Civil Practice Law and Rules (CPLR) 6501, enabling the New York Attorney General or local District Attorney to file notices of pendency following investigations of probable cause regarding deed fraud. These notices are initially valid for six months and can be renewed twice. Also, they can be filed upon a deed theft indictment, effective until the criminal case’s conclusion.

In light of this legislation, mortgage lenders and servicers need to be vigilant about potential instances of deed theft in loans or civil actions. When closing mortgage loans, extra scrutiny should be applied to documents to detect any signs of deed theft, as this knowledge could influence legal claims. They should also be cautious when reviewing title reports and foreclosure certificates for any notices related to deed theft, as this might lead to delays in foreclosure proceedings.

Ultimately, while the primary aim of this legislation is to protect homeowners, its ripple effect benefits mortgage lenders and servicers by ensuring the authenticity of property transactions and reducing fraudulent activities.

Robert Aronov & Associates, PC 88-02 136th St, Jamaica, NY 11418 (718) 206-1555 https://realestatelawyernys.com/.

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