Section 422.2 provides definitions of certain terms used on the legislation and in the regulation, including: mortgage; mortgagee; assignee; mortgage maintenance; mortgage origination; mortgage servicing; public official; residential real property; state or federally chartered bank, savings bank, savings and loan association, and credit union; servicer or mortgage loan servicer; and vacant and abandoned.

Section 422.3 explains how entities that may be subject to RPAPL 1308 are to determine whether they qualify for two possible exemptions to the inspection and maintenance requirements under the statute, and how they are to report that information to the Superintendent of Financial Services.

Section 422.4 explains what information entities subject to the statute are to report to the Superintendent once they learn, or should have learned, that a property is vacant and abandoned. The section also provides guidance how entities are supposed to learn, or should learn, that the property is vacant and abandoned.

Section 422.5 identifies additional information that entities subject to the statute are to provide to the Superintendent on a quarterly basis, to supplement and update the information provided pursuant to Section 422.4.

Section 422.6 identifies the entities to whom the reporting requirements are applicable.

Section 422.7 explains how the requirements of the statute interact with federal law and federal guidelines.

Section 422.8 implements the confidentiality provisions of the statute, explaining how information about vacant and abandoned properties will be treated as confidential and the circumstances under which the information may be released.

Section 422.9 explains how the statute will be enforced.

Section 422.10 identifies the effective date of the regulation.

1. Statutory Authority.

Part Q of Chapter 73 of the Laws of 2016 enacted two new sections to the Real Property Actions and Proceedings Law (“RPAPL”), 1308 and 1310, which impose requirements on certain persons to maintain vacant and abandoned residential real property in New York and to report vacant and abandoned properties to the New York State Department of Financial Services (the “Department”), and authorizes the Department to promulgate regulations to implement the new requirements.

In addition, RPAPL Section 1306 requires that lenders, assignees and mortgage loan servicers file a notice with the Department before commencing a foreclosure proceeding in New York.

2. Legislative Objectives.

The Legislature added Sections 1308 and 1310 to the RPAPL to address the vacant and abandoned property problems facing affecting New York. These properties create health and safety concerns for the communities in which they are located, drag down property values in the neighborhood and may be subject to criminal activity. The new RPAPL sections address these issues by requiring that all vacant and abandoned properties to be reported to a database maintained by the Department and imposing requirements on certain persons to maintain vacant and abandoned properties.

3. Needs and Benefits.

The regulation explains the process that will be used to identify state or federally chartered banks, savings banks, savings and loan associations, or credit unions subject to the requirements of Section 1308, how and when enforcement action, except by a municipality, will be taken and application of federal law and investor guidelines under Section 1308(10). In addition, the regulation explains the process to be followed by covered persons in reporting vacant and abandoned properties to the Department and the process to be followed by public officials in asking for information concerning vacant and abandoned properties to be released by the Department.

4. Costs.

The regulation imposes no costs in addition to those already contemplated by RPAPL Sections 1308 and 1310.

5. Local Government Mandates.

None.

6. Paperwork.

The regulation imposes no paperwork in addition to that already contemplated by RPAPL Sections 1308 and 1310. In addition, any impact on existing paperwork requirements is expected to be minimal.

7. Duplication.

The regulation does not duplicate, overlap or conflict with any other regulations.

8. Alternatives.

The Department is not aware of any alternatives to the rule.

9. Federal Standards.

Not applicable.

10. Compliance Schedule.

The rule will become effective upon publication, but allows covered persons until January 20, 2017 to begin the inspections required by RPAPL 1308. Covered persons who previously reported vacant and abandoned properties to the Department will have until February 1, 2017 to update their information.

1. Effect of the Rule:

The regulation implements authority granted to the New York State Department of Financial Services (the “Department”) in Sections 1308 and 1310 of the Real Property Actions and Proceedings Law (“RPAPL”), as enacted by Part Q of Chapter 73 of the Laws of 2016. The regulation explains the process that will be used to identify state or federally chartered banks, savings banks, savings and loan associations, or credit unions subject to the requirements of Section 1308, the reports that persons subject to the requirements of Section 1308 will have to submit to the Department regarding delinquent loans on residential real property and efforts to inspect, secure, maintain and foreclose on those properties, and application of federal law and investor guidelines under Section 1308(10). In addition, the regulation explains the process to be followed by covered persons in reporting vacant and abandoned properties to the Department and the procedures to be followed in the event that the Superintendent of Financial Services determines, in the exercise of her sole discretion, to release confidential for information concerning vacant and abandoned properties.

The proposed rule does not have any impact on local governments.

2. Compliance Requirements:

The regulation does not change the compliance requirements imposed by Sections 1308 and 1310 of the RPAPL, but does clarify how covered persons are to comply with the requirements of the RPAPL.

3. Professional Services:

None.

4. Compliance Costs:

None beyond the existing costs to comply with the requirements of the RPAPL.

5. Economic and Technological Feasibility:

Filing of vacant and abandoned property notifications involves common, everyday functions performed by covered persons.

6. Minimizing Adverse Impacts:

The regulation does not impose a new regulatory requirement, but implements the requirements imposed by the addition of RPAPL Sections 1308 and 1310. It is not expected to impact small businesses.

7. Small Business and Local Government Participation:

This regulation does not impact local governments.

The Department complied with SAPA 202-b(6) by providing small businesses and local governments with the opportunity to participate in the rule making process. This occurred through posting notice of the proposed rulemaking on the Department’s website and interacting with interested stakeholders. Furthermore, notice of the proposed rule was published in the State Register and the public was provided with an opportunity to comment on the proposed rule. The Department has reviewed the comments received and has completed an Assessment of Public Comments.

1. Types and estimated numbers of rural areas:

While the regulation is expected to apply to residential real property located in rural areas, it is not expected to increase costs or otherwise have an adverse impact on private or public interests rural areas.

2. Reporting, recordkeeping and other compliance requirements; professional services:

The regulation imposes no paperwork in addition to that already contemplated by Real Property Actions and Proceedings Law Sections 1308 and 1310.

3. Costs:

The regulation imposes no costs in addition to that already contemplated by Real Property Actions and Proceedings Law Sections (“RPAPL”) 1308 and 1310.

4. Minimizing adverse impact:

The regulation does not impose a new regulatory requirement, but implements the requirements imposed by the addition of RPAPL Sections 1308 and 1310.

5. Rural area participation:

The Department complied with SAPA 202-bb(7) by providing public and private interests in rural areas with the opportunity to participate in the rule making process. This occurred through posting notice of the proposed rulemaking on the Department’s website; and interacting with interested stakeholders. Furthermore, notice of the proposed rule was published in the State Register and the public was provided with an opportunity to comment on the proposed rule. The Department has reviewed the comments received and has completed an Assessment of Public Comments.

The regulation is not expected to have an adverse effect on employment.

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2019, which is no later than the 3rd year after the year in which this rule is being adopted.

The Department of Financial Services (“Department”) received oral and written comments from a variety of interested stakeholders, including banking associations, advocacy and public interest groups, and local, state and federal government representatives.

422.2 Definitions

(a) Mortgage – Several commenters observed that the definition of “mortgage” should not be limited to the first lien on residential real property, particularly because RPAPL 1310 is not limited to first lien mortgages. The word “first” has been removed from the definition. One commenter objected that the definition includes more than just “home purchase” loans, but the Department believes that the definition appropriately captures the types of mortgages covered by the underlying legislation. Other commenters questioned whether definitions of “mortgage” and certain other terms defined in the regulation are necessary, but the Department believes that all of the definitions are useful components of a comprehensive regulation.

(b) Mortgagee – Several commentators observed that “note holder” should be included in the definition, and that change has been made. One commenter also expressed concern that including trustees in the definition expands the scope of the definition beyond what was intended by the statute, but the Department respectfully disagrees with that assertion and has left the definition unchanged in this respect.

(c) Assignee – One commenter recommended clarifying that an assignee means a current mortgagee “who has been assigned the mortgage note from the original lender or an assignee pursuant to the laws of the state.” The Department concluded that no change should be made.

(d) Mortgage maintenance – One commenter recommended clarifying the language to state that “mortgage maintenance means the continued holding and ownership of a mortgage and note by the person or entity that originated the mortgage or by the assignee.” The Department concluded that no change was necessary.

(e) Mortgage origination – One commenter pointed out that “origination” should not include the mere commitment to lend money, short of actually making a loan. The Department agrees, and has modified the definition to make this clear.

(f) Mortgage servicing – One commenter recommended a modification to the reference to reverse mortgages, and a change has accordingly been made. Contrary to the objection of another commenter, however, the reference to reverse mortgages remains in the definition because the Department believes it is consistent with the statute.

(g) Public Official – Several commenters suggested additions to the scope of “public officials” who, under the statute, “shall” be entitled, upon request, to information from the vacant and abandoned property registry established pursuant to RPAPL 1310. The Department believes that the definition is consistent with the categories listed in the statute, which are limited to public officials who represent specific state districts, counties, cities, towns and villages. Some commenters believe that the list should be expanded to include other elected officials and also non-elected officials. The Department determined not to change the definition because it believes that the definition reflects the statutory language and purpose of the registry, including that distribution of information in the registry should be limited, to avoid duplicative requests and potentially conflicting enforcement efforts, and to ensure that information in the registry remains confidential to protect the public. The statute and the regulation allow the Department discretion to release the information to other persons if it determines that such release is in the best interests of the public and confidentiality will be protected.

(h) Residential Real Property – Several commenters expressed concern about the proposed definition’s reference to buildings or structures “used for both residential and commercial purposes where no more than twenty percent of the total appraised value is attributable to the commercial purpose.” Accordingly, that part of the definition has been removed.

(i) List of covered financial institutions – One commenter observed that the definition should include state and federally chartered branches or agencies of foreign banks; that addition has been made. Another commenter objected that the definition may broaden the scope of entities that are exempt, but the Department respectfully disagrees with this assertion and has left the definition otherwise unchanged.

(k) Vacant and Abandoned – One commenter asserted that the definition should be amended to include a requirement that the mortgage securing the property be delinquent for up to 90 days prior to the first inspection. It is true that under RPAPL 1308(1), the mortgage must be delinquent to trigger the first inspection requirement, but the Department does not believe that a change is necessary to make this clear. Other commenters expressed concern that the definition is incomplete or inaccurate, but the Department respectfully disagrees because the definition tracks the language of RPAPL 1309(2).

422.3 Applicability and Exemption under 1308

A number of commenters objected that, to qualify for an exemption, an entity must engage in mortgage origination, mortgage ownership, mortgage servicing and mortgage maintenance in the given calendar year. The Department agrees that an entity should be able to qualify for an exemption if it originates and owns mortgages, even if it does not service or maintain them. The language of Section 422.3(b)(1)(B) and of Section 422.3(c)(1)(B) has been changed accordingly.

Commenters also objected that the numerator and the denominator for determining the exemption are not “apples to apples,” but the Department respectfully disagrees with that comment. Both the numerator and the denominator consist of mortgages that were issued or originated in New York during the given calendar year. The formula, as set forth in the regulation, accurately measures each institution’s market participation in the mortgage industry in New York.

One commenter expressed concern that, if it does not qualify for either exemption, the inspection and maintenance obligations will apply to it retroactively. Another commenter objected that it could be required to inspect and maintain properties retroactively if it fails to qualify for the exemption in a particular year despite having qualified for the exemption in the prior year. The Department believes that the exemption provisions in Section 422.3 accurately reflect the statutory rules and that other provisions address the inspection and maintenance requirements.

One commenter objected to placing the burden of proving entitlement to the exemption on the entity seeking the exemption, but the Department believes that allocation of burden is appropriate. Another commenter suggested that entities that miss the December 31 deadline for establishing entitlement to the exemption be given an opportunity to establish good cause for the error. It remains the Department’s position that entities seeking the exemption will have ample time to apply for it, but the Department has extended the deadline to February 28, 2017, for the 2017 calendar year, the first full year that the statute and regulation will be in effect.

Two commenters suggested that the Department add a provision making clear that entities that qualify for the exemption under the statute but that are also subject to the Best Practices Agreement with the Department will continue to be subject to the Best Practices Agreement. The Department has accepted this suggestion.

Two commenters observed that it is unclear whether local laws and ordinances regarding inspection and maintenance of vacant and abandoned properties are preempted by the statute. RPAPL 1308(13) provides that local laws and ordinances may not exceed the maintenance requirements imposed on state or federally chartered banks, savings banks, savings and loan associations and credit unions that are subject to RPAPL 1308, meaning that entities that are not exempt must comply with such local laws and ordinances. The Department sees no need, however, to restate this provision of the statute in the regulation.

Finally, one commenter expressed concern that entities might structure their businesses in such a way as to avoid the obligations created by the statute. The Department believes that such concerns can best be addressed by the Department’s general investigative and enforcement authority.

422.4, 422.5 Vacant and Abandoned Property Reporting and Quarterly Reporting

A number of commenters expressed concerns that the reporting requirements impose burdens. On the whole, the Department believes that the requirements in the regulation – including quarterly reporting – are consistent with the Department’s mandate to issue regulations necessary to implement and enforce the provisions of the statute. While the Department has eliminated the quarterly reporting requirement that reporters identify the persons, and their employers, who have conducted inspections and who have secured and maintained property, mortgagees will still be required to maintain such information in their books and records, subject to inspection by the Department. All other reporting requirements remain the same because they are, in the Department’s view, essential to making sure that the obligations imposed by the statute are met.

Some commenters also expressed concern about providing sensitive, private and confidential information to the Department. In some respects, these commenters further asserted, the reporting requirements may exceed reporting permitted under federal law. The Department believes that these concerns are adequately addressed by the fact that the information reported to the Department is deemed confidential under RPAPL 1310 and that the Department only intends to release limited information from the registry about a particular property – such as the address of the property and contact information for the servicer – to the extent that any information is released at all, subject to confidentiality agreements.

Several commenters objected to the “should have learned” language in Section 422.4(b), which is taken directly from the statute, and to the “due diligence” standard in Section 422(c). The Department believes that the “due diligence” standard captures how a mortgagee or mortgage loan servicer “should. . . learn” that a property is vacant and abandoned. The Department has adopted a definition of “due diligence” to clarify what the standard means. Taken together, Sections 422.4(b) and (c) appropriately convey that a mortgagee or mortgage loan servicer cannot avoid responsibility for inspection and maintenance by claiming that it was unaware that a property is vacant and abandoned, when that fact should have been plain from the ordinary exercise of due diligence.

One commenter recommended making it clear that the obligation to learn that a property is vacant and abandoned, and to report on that property, belongs to the mortgagee, which can delegate the responsibility to a mortgage servicer. The Department does not believe that this change is needed.

Some commenters recommended adding specific details to the reporting requirements. One believes that “status of the proceeding” is too vague, and recommends expanding the requirement to make clear that it includes the date of entry of final judgment and the scheduled sale of the property, but the Department believes that it is commonly understood that such information is what “status of the proceeding” calls for. Another suggested requiring the address of the subject property to be included; that reporting requirement has been made explicit in the regulation. Another commenter favored adding contact information for third-party vendors, but the Department disagrees. Finally, a commenter suggested clarifying that the contact number for the servicer responsible for maintaining the property should be the number of someone actually responsible for handling questions about a vacant and abandoned property, not just a customer service number. Again, the Department believes no change is necessary, although it expect that registrants will be providing adequate information to the Department consistently with the goals of the statute.

422.6 Applicability of RPAPL 1310 Reporting Requirements

Some commentators expressed concern that it is unclear who bears the primary or initial burden for reporting, the mortgagee or the mortgage loan servicer. The Department believes that the regulation is consistent with the language of the statute, which places the reporting burden on the mortgagee or the mortgage loan servicer, meaning that either or both may be held responsible if the reporting requirements are not met.

422.7 Federal Law and Federal Guidelines

It was argued that, under the language of the RPAPL 1308(10), compliance with federal guidelines should be deemed compliance with the maintenance obligations in the statute. As to the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the Department has accepted this proposition in the regulation, based upon the existing federal guidelines as of the statute’s effective date; to the extent those guidelines are weakened in the future, such weaker guidelines will not be deemed compliance with the maintenance obligations in the statute.

One commenter argued that compliance with the statute is not required where the statute imposes an obligation that is greater than that imposed by federal law, court order or the investor or insurer guidelines. The Department believes, however, that more limited obligations do not necessarily obviate the need to comply with RPAPL 1308. Accordingly, Section 422.7 is otherwise unchanged.

422.8 Disclosure of Information from Registry

Some commenters expressed concern that the regulation does not go far enough to protect information in the registry, while others believe that the regulation goes too far in declaring that information in the registry is not subject to disclosure under FOIL. The Department believes that it has struck the right balance in the regulation between confidentiality and disclosure and that it has faithfully interpreted the language of the statute. Accordingly, no change to the regulation has been made.

422.9 Enforcement

Several commenters suggested adding references in this section to the Executive Law, the Civil Practice Law and Rules, and “any other applicable state or federal law.” The commenters expressed concern that otherwise, the scope of enforcement under the statute may be unduly narrowed. The Department does not believe that this change to the regulation is warranted, given the statute’s enforcement provisions, but did clarify that the enforcement contemplated under the RPAPL would be pursuant to RPAPL section 1308(8). The regulation appropriately reflects the fact that, under the statute, the Superintendent of Financial Services is to pursue, as appropriate and in his or her sole discretion, any alleged violation of the statute. The municipality in which the property is located may also bring an action under the statute, but that authority is “in addition” to the authority given to the Superintendent and must be on ten days’ notice to the Superintendent, indicating that the Superintendent is primarily responsible for the efficient and non-duplicative enforcement of the statute. That primary exercise of authority under the statute will, as reflected in the regulation, be exercised under RPAPL section 1308(8), the Financial Services Law and the Banking Law. It is not necessary, in the Department’s view, to refer to any other law or procedural rules that may apply in actions or proceedings to enforce the statute.

422.10 Effective Date

Several commenters expressed concern about the need for a phase-in period for the obligations imposed by the statute, particularly for mortgages that are already delinquent and for properties that are already vacant and abandoned as of the December 20, 2016 effective date. In recognition of these concerns, the Department has added phase-in provisions for certain of the obligations. Specifically, under Section 422.3, first inspections of properties with delinquent mortgages must occur by February 1, 2017, and maintenance obligations on vacant and abandoned properties do not go into effect until February 1, 2017. In addition, under Section 422.4, information about vacant and abandoned properties previously reported to the Department must be provided by February 1, 2017.