NYDFS Publishes Guidance to NY State Regulated Mortgage Lenders and Servicers Relating to Fees Paid to Register Mortgages in Default

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On September 1, 2020 the NYDFS published Industry Guidance to the Chief Executive Officers or Equivalents or New York Regulated Mortgage Lenders and Services regarding the unlawful pass through to the mortgagor (“Borrower”) of a default “Registration Fee” that may be charged by a county, city or other municipality where the real property is situated. The Registration Fee is a fee imposed by certain counties, cities and other municipalities in New York State, by ordinance or otherwise, that requires mortgage lenders and servicers, (“Mortgagees”), to register mortgages declared to be in default by the Mortgagee. Any Mortgagees whom are under the supervision of NYDFS that are charging or collecting this prohibited fee from the mortgagors, are on notice by NYDFS to reverse the charge or refund amounts paid by mortgagors (whereby the fee may range from $500 to $3,000 depending on the county, city or municipality).

Section 419.5 of the Superintendent Regulations (3 NYCRR Part 419), only permits Mortgagees to collect certain specified types of fees from a mortgagor, consisting of attorney’s fees, late and delinquency fees, property valuation fees, and fees for services actually rendered to a mortgagor when such fees are reasonably related to the cost of rendering the service to the borrower. A Registration Fee is neither an attorney fee, late or delinquency fee, property valuation fee, [nor] fee for a service rendered to a mortgagor.”

Of note, the industry guidance states that Mortgagees are also directed to create a log of all mortgagors that were either charged, or actually paid any Registration Fee to a Mortgagee. This log must contain the amounts of the Registration Fees, whether they were collected or charged, and the date(s) the entire amounts of collected Registration Fees were refunded and credited to the mortgagors’ accounts, and the date(s) that any charged Registration Fees were removed or reversed from the mortgagors’ accounts. This log must be made available by Mortgagees, to NYDFS for inspection during their Mortgagees next examination.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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