Real estate sales in New York are subject to a number of state laws that can affect the rights of both buyers and sellers. For instance, in 2007 the New York State legislature enacted the Home Equity Theft Prevention Act (HETPA). The legislature was concerned that homeowners facing foreclosure after defaulting on their mortgage were “vulnerable to aggressive equity purchasers' who induce homeowners to sell their homes for a small fraction of their fair market values, or in some cases even sign away their home.” To remedy this problem, HETPA specifies certain real estate contracts must contain a cancellation clause allowing the seller to back out of the deal without penalty within five business days of signing the contract.
Judge Rules Brooklyn Apartment Sale Not Subject to HETPA
HETPA is not, however, a universal “get out of the contract free” card. Two brothers recently learned this lesson when they tried to cancel a contract for the sale of their multi-family residence in Brooklyn. The brothers agreed to sell the property to in June 2014. At that time, the brothers were delinquent on their mortgage payments by more than two years, although the lender had not yet initiated foreclosure proceedings.
The brothers worked with a broker, who located a couple interested in buying the property. The parties agreed to a sales contract and the buyer made a down payment. The contact provided for a closing date within 60 days.
Despite this, the brothers allegedly ignored the buyers’ multiple requests to schedule the closing and instead entered into a second sales contract with another buyer (who was offering more money). When the first buyers learned of this, they filed suit in Brooklyn Supreme Court to enforce their contract. The brothers failed to answer the lawsuit in a timely manner and the court entered a default judgment against them. The brothers later moved to set aside the default and enter judgment in their favor.
Among other things, the brothers argued they were entitled to rescind the first sales contract under HETPA. The brothers argued they were pressured into selling the property by their own broker and the contract did not contain the legal notices required by HETPA. The buyers argued HETPA did not apply to this type of sales contract.
The judge agreed with the buyers. He noted HETPA applies to sales where a homeowner facing imminent foreclosure is pressured into signing a “reconveyance agreement,” that is a contract where the seller retains some option to repurchase the property at a later date. In a case like this, where the sellers were in default but not foreclosure, and the contract was for an outright sale and not a reconveyance agreement, the judge saw no grounds for the brothers to invoke HETPA. Accordingly, the judge ordered the brothers to honor the terms of the contract and complete the sale to the buyers.