By JODI SOKOLOWSKI
Buffalo Law Journal

A new grant will help homeowners facing foreclosure in the subprime mortgage crisis.

The Western New York Law Center and HomeFront Inc. were awarded a $700,000 two-year grant by the New York State Department of Housing and Community Renewal.

The funding will be used to comply with a new state law that went into effect Sept. 1 that enables nonprofits to help homeowners, and even tenants, stay in houses in foreclosure, said the center's staff attorney Kathleen Lynch.

A state law (10817-A) mandates borrower notification by lenders, counselor reference and settlement conferences. It also criminalizes residential mortgage fraud with penalties ranging from misdemeanors to felonies.

"It will be a way to ensure that everything that can possibly be done will be done to try to prevent foreclosures," Lynch said.

The law, signed by Gov. David Paterson Aug. 5, requires that lenders must notify borrowers with covered loans at least 90 days in advance that legal action will be initiated.

Lenders must also refer the borrower to at least five government-approved counseling agencies in their area. These agencies can work out details of loan modifications, easier payment plans or a period of loan forbearance.

The law is targeted toward subprime, high-cost and non-conventional loans that were created between Jan. 1, 2003, and Sept. 1, 2008.

Subprime mortgages are home mortgage loans that start at a low rate but increase to higher interest rates in preset increments, usually after a few years. The result is a monthly payment could potentially double.

A study conducted by the center reveals that about 20 percent of the region's foreclosure filings in 2007 and 2008 are related to adjustable-rate mortgages with interest rates starting at 9 percent and rising to 25 percent.

Qualified borrowers can receive free services from HomeFront, who will provide counselors to assist them in developing workout agreements. For cases that cannot be resolved through counseling, the Western New York Law Center will represent borrowers in mandatory court settlement conferences. The above law states these conferences must be scheduled within 60 days of the date legal action is filed with the county clerk.

Hon. Sharon Townsend, administrative judge for the 8th Judicial District, said it's premature as to what the impact on the courts will be. Implementation of the law will be handled by the New York State Office of Court Administration on a statewide basis rather than by district, Townsend said.

A pilot program in Queens, set up by New York State Court of Appeals Chief Judge Hon. Judith Kaye, will serve as a model, Lynch said.

"We look at this as an opportunity to work more efficiently together on foreclosure cases," Lynch said.

The center will also contract with the Legal Aid Bureau of Buffalo and Legal Services for the Elderly, Disabled, and Disadvantaged to help borrowers needing legal assistance to avoid foreclosure. Neighborhood Legal Services will provide legal assistance for tenants facing eviction as a result of foreclosure.