Home Equity Theft Prevention Act: Rights, Remedies, and Damages

New York’s Home Equity Theft Prevention Act, codified at Real Property Law § 265-a, protects homeowners in default or foreclosure from investors who try to buy their homes for a fraction of their value. The statute forces any qualifying buyer to use a detailed written contract, gives the homeowner five business days to cancel for any reason, locks the buyer out of taking the deed or paying for the property for fourteen business days, bans deceptive “save your home” pitches, and requires buyers in sale-leaseback deals to pay at least 82% of fair market value. Violations let the homeowner unwind the transaction, recover up to three times their losses, and in some cases send the buyer to prison.¹

Who the Act Covers

The law applies when three things are true at once. The seller is an individual, not a company. The property is a one-to-four family home that the seller owns and lives in. And the homeowner is either in default on the mortgage (at least two months behind) or in foreclosure, which the statute defines as the filing of a notice of pendency, the start of a foreclosure lawsuit, or the property appearing on an active tax lien sale list.²

If you are current on your mortgage and no foreclosure action has started, the Act does not apply, even if a buyer is making a lowball offer. Commercial properties and buildings with more than four units also fall outside its reach.

On the buyer side, almost anyone who acquires title to a covered property counts as an “equity purchaser” and has to follow every rule in the statute. There are only three exceptions: someone buying the home to actually live in it as their primary residence, a close family member (spouse, parent, grandparent, child, grandchild, or sibling of the homeowner or the homeowner’s spouse), and nonprofit housing organizations or public housing agencies.¹ An investor who intends to flip or rent the property is covered.

What the Buyer Is Forbidden from Doing

The prohibited-conduct rules are where the statute does its real work. An equity purchaser cannot make false statements about what the home is worth, what the seller would walk away with after a foreclosure sale, how long the foreclosure process will take, what any contract term means, or what the seller is actually signing. The buyer also cannot pose as the seller’s advisor or consultant, invent professional licenses, or promise to “save your home” or “prevent foreclosure” without a genuine basis for the claim.²

Beyond these specific bans, the statute makes it unlawful for a buyer to enter any contract that takes “undue advantage” of the seller. That phrase is deliberately broad and is meant to catch schemes the specific prohibitions miss.

The Fourteen-Business-Day Lockout

Even after the seller signs, the buyer is frozen out for fourteen business days. Until midnight of the fourteenth business day after signing, the buyer cannot:

Accept or request a deed or other conveyance instrument from the seller.
Record any document the seller signed with the county clerk.
Sell, mortgage, or encumber the property to a third party.
Pay the seller any money for the property.
Suggest, encourage, or provide any paperwork that would let the seller waive the right to cancel.

The practical effect is close to three weeks of breathing room before anything irreversible can happen, which gives the seller time to consult a lawyer or look at alternatives.²

What the Contract Must Contain

Every equity purchase contract has to be in writing and has to include specific information: the buyer’s name, business address, and phone number; the total price being paid; and a full breakdown of payment terms. If the deal involves the seller staying on as a tenant with an option to buy the home back, those terms have to be spelled out too.¹

A cancellation notice must appear right next to where the seller signs, printed in at least fourteen-point bold type (or capital letters if the contract is typed). It must state: “You may cancel this contract at any time before midnight of [date].” It also has to warn the seller that the buyer cannot ask for a deed or other document until the cancellation period expires, advise the seller to consult an independent attorney or community organization rather than one supplied by the buyer, and state that the contract contains the entire agreement.²

A separate Notice of Cancellation form, printed in at least twelve-point bold type, must be attached to the contract so it can be torn off easily. The buyer is responsible for filling in the contract date, the cancellation deadline, and the buyer’s own name and address. If any of those fields are blank, or the font sizes are wrong, the whole contract can be voidable.

Your Five-Day Right to Cancel

The seller can cancel the contract for any reason, or no reason at all, before midnight of the fifth business day after signing. If the buyer failed to meet any of the contract requirements above, the cancellation window stays open indefinitely until the buyer fixes the defect. Courts have used missing font sizes and blank fields on the cancellation form to unwind deals months after signing.¹

To cancel, sign and date the Notice of Cancellation form (or write your own letter saying you are canceling) and send it to the buyer’s address listed in the contract. You can hand-deliver, use U.S. mail, fax, or a commercial delivery service. As long as it is postmarked or transmitted by midnight of the deadline, it is timely even if the buyer does not receive it until later.

Once you cancel, the buyer has to return the original contract and every document you signed. Any deed or lien recorded during the contract period must be cleared. In a properly handled deal nothing should have been recorded yet, because the conveyance itself cannot take effect any earlier than midnight of the fifth business day.²

Sale-Leaseback and Buyback Deals

Equity-stripping schemes often take the shape of a sale with a repurchase option, letting the buyer frame a predatory loan as a real estate transaction. The statute treats these “reconveyance arrangements” with heavy skepticism. Any deal that looks like an outright sale but includes an option or lease letting the seller buy the home back creates a legal presumption that the transaction is actually a loan and the deed is really a mortgage. Only clear and convincing evidence can rebut that presumption.²

Before entering any reconveyance deal, the buyer has to verify with actual documentation (not just the seller’s say-so) that the seller can realistically afford the repurchase or lease. There is a rebuttable presumption that the buyer failed this step if the only evidence of affordability is the seller’s own statement of income and assets. The closing itself has to be in person and conducted by an attorney who is not employed by or affiliated with the buyer. And the buyer needs the seller’s written consent before giving any interest in the property to a third party while the seller still has an option or lease.

If the seller eventually moves out, the buyer must pay the seller at least 82% of the home’s fair market value within 120 days. Anything less violates the statute and triggers the full set of remedies.¹

If the Act Is Violated

The remedies run on two separate tracks: you can undo the sale, and you can sue for money. You can do both.

Voiding the Sale

A transaction that materially violates the contract rules, cancellation provisions, prohibited-conduct bans, or reconveyance protections is voidable at the seller’s option. You have two years from the date the deed was recorded to rescind. Rescission means giving written notice to the buyer and to any later owner who is not a bona fide purchaser, and recording that notice with the county clerk. As a condition of getting the house back, you have to return whatever payment you received.¹

If the buyer refuses to reconvey after getting your rescission notice, you can sue to force it. A court can award attorneys’ fees and costs if you win.

Money Damages, Including Treble

Separately from rescission, you can sue for damages within six years of the violation. A court can award your actual losses plus reasonable attorneys’ fees and costs, and where appropriate, can increase the award to up to three times your actual damages.¹

Criminal Exposure

A buyer who violates the prohibited-conduct rules with intent to defraud commits a Class E felony, punishable by a fine of up to $25,000, imprisonment, or both. A knowing violation without proof of intent to defraud is a Class A misdemeanor with the same maximum fine, and a second misdemeanor within five years is bumped up to a Class E felony.¹

A separate 2024 New York deed theft law classifies the theft of a deed as grand larceny, with the highest grade (Class B felony) reserved for cases involving an elderly, incapacitated, or physically disabled occupant or three or more residential properties.³

Protections You Cannot Sign Away

Any waiver of the Act’s provisions is void and unenforceable as against public policy. A homeowner cannot sign away the right to cancel, the right to sue, or any other protection, even if the contract contains an explicit waiver clause and the seller signed it willingly. Courts will not enforce it. Including a waiver clause actually hands the seller an additional option: voiding the whole contract.¹

Related Protections to Know About

Section 265-a sits inside a wider set of foreclosure protections. Under RPAPL § 1304, a mortgage lender has to send the borrower a written notice at least 90 days before filing a foreclosure lawsuit, telling the borrower how far behind they are and what it would take to catch up. RPAPL § 1303 requires a separate warning notice with the foreclosure summons, printed on colored paper in bold type, telling the homeowner they have the right to stay in the home and specifically warning them to “be careful of people who approach you with offers to ‘save’ your home.”⁴

At the federal level, mortgage assistance relief providers are barred from collecting any fee until they have actually obtained a modification or other relief from the borrower’s lender. The rule, found at 12 C.F.R. Part 1015 (Regulation O), also requires providers to disclose that they are not affiliated with the government. A company that cold-calls a homeowner in default and demands an upfront payment for “foreclosure rescue” is breaking federal law.⁵

1
New York State Senate. New York Real Property Law RPP 265-A – Home Equity Theft Prevention
2
New York State Senate. New York Real Property Law 265-A – Home Equity Theft Prevention
3
NY Attorney General. Attorney General James Announces New Protections Against Deed Theft
4
New York State Senate. New York Real Property Actions and Proceedings Law 1303 – Foreclosures Required Notices
5
eCFR. 12 CFR Part 1015 – Mortgage Assistance Relief Services Regulation O