2013 -- S 0416 SUBSTITUTE A

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LC01016/SUB A/2

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO PROPERTY -- MORTGAGE AND FORECLOSURE SALE

     Introduced By: Senators Nesselbush, Crowley, Cool Rumsey, Goldin, and Conley

     Date Introduced: February 26, 2013

     Referred To: Senate Judiciary

It is enacted by the General Assembly as follows:

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     SECTION 1. Chapter 34-27 of the General Laws entitled "Mortgage Foreclosure and

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Sale" is hereby amended by adding thereto the following section:

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     34-27-3.2. Mediation conference. -- (a) Statement of policy. It is hereby declared that

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residential mortgage foreclosure actions, caused in part by unemployment and underemployment,

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have negatively impacted a substantial number of homeowners throughout the state, creating a

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situation which endangers the economic stability of many of the citizens of this state, as the

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increasing numbers of foreclosures lead to increases in unoccupied and unattended buildings and

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the unwanted displacement of homeowners and tenants who desire to live and work within the

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state.

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     (b) Purpose. The statutory framework for foreclosure proceedings is prescribed under the

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provisions of Chapter 34-27 of the general laws. As the need for a mortgage mediation process

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has evolved, it is important for the state to develop a standardized, statewide process for

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foreclosure mediation rather than a process based on local ordinances that may vary from

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municipality to municipality. By providing a uniform standard for an early HUD-approved

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independent counseling process in owner-occupied principal residence mortgage foreclosure

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cases, the chances of achieving a positive outcome for homeowners and lenders will be enhanced.

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     (c) Definitions. The following definitions apply in the interpretations of the provisions of

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this section unless the context requires another meaning:

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     (1) "Mediation conference" means a conference involving the mortgagee and mortgagor,

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coordinated and facilitated by a mediation coordinator whose purpose is to determine whether an

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alternative to foreclosure is economically feasible to both the mortgagee and the mortgagor, and

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if it is determined that an alternative to foreclosure is economically feasible, to facilitate a loan

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work-out or other solution in an effort to avoid foreclosure.

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     (2) "Mediation coordinator" means a person designated by a Rhode Island based HUD

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approved counseling agency to serve as the unbiased, impartial and independent coordinator and

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facilitator of the mediation conference, with no authority to impose a solution or otherwise act as

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a consumer advocate, provided that such person possesses the experience and qualifications

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established by the department.

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     (3) "Department" means the department of business regulation.

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     (4) "Good Faith" means that the mortgagor and mortgagee deal honestly and fairly with

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the mediation coordinator with an intent to determine whether an alternative to foreclosure is

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economically feasible for the mortgagor and mortgagee, as evidenced by some or all of the

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following factors:

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     (i) Mortgagee provided notice as required by this section;

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     (ii) Mortgagee designated an agent to participate in the mediation conference on its

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behalf, and with the authority to agree to a work-out agreement on its behalf;

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     (iii) Mortgagee made reasonable efforts to respond in a timely manner to requests for

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information from the mediation coordinator, mortgagor, or counselor assisting the mortgagor;

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     (iv) Mortgagee declines to accept the mortgagor’s work-out proposal, if any, and the

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mortgagee provided a detailed statement, in writing, of its reasons for rejecting the proposal;

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     (v) Where a mortgagee declines to accept the mortgagor’s work-out proposal, the

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mortgagee offered, in writing, to enter into an alternative work-out/disposition resolution

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proposal that would result in net financial benefit to the mortgagor as compared to the terms of

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the mortgage.

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     (5) "HUD" means the United States Department of Housing and Urban Development and

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any successor to such department.

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     (6) "Mortgage" means an individual consumer mortgage on any owner-occupied, one to

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four (4) unit residential property which serves as the owner’s primary residence.

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     (7) "Mortgagee" means the holder of a mortgage.

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     (8) "Mortgagor" means the owner of the property subject to a mortgage.

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     (d) No mortgagee may initiate any foreclosure of real estate pursuant to subsection 34-

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27-4(b) unless the requirements of this section have been met.

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     (e) When a mortgage is not more than one hundred twenty (120) days delinquent, the

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mortgagee or its mortgage servicer or other agent or representative of the mortgagee shall provide

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to the mortgagor written notice, by certified and first class mail at the address of the real estate

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and, if different, at the address designated by the mortgagor by written notice to the mortgagee as

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the mortgagor's address for receipt of notices, that the mortgagee may not foreclose on the

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mortgaged property without first participating in a mediation conference.

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     (f) A form of written notice meeting the requirements of this section shall be promulgated

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by the department for use by mortgagees at least thirty (30) days prior to the effective date of this

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section. The written notice required by this section shall be in English, Portuguese and Spanish,

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reference the property’s plat and lot information, and may be combined with any other notice

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required under this chapter or pursuant to state or federal law.

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     (g) The mediation conference shall take place in person, or over the phone, at a time and

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place deemed mutually convenient for the parties by an individual employed by a HUD-approved

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independent counseling agency selected by the mortgagee to serve as a mediation coordinator, but

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not later than sixty (60) days following the mailing of the notice. The mortgagor shall cooperate

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in all respects with the mediation coordinator including, but not limited to, providing all

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necessary financial and employment information and completing any and all loan resolution

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proposals and applications deemed appropriate by the mediation coordinator. A mediation

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conference between the mortgagor and mortgagee conducted by a mediation coordinator shall be

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provided at no cost to the mortgagor. The HUD-approved counseling agency shall be

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compensated by the mortgagee at a rate not to exceed five hundred dollars ($500) per

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engagement.

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     (h) If, after two (2) attempts by the mediation coordinator to contact the mortgagor, the

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mortgagor fails to respond to the mediation coordinator’s request to appear at a mediation

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conference, or the mortgagor fails to cooperate in any respect with the requirements of this

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section, the requirements of the section shall be deemed satisfied upon verification by the

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mediation coordinator that the required notice was sent. Upon verification, a certificate will be

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issued immediately by the mediation coordinator authorizing the mortgagee to proceed with the

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foreclosure action, including recording the deed. Such certificate shall be recorded along with the

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foreclosure deed. A form of certificate meeting the requirements of this section shall be

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promulgated by the department for use by mortgagees at least thirty (30) days prior to the

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effective date of this section.

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     (i) If the mediation coordinator determines that after a good faith effort made by the

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mortgagee at the mediation conference, the parties cannot come to an agreement to renegotiate

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the terms of the loan in an effort to avoid foreclosure, such good faith effort by the mortgagee

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shall be deemed to satisfy the requirements of this section. A certificate certifying such good faith

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effort will be promptly issued by the mediation coordinator authorizing the mortgagee to proceed

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with the foreclosure action and recording of the foreclosure deed. Such certification shall be

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recorded along with the foreclosure deed. A form of certificate meeting the requirements of this

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section shall be promulgated by the department for use by mortgagees at least thirty (30) days

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prior to the effective date of this section.

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     (j) If the mortgagee and mortgagor are able to reach agreement to renegotiate the terms of

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the loan to avoid foreclosure, the agreement shall be reduced to writing and executed by the

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mortgagor and mortgagee.

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     (k) Notwithstanding any other provisions of this section, where a mortgagor and

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mortgagee have entered into a written agreement and the mortgagor fails to fulfill his or her

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obligations under the written agreement, the provisions of this section shall not apply to any

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foreclosure initiated under this chapter within twelve (12) months following the execution of the

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written agreement. In such case, the mortgagee shall include in the foreclosure deed an affidavit

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establishing its right to proceed under this section.

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     (l) This section shall apply only to foreclosure of mortgages on owner-occupied,

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residential real property with no more than four (4) dwelling units which is the primary dwelling

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of the owner and not to mortgages secured by other real property.

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     (m) Notwithstanding any other provisions of this section, any locally-based mortgagees

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shall be deemed to be in compliance with the requirements of this section if:

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     (1) The mortgagee is headquartered in Rhode Island; or

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     (2) The mortgagee maintains a physical office or offices exclusively in Rhode Island

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from which office or offices it carries out full-service mortgage operations, including the

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acceptance and processing of mortgage payments and the provision of local customer service and

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loss mitigation and where Rhode Island staff have the authority to approve loan restructuring and

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other loss mitigation strategies; and

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     (3) The deed offered by a mortgagee to be filed with the city or town recorder of deeds as

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a result of a mortgage foreclosure action contained a certification that the provisions of this

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section have been satisfied.

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     (n) No deed offered by a mortgagee as a result of a mortgage foreclosure action shall be

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submitted to a city or town recorder of deeds for recording in the land evidence records of the city

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or town until and unless the requirements of this section are met. The mortgagee shall include in

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the foreclosure deed an affidavit of compliance with this section. Failure of the mortgagee to

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comply with the requirements of this section shall render the foreclosure void, without limitation

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of the right of the mortgagee thereafter to re-exercise its power of sale or other means of

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foreclosure upon compliance with this section. The rights of the mortgagor to any redress

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afforded under the law are not abridged by this section.

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     (o) Any existing municipal ordinance or future ordinance which requires a conciliation or

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mediation process as a precondition to the recordation of a foreclosure deed shall comply with the

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provisions set forth herein and any provisions of said ordinances which do not comply with the

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provisions set forth herein shall be determined to be unenforceable.

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     SECTION 2. This act shall take effect sixty (60) days following passage, and it shall

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expire on July 1, 2018.

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LC01016/SUB A/2

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PROPERTY -- MORTGAGE AND FORECLOSURE SALE

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     This act would require a mortgagee to participate in good faith in a mediation conference

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prior to initiating foreclosure proceedings. This act would apply only to individual consumer

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mortgages on any owner-occupied, one to four (4) unit residential property which is primary

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residence of the owner.

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     This act would take effect sixty (60) days following passage, and would expire on July 1,

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2018.

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LC01016/SUB A/2

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