2014 -- H 8293 SUBSTITUTE A

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LC005852/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO PROPERTY -- MORTGAGE FORECLOSURE AND SALE

     Introduced By: Representative Cale P.Keable

     Date Introduced: June 05, 2014

     Referred To: House Judiciary

     (by request)

It is enacted by the General Assembly as follows:

     SECTION 1. Section 34-27-3.2 of the General Laws in Chapter 34-27 entitled "Mortgage

Foreclosure and Sale" is hereby amended to read as follows:

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

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

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

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

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

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

state.

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

the provisions of Cchapter 34-27 of title 34 of the general laws. As the need for a mortgage

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

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

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

independent counseling process in owner-occupied principal residence mortgage foreclosure

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

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

of this section unless the context requires another meaning:

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

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

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

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

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

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

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

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

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

established by the department.

     (1) "Default" means the failure of the mortgagor to make a timely payment of an amount

due under the terms of the mortgage contract, which failure has not been subsequently cured.

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

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

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

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

following factors:

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

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

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

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

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

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

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

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

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

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

the mortgage.

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

and any successor to such department.

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

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

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

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

workout or other solution in an effort to avoid foreclosure.

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     (6) "Mediation coordinator" means a person employed by a Rhode Island-based HUD-

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

coordinator and facilitator of the mediation conference, with no authority to impose a solution or

otherwise act as a consumer advocate, provided that such person possesses the experience and

qualifications established by the department.

      (6)(7) "Mortgage" means an individual consumer first-lien mortgage on any owner-

occupied, one (1)-to-four (4) unit residential property which that serves as the owner's

mortgagor's primary residence.

      (7)(8) "Mortgagee" means the holder of a mortgage, or its agent or employee, including a

mortgage servicer acting on behalf of a mortgagee.

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

who has signed a mortgage in order to secure a debt or other duty, or the heir or devisee of such

person provided that:

     (i) The heir or devisee occupies the property as his or her primary residence; and

     (ii) The heir or devisee has record title to the property, or a representative of the estate of

the mortgagor has been appointed with authority to participate in a mediation conference.

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

34-27-4(b) unless the requirements of this section have been met.

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

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

mortgagee shall, prior to initiation of foreclosure of real estate pursuant to § 34-27-4(b), provide

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

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

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

mortgaged property without first participating in a mediation conference. Notice addressed and

delivered as provided in this section shall be effective with respect to the mortgagor and any heir

or devisee of the mortgagor.

     (1) If the mortgagee fails to mail the notice required by this subsection to the mortgagor

within one hundred twenty (120) days after the date of default, it shall pay a penalty at the rate of

one thousand ($1,000) per month for each month or part thereof, with the first month

commencing on the one hundred twenty-first (121st) day after the date of default and a new month

commencing on the same day (or if there is no such day, then on the last day) of each succeeding

calendar month until the mortgagee sends the mortgagor written notice as required by this

section.

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     Notwithstanding the foregoing, any penalties assessed under this subsection for any

failure of any mortgagee to provide notice as provided herein during the period from September

13, 2013, through the effective date of this section shall not exceed the total amount of one

hundred twenty-five thousand dollars ($125,000) for such mortgagee.

     (2) Penalties accruing pursuant to subsection (d)(l) shall be paid to the mediation

coordinator prior to the completion of the mediation process. All penalties accrued under this

section shall be transferred to the state within one month of receipt by the mediation coordinator

and deposited to the restricted receipt account within the general fund established by § 42-128-

2(3) and used for the purposes set forth therein.

     (3) Issuance by the mediation coordinator of a certificate authorizing the mortgagee to

proceed to foreclosure, or otherwise certifying the mortgagee's good faith effort to comply with

the provisions of this section, shall constitute conclusive evidence that, to the extent that any

penalty may have accrued pursuant to subsection (d)(1), the penalty has been paid in full by the

mortgagee.

     (4) Notwithstanding any other provisions of this subsection, a mortgagee shall not accrue

any penalty if the notice required by this subsection is mailed to the borrower:

     (i) Within sixty (60) days after the date upon which the loan is released from the

protection of the automatic stay in a bankruptcy proceeding, or any similar injunctive order issued

by a state or federal court, or within one hundred twenty (120) days of the date on which the

mortgagor initially failed to comply with the terms of an eligible workout agreement, as

hereinafter defined; and

     (ii) The mortgagee otherwise complies with the requirements of subsection (d); provided,

however, that if the mortgagee fails to mail the notice required by subsection (d) to the mortgagor

within the time frame set forth in subsection (d)(4)(i), the mortgagee shall pay a penalty at the

rate of one thousand dollars ($1,000) per month for each month or part thereof, with the first

month commencing on the thirty-first (31st) day after the date upon which the loan is released

from the protection of the automatic stay a bankruptcy proceeding or any similar injunctive order

issued by a state or federal court and a new month commencing on the same day (or if there is no

such day, then on the last day) of each succeeding calendar month until the mortgagee sends the

mortgagor written notice as required by this section. Notwithstanding the foregoing, any penalties

assessed under this subsection for any failure of any mortgagee to provide notice as provided

herein during the period from September 13, 2013, through the effective date of this section shall

not exceed the total amount of one hundred twenty-five thousand dollars ($125,000) for such

mortgagee.

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     (5) Notwithstanding any other provisions of this section, a mortgagee may initiate a

judicial foreclosure in accordance with § 34-27-1.

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

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

effective date of this section. The written notice required by this section shall be in English,

Portuguese, and Spanish, reference the property's plat and lot information, and may be combined

with any other notice required under this chapter or pursuant to state or federal law.

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

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

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

coordinator, but not later than sixty (60) days following the mailing of the notice. The mortgagor

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

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

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

mediation conference between the mortgagor and mortgagee conducted by a mediation

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

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

engagement.

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

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

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

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

mediation coordinator that the required notice was sent and any penalties accrued pursuant to

subsection (d)(1) and any payments owed pursuant to subsection (f) have been paid. Upon

verification, a certificate will be issued immediately by the mediation coordinator authorizing the

mortgagee to proceed with the foreclosure action, including recording the deed. Such certificate

shall be valid until the earlier of:

     (1) The curing of the default condition; or

     (2) The foreclosure of the mortgagor's right of redemption.

     The certificate shall be recorded along with the foreclosure deed. A form of certificate

meeting the requirements of this section shall be promulgated by the department for use by

mortgagees at least thirty (30) days prior to the effective date of this section.

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

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

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

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

with the foreclosure action and recording of the foreclosure deed; provided, however, that the

mediation coordinator shall not be required to issue such a certificate until any penalties accrued

pursuant to subsections (d)(1) and (d)(4)(ii) and any payments owed pursuant to subsection (f)

have been paid. Such certification shall be valid until the earlier of:

     (1) The curing of the default condition; or

     (2) The foreclosure of the mortgagor's equity of redemption. The certificate shall be

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

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

prior to the effective date of this section.

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

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

the mortgagor and mortgagee. If the mortgagee and mortgagor reach agreement after the notice of

mediation conference is sent to the mortgagor, but without the assistance of the mediation

coordinator, the mortgagee shall provide a copy of the written agreement to the mediation

coordinator. Upon receipt of a written agreement between the mortgagee and mortgagor, the

mediation coordinator shall issue a certificate of eligible workout agreement if the workout

agreement would result in a net financial benefit to the mortgagor as compared to the terms of the

mortgage ("Certificate of Eligible Workout Agreement"). For purposes of this subsection,

evidence of an agreement shall include, but not be limited to, evidence of agreement by both

mortgagee and mortgagor to the terms of a short sale or a deed in lieu of foreclosure, regardless

of whether said short sale or deed in lieu of foreclosure is subsequently completed.

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

mortgagee have entered into a written agreement and the mediation coordinator has issued a

certificate of eligible workout agreement as provided in subsection (i), if and the mortgagor fails

to fulfill his or her obligations under the written eligible workout agreement, the provisions of this

section shall not apply to any foreclosure initiated under this chapter within twelve (12) months

following the date of the eligible workout agreement execution of the written agreement. In such

case, the mortgagee shall include in the foreclosure deed an affidavit establishing its right to

proceed under this section.

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

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

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

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

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

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

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

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

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

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

other loss mitigation strategies; and

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

as a result of a mortgage foreclosure action under power of sale contained a certification that the

provisions of this section have been satisfied.

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

under power of sale shall be submitted to a city or town recorder of deeds for recording in the

land evidence records of the city or town until and unless the requirements of this section are met.

The mortgagee shall include in the foreclosure deed an affidavit of compliance with this section.

Failure of the mortgagee to comply with the requirements of this section shall render the

foreclosure void, without limitation of the right of the mortgagee thereafter to re-exercise its

power of sale or other means of foreclosure upon compliance with this section. The rights of the

mortgagor to any redress afforded under the law are not abridged by this section.

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

conciliation or mediation process as a precondition to the recordation of a foreclosure deed shall

comply with the provisions set forth herein and any provisions of said ordinances which that do

not comply with the provisions set forth herein shall be determined to be unenforceable.

     (o) The provisions of this section shall not apply if the mortgage is a reverse mortgage as

described in chapter 25.1 of title 34.

     (p) Limitations on actions. Any person who claims that a foreclosure is not valid due to

the mortgagee's failure to comply with the terms of this section shall have one year from the date

that the first notice of foreclosure was published to file a complaint in the superior court for the

county in which the property is located and shall also file in the records of land evidence in the

city or town where the land subject to the mortgage is located a notice of lis pendens, the

complaint to be filed on the same day as the notice of lis pendens or within seven (7) days

thereafter. Failure to file a complaint, record the notice of lis pendens and serve the mortgagee

within the one year period shall preclude said mortgagor, or any other person claiming an interest

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through a mortgagor, from subsequently challenging the validity of the foreclosure. Issuance by

the mediation coordinator of a certificate authorizing the mortgagee to proceed to foreclosure or

otherwise certifying the mortgagee's good faith effort to comply with the provisions of this

section shall constitute a rebuttable presumption that the notice requirements of subsection (d)

have been met in all respects.

     SECTION 2. Section 34-27-3.1 of the General Laws in Chapter 34-27 entitled "Mortgage

Foreclosure and Sale" is hereby repealed.

     34-27-3.1. Foreclosure counseling. -- (a) No less than forty-five (45) days prior to

initiating any foreclosure of real estate pursuant to subsection 34-27-4(b), the mortgagee shall

provide to an individual consumer mortgagor written notice of default and the mortgagee's right

to foreclose by first class mail at the address of the real estate and, if different, at the address

designated by the mortgagor by written notice to the mortgagee as the mortgagor's address for

receipt of notices.

      (b) The written notice required by this section shall be in English and Spanish and,

provided the same is then available, shall advise the mortgagor of the availability of counseling

through HUD-approved mortgage counseling agencies and, the toll-free telephone number and

website address maintained to provide information regarding no-cost HUD-approved mortgage

counseling agencies in Rhode Island. The written notice may also contain any other information

required under federal law. A form of written notice meeting the requirements of this section shall

be promulgated by the department of business regulation for use by mortgagees at least thirty (30)

days prior to the effective date of this section. Counseling shall be provided at no cost to the

mortgagee.

      (c) Failure of the mortgagee to provide notice to the mortgagor as provided herein shall

render the foreclosure void, without limitation of the right of the mortgagee thereafter to

reexercise its power of sale or other means of foreclosure upon compliance with this section. The

mortgagee shall include in the foreclosure deed an affidavit of compliance with this section.

      (d) As used herein and in this chapter, the term "HUD" means the United States

Department of Housing and Urban Development and any successor to such department.

     SECTION 3. This act shall take effect ninety (90) days following passage and it shall

expire on July 1, 2018.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PROPERTY -- MORTGAGE FORECLOSURE AND SALE

***

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

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

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

residence of the mortgagor.

     This act would take effect ninety (90) days following passage and it would expire on July

1, 2018.

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