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:

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

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

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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 that 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

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

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

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

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from 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

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

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

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

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

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

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and any successor to such department.

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     (5) "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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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-

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

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

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

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qualifications established by the department.

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

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

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mortgagor's primary residence.

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

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mortgage servicer acting on behalf of a mortgagee.

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

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

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person provided that:

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

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

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

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

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34-27-4(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 The

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mortgagee shall, prior to initiation of foreclosure of real estate pursuant to § 34-27-4(b), 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. Notice addressed and

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

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or devisee of the mortgagor.

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

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

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

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

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

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

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section.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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mortgagee.

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

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

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

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

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

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

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hereinafter defined; and

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

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

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

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

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

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

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

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

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

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

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

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

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mortgagee.

 

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

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

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      (f)(e) A form of written notice 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. The written notice required by this section shall be in English,

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

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

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

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

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

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

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

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

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

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mediation conference between the mortgagor and mortgagee conducted by a mediation

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

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

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the 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 and any penalties accrued pursuant to

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

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

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

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shall be valid until the earlier of:

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     (1) The curing of the default condition; or

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

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

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

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

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      (i)(h) 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; provided, however, that the

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

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

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

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     (1) The curing of the default condition; or

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     (2) The foreclosure of the mortgagor's equity of redemption. The certificate 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)(i) If the mortgagee and mortgagor are able to reach agreement to renegotiate the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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proceed under this section.

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      (l)(k) 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 that is the primary

 

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

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

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mortgagees 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

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

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provisions of this section have been satisfied.

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

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

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

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

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

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

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

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

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

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

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

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

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

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described in chapter 25.1 of title 34.

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

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

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

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

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

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

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

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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

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

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

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

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have been met in all respects.

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

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Foreclosure and Sale" is hereby repealed.

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

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

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

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

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

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receipt of notices.

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

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

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

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

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

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

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

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

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mortgagee.

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

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

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

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

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

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

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

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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

***

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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 the primary

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residence of the mortgagor.

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

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1, 2018.

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