2014 -- S 3072

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LC005801

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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: Senator Michael J.McCaffrey

     Date Introduced: June 05, 2014

     Referred To: Senate Judiciary

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

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process 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

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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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     (3) "Default" means the failure of the mortgagor to comply with any of the terms of the

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mortgage.

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

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      (4)(5) "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)(6) "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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      (6)(7) "Mortgage" means an individual consumer first lien mortgage on any owner-

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

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primary residence.

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

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a 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 an individual

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consumer who mortgages the property.

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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 Not

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less than one hundred twenty (120) days prior to initiating any foreclosure of real estate pursuant

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to § 34-27-4(b), the mortgagee or its mortgage servicer or other agent or representative of the

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mortgagee shall provide to the mortgagor written notice, by certified and first class mail at the

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address of the real estate and, if different, at the address designated by the mortgagor by written

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notice to the mortgagee as the mortgagor's address for receipt of notices, that the mortgagee may

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not foreclose on the 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

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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) 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 valid until the earlier of

 

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the curing of the default condition or the foreclosure of the mortgagor's right of redemption and

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shall be recorded along with the foreclosure deed, and shall constitute conclusive evidence of all

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of the facts set forth in the certificate. 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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      (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 valid

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until the earlier of the curing of the default condition or the foreclosure of the mortgagor's right of

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redemption and shall be recorded along with the foreclosure deed, and shall constitute conclusive

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evidence of all of the facts set forth in the certificate. A form of certificate meeting the

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

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least thirty (30) days 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

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

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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 written agreement between the mortgagee and mortgagor, the

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mediation coordinator shall issue a certificate of eligible workout agreement. For purposes of this

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

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

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

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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)(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 is the primary dwelling

 

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of the owner and not to mortgages secured by securing 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 Except as

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expressly provided herein, the rights of the mortgagor to any redress afforded under the law are

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not abridged by this section.

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      (o)(n) Any existing municipal ordinance or future ordinance which 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 do not

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comply with the provisions set forth herein shall be determined to be unenforceable.

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     (o) Exclusions. The provisions of this section shall not apply in the following

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circumstances:

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     (1) The mortgage is a reverse mortgage as described in chapter 25.1 of title 34; or

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     (2) The default is for a reason other than a mortgagor's failure to make a timely payment

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of an amount due under the terms of the note and/or mortgage contract.

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     (p) Limitations on actions. Only a person entitled to receive notice under § 34-27-3.2(e)

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shall be entitled to raise the issue that the foreclosure of a mortgage is void due to the mortgagee's

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failure to comply with the terms of this section. Such person shall be forever barred from raising

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this issue to challenge the validity of the foreclosure and/or the validity of the title conveyed to

 

LC005801 - Page 5 of 6

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the foreclosure sale purchaser unless such person files an action in the superior court in the

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county in which the residential property is located and a notice of lis pendens in the land evidence

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records where such property is located prior to the date and time of recording of the mortgagee's

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foreclosure deed.

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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. Section 1 of this act shall take effect upon passage and shall apply to all

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mortgages with a default date on or after May 16, 2013. The remainder of this act shall take effect

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upon passage.

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LC005801

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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 amend the law requiring a mortgagee to participate in good faith in a

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mediation conference prior to initiating foreclosure proceedings and would also repeal the law

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requiring mortgagees to send a notice advising mortgagors of the right to counseling.

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     Section 1 of this act would take effect upon passage and would apply to all mortgages

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with a default date on or after May 16, 2013. The remainder of this act would take effect upon

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passage.

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