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:

     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 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 Chapter 34-27 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.

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

mortgage.

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

      (4)(5) "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)(6) "HUD" means the United States Department of Housing and Urban Development

and any successor to such department.

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

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

primary residence.

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

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

consumer who mortgages the property.

      (d) No mortgagee may initiate any 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 Not

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

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

mortgagee shall 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.

      (f) 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) 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) 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. 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

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

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

of the facts set forth in the certificate. 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) 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

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. Such certification shall be valid

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

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

evidence of all of the facts set forth in the certificate. 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) 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 written agreement between the mortgagee and mortgagor, the

mediation coordinator shall issue a 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) Notwithstanding any other provisions of this section, where a mortgagor and

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

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

foreclosure initiated under this chapter within twelve (12) months following the 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 is the primary dwelling

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

expressly provided herein, 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 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 do not

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

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

circumstances:

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

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

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

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

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

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

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

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

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

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

foreclosure deed.

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

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

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

***

     This act would amend the law requiring a mortgagee to participate in good faith in a

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

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

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

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

passage.

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