2017 -- S 0667

========

LC001446

========

     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

____________

A N   A C T

RELATING TO PROPERTY - RESIDUAL DEBT AFTER SHORT SALE OF RESIDENTIAL

PROPERTY

     Introduced By: Senator James C. Sheehan

     Date Introduced: March 29, 2017

     Referred To: Senate Judiciary

     (by request)

It is enacted by the General Assembly as follows:

     SECTION 1. Title 34 of the General Laws entitled "PROPERTY" is hereby amended by

adding thereto the following chapter:

CHAPTER 27.3

THE RESIDUAL DEBT AFTER SHORT SALE OF RESIDENTIAL PROPERTY ACT

     34-27.3-1. Short title.

     This chapter shall be known and may be cited as "The residual debt after short sale of

residential property act."

     34-27.3-2. Definitions.

     As used in this chapter:

     (1) "Borrower" means an individual who, directly or indirectly and individually or

together with another person, is obligated on a real estate loan agreement, including, but not

limited to, a mortgagor or a grantor or an assignee or successor in interest.

     (2) "Lender" means a person that makes, extends or holds a real estate loan agreement,

including, but not limited to, a mortgagee, as defined in §19-14-1(4), or an assignee or successor

in interest.

     (3) "Payoff statement" means a written statement that sets forth, as of the date the lender

prepares the statement, amounts a borrower must pay in order to fully satisfy the borrower's

obligation under a real estate loan agreement.

     (4) "Real estate loan agreement" means an arrangement between a lender and a borrower,

including, but not limited to, a mortgage, by means of which the lender agrees to extend a loan

and the borrower agrees to secure the loan in whole or in part with residential property, or an

interest in residential property, that is located in this state.

     (5) "Residential property" means real property upon which is situated four (4) or fewer

improvements designed for residential use, one of which a borrower occupies as the borrower's

residence.

     (6) "Residual debt" means an amount due on a loan, evidence of which exists in a real

estate loan agreement, note, bond, contract or similar written agreement, that a borrower is unable

to pay out of the proceeds from a sale of the residential property that secures the loan.

     (7) "Short sale" means a sale of residential property that is in the process of foreclosure

proceedings, subject to a contractual or statutory power of sale pursuant to chapters 11 or 27 of

title 34, or any sale for an amount that is less than the remaining amount due on the loan that the

residential property secures.

     34-27.3-3. Action for residual debt after short sale.

     (a) If a lender reports to the Internal Revenue Service that as a consequence of or in

conjunction with a short sale of residential property the lender has canceled all or a portion of a

borrower's obligation under a real estate loan agreement and the lender provides to the borrower

written evidence of the lender's report to the Internal Revenue Service, the lender or an assignee

of the lender may not bring an action or otherwise seek payment for the residual debt following

the short sale.

     (b)(1) Except as provided in subsection (2) of this section, a borrower or an agent of the

borrower may rely on a payoff statement for the purpose of establishing the amount the borrower

must pay to satisfy the borrower's obligation under a real estate loan agreement other than a real

estate loan agreement for a construction loan.

     (2) A borrower or an agent of the borrower may not rely on a payoff statement after a

lender prepares and delivers an amended payoff statement to the borrower or borrower's agent.

For purposes of this subsection, a lender delivers an amended payoff statement to the borrower or

borrower's agent if the lender provides the amended payoff statement by electronic means, sends

the amended payoff statement by United States mail postage prepaid and correctly addressed to

the borrower or borrower's agent or sends the amended payoff statement by facsimile, provided

that the borrower or borrower's agent receives the amended payoff statement before the borrower

disburses funds for the purpose of satisfying the obligation in accordance with subsection (d) of

this section.

LC001446 - Page 2 of 4

     (c) If an amount that a borrower owes under a real estate loan agreement, other than a real

estate loan agreement for a construction loan, does not appear on a payoff statement or amended

payoff statement and the borrower or an agent of the borrower satisfies the obligation set forth in

the payoff statement in accordance with subsection (d) of this section, the lender may recover the

amount only as an unsecured obligation or only by foreclosing a mortgage or security agreement

for any other property that secures the obligation.

     (d) To satisfy an obligation set forth in a payoff statement or an amended payoff

statement, a borrower must submit the amount shown in the payoff statement or amended payoff

statement, instruct the lender to close any line of credit that is related to the obligation and request

a redemption, release or transfer of the mortgage pursuant to the provisions of chapter 26 of title

34 before any deadline, expiration date or maturity date specified in the payoff statement or

amended payoff statement.

     SECTION 2. This act shall take effect upon passage and apply to all actions for residual

debt after short sale filed on or after July 1, 2017.

========

LC001446

========

LC001446 - Page 3 of 4

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PROPERTY - RESIDUAL DEBT AFTER SHORT SALE OF RESIDENTIAL

PROPERTY

***

     This act would prohibit a lender from filing an action for a deficiency judgment following

a short sale of residential property if the lender reports to the Internal Revenue Service (IRS) that

it has cancelled all or part of the borrower's debt and provides the borrower with a copy of the

report.

     This act would take effect upon passage and would apply to all actions for residual debt

after short sale filed on or after July 1, 2017.

========

LC001446

========

LC001446 - Page 4 of 4