The Washington Foreclosure Fairness Act-the Basics

Transcription

1 The Washington Foreclosure Fairness Act-the Basics The effective date of the Washington Foreclosure Fairness Act (FFA) was July 22, The passage of this Act marks a seminal moment in the struggle of homeowners to get relief from the foreclosure tidal wave of the past four years. In 2007, Washington had approximately 7,000 foreclosures; in 2010, there were over 45,000 foreclosures. By some measures, Washington is now either the 10th or 14th state in the nation in terms of the numbers of foreclosures. Our state being a nonjudicial foreclosure state, meaning the beneficiary does not have to file a lawsuit in order to foreclose and thus go before a judge for an order, only compounds the problem for homeowners. In our state, the burden shifts to the homeowner to get a lawyer, file a lawsuit, and attempt to enjoin the foreclosure before the sale occurs. The problem for homeowners has been exacerbated by the securitizing of these loans, the lack of accountability of the loan servicers to homeowners, and lack of compliance with existing Washington law concerning pre-foreclosure rights. Typical problems for homeowners include: Inability to talk with someone with authority regarding the loan; No single point of contact-homeowners and their attorneys spend endless hours on the phone attempting to contact the right person or department; Frequent loss of paperwork sent by the homeowner to the loan servicer; Inappropriate denial of temporary loan modifications; Failure to convert successful temporary loan modifications to permanent loan modifications; Questions over who is the entity entitled to foreclose. Many of the judicial foreclosure states had begun mediation programs to deal with the above problems as well as the strain on the court system. Research by the National Consumer Law Center, the Center for Responsible Lending, and the Center for American Progress concluded that mediation programs work, and may be the single most effective tool to assist homeowners to get some relief. Studies showed that, depending on the state and the program, anywhere from 40% to 70% of homeowners who took advantage of the foreclosure mediation alternative were able to get some relief and save their home. The success of these programs shows two results: homeowners were not strategically defaulting on their loans; and 1

2 second, when given the opportunity to have a third party work with the homeowner and the beneficiary, results were forthcoming and impressive. Of the non-judicial foreclosure states, Nevada was the first, in 2009, to pass a foreclosure mediation law. Washington is only the 3rd state of the 27 nonjudicial states to pass a foreclosure mediation law. While the Washington law was modeled after the Nevada and other foreclosure mediation programs, it is quite unique in many respects. This article will point out some of the issues that you should be aware of in your practice. The Foreclosure Fairness Act, 2SHB 1326, can be found at It is not yet codified in RCW 61.24, and according to the Code Reviser s office, will not be until mid- October. Accordingly, this article will cite to specific sections of the Act. 1. The NOPFO. The Pre-Foreclosure Options Notice (NOPFO) requirement replaces the meet and confer provision in the Deed of Trust Act (RCW ). This new notice is a prerequisite for issuing the Notice of Default (NOD) and is required after July 22, The NOPFO provides the borrower with information on important rights, including the right to a meeting, a right to mediation, and toll-free phone numbers for housing counselors and civil legal aid. The borrower has the right to request a meeting with the beneficiary within 30 days of the receipt of the NOPFO. This meeting is not mediation. If the meeting is not requested by the borrower within 30 days, the beneficiary can proceed to issue the NOD. For purposes of counting the 30 days in which the borrower can request a meeting, the NOPFO is considered officially received three days after the date the letter is sent. See Section 5(1)(d). If a meeting is requested, the beneficiary must schedule the meeting before the NOD can be issued and the beneficiary may not issue the NOD until 90 days after the NOPFO was sent to the borrower. The borrower is not required to ask for this meeting as a prerequisite for a referral to mediation; however, in almost all instances the borrower will be best served to request the meeting, and if the meeting is unsuccessful, to then request mediation. 2

3 The meeting must be in person, unless waived in writing by the borrower or their representative, and the beneficiary must send a person who is authorized to modify the loan or reach an alternative to foreclosure resolution. The person with authority can participate by telephone or video if there is another representative of the beneficiary at the meeting in person. A template for the NOPFO can be found in English and Spanish on the Commerce website: In order to enforce the NOPFO provision, the Act specifically makes the CPA apply to these new requirements that will be codified in RCW (Section 14). Failure of a beneficiary to give this notice should require the beneficiary to restart the foreclosure process. Violations should be reported to the Washington Attorney General. 2. Requesting Mediation. Washington is unique among all the states with mediation in that mediation can only be triggered by a housing counselor (HUD/WSHFC approved) or a lawyer (licensed in WA) on behalf of a homeowner. Mediation may be requested if appropriate based on the individual circumstances (Section 6). For example, mediation would not be appropriate if the homeowner did not live in owneroccupied at the time the NOPFO was issued (Section 8); if the beneficiary was a financial institution or homeowner association exempt from the mediation requirements pursuant to Section 12; or other relevant factor. Commerce has the referral form on their website that must be filled out in order to request the mediation. A homeowner is not required to ask for a meeting under the Section 5 NOPFO requirements in order to request mediation. There are two sections of the FFA that allow for foreclosure mediation depending on where the homeowner is in the foreclosure process. a. Section 8 (2). Allows for mediation to be requested for those homeowners who received a NOTICE of DEFAULT before the effective date of the statute (July 22). Consequently, a homeowner can request mediation up until the foreclosure sale; however, if the homeowner has a sale pending, you must get the referral form to Commerce as soon as possible. Best practice is to also send the form in as many ways as possible to all parties listed on the referral form, i.e., the beneficiary, the trustee, the servicer, as well as Commerce. 3

4 The sponsor of the legislation and the stakeholders agreed that the intent of this section was to ensure that all homeowners who have not yet had the foreclosure sale (before the sale date) have the ability to trigger mediation. This would allow for foreclosure mediation for those homeowners who have been in the foreclosure pipeline for many, many months. You should also confirm with the trustee that the sale has been postponed. If not, the homeowner may be in a position to have to enjoin the foreclosure sale to prevent it from happening. We have had great cooperation from most of the trustees in regard to this issue; however, there could be trustees that do not understand this new law or interpret the section differently. Be very diligent in cases with immediate and upcoming sales. b. Section 6(3)(b). This is the section that allows for mediation to be requested for those homeowners AFTER the effective date of the statute BUT BEFORE the Notice of Trustee Sale has been recorded. This will impact those homeowners who have received the new Notice of Pre-Foreclosure Options, had the opportunity for a meeting with their lender, and then request mediation. Again, that request, as opposed to the Section 8(2) request for mediation, MUST be made prior to the Notice of Trustee Sale being recorded. Practice Tip: Do not turn a Section 6(3)(b) homeowner into a Section 8(2) homeowner! For example, you could have a homeowner who had a Notice of Default issued right before the effective date of July 22nd. You then wait until after the Notice of Trustee Sale is recorded before triggering mediation relying on the interpretation of Section 8(2). The trustee or beneficiary disagree and go forward with a sale, putting your homeowner in the position of then having to hire an attorney and file a lawsuit to enjoin the foreclosure. There is no reason to delay that request for mediation until after the recording of the notice of trustee sale, and the delay puts the homeowner at risk of losing the opportunity for mediation. 4

5 3. Referral to Mediation Form. The form requires information that is necessary for Commerce in making sure that all the necessary parties are informed of the mediation request. For example, the new form asks for the Servicer information, as well as the dates of the Notice of Pre-Foreclosure Options (if applicable), the Notice of Default, the Notice of Trustee Sale, and the date of the foreclosure sale. Adding this new information will assist Commerce in prioritizing cases for mediation. While there is a statutory obligation for Commerce to refer the case to a mediator within 10 days of the mediation, obviously a homeowner with an imminent foreclosure sale date is a much higher priority for making sure that the beneficiary/trustee knows of the mediation referral. The new form is here: Practice Tip: If a foreclosure sale is scheduled, notify all parties! While the statute does not require the housing counselor/attorney to notify the 4. Exemptions from the FFA. other parties of the referral, that responsibility is Commerce s, the best practice is for you to notify The referral all of the must parties be done of the by foreclosure mail and fax referral. and cannot That be ensures completed that the trustee has that information as soon as possible so that the sale can be postponed and any online costs at this minimized. point. An original must be mailed to Commerce at: The referral must be done by mail and fax and cannot be completed online at this point. An original must be mailed to Commerce at: Department of Commerce Attn: CSHD/Foreclosure Mediation Program Post Office Box Olympia, Washington An additional copy may be faxed to Commerce at: (360) Exemptions from the FFA. Financial institutions with less than 250 foreclosure sales are exempt from the mediation requirements. That exemption will only catch the smaller banks and credit unions. Other beneficiaries are NOT exempt. The statute requires those financial institutions seeking an exemption to notify Commerce of their exemption 5

6 within 30 days of the effective date, i.e., August 22nd. Commerce maintains a list of exempt financial institutions on the Commerce website, so you should check that before you refer the homeowner to mediation. If that information is not available, the best practice is to refer the homeowner to mediation if otherwise appropriate and then let the beneficiary make the claim for exemption. 5. Outreach. The brochure produced by the Department of Financial Institutions can be found here: This gives information about the law, how to contact housing counselors and lawyers, and has the official logos of Commerce and DFI. Please distribute widely. This article was meant to cover only the basics of the new NOPFO and the mediation requirements. Attached as an appendix is a timeline showing how the foreclosure mediation process should proceed. The next article will include representing homeowners in foreclosure mediations, and the legal issues that are emerging under the FFA. Bruce Neas is an attorney and the Legislative Coordinator for Columbia Legal Services. He has been a legal services attorney since 1980 and is active in landlord-tenant, housing, consumer, and low wage worker issues. 6

7 THE WASHINGTON FORECLOSURE FAIRNESS ACT HOMEOWNERS MEDIATION PROGRAM What is foreclosure mediation? Mediation is a process where the mediator assists the Homeowner and the Lender to reach a fair, voluntary, and negotiated agreement. A mediator is not a judge. Foreclosure mediation programs have proven effective in reducing foreclosures. Who is covered by the new Foreclosure Fairness Act Mediation Program? Homeowners are covered if they are in owner occupied properties and have either: (1) received a Notice of Default on or before the effective date of the Act and their house has not yet been sold at foreclosure sale; or (2) after the effective date, have not yet received the Notice of Trustee s Sale. All beneficiaries are covered except financial institutions that held less than 250 foreclosure sales in Washington during the previous year and homeowner associations. The Act is effective on July 22, The Department of Commerce will administer the Mediation Program. How does a Homeowner request mediation? Foreclosure mediation can only be requested by a housing counselor or an attorney on behalf of a Homeowner. How much will participating in foreclosure mediation cost? The Homeowner and the Lender shall each pay a $200 fee for the mediation. The fee must be paid prior to the mediation. Timeline for the Foreclosure Mediation Program. Step 1 Step 2 Step 3 Step 4 Step 5 Lender must notify Homeowner by letter and telephone of the right to a 60 day opportunity for an in person meeting before Lender issues a Notice of Default. The Notice must also indicate the Homeowner's right to request mediation through a housing counselor or attorney. Mediation may be requested up until the Notice of Trustee Sale is recorded. Mediation is requested ONLY by a housing counselor or attorney sending in a request for mediation to the Department of Commerce. The Homeowner does not have to establish or prove reasons for the request. Within 10 days of receiving the request for mediation, the Department will notify all parties that mediation has been requested and select a mediator. The Department will notify the parties of the list of documents that must be provided for the mediation. The mediation will be scheduled no later than 45 days after the mediator is selected, unless otherwise agreed. The mediator will set a time, date and place for the mediation 15 days before the mediation session. The Homeowner may be represented by an attorney or other advocate such as a housing counselor. The Lender must have a person with authority to modify the loan or negotiate an agreement either at the mediation or available by telephone. At least 10 days prior to mediation session: Homeowner shall prepare and exchange with the Lender: a financial statement with current and future income information, debts and obligations, and last 2 years of tax returns. Lender shall prepare and exchange with the Homeowner: loan balance, an itemized list of fees and charges, payment history, net present value and loan modification inputs, and other required documents. Step 6 At the mediation, both the Homeowner and the Lender have an obligation to participate in good faith. The mediator will encourage the parties to examine all options, including loan modification, to avoid foreclosure. Within 7 days after mediation, the mediator shall make a written certification of the results of the mediation and whether the parties participated in good faith. Step 7 The parties either come to an agreement (a loan modification or other alternative) or the parties do not come to an agreement, and the foreclosure process will proceed. If the Lender does not mediate in good faith, the Homeowner may enjoin the foreclosure sale in court. Prepared by Bruce D. Neas, Columbia Legal Services Prepared on 5/11/11 This document made possible by a grant from the Institute for Foreclosure Legal Assistance.