Amendments to Foreclosure Reform Continue As Package Passes State House
After weeks of contentious debate on the proposed foreclosure reform bills, the full House passed an amended package last week that will provide several positive foreclosure process reforms as the financial industry prepares to comply with the CFPB’s 120-day rule in early 2014. The Senate package included SB 380-383, and was referred to the House Financial Services Committee. Last week, the House adopted substitutes to its versions of several of the bills to mirror the Senate-passed legislation. Despite a near-unanimous vote in the Senate, the House hearing still saw intense opposition from consumer interests to SB 383, which originally provided for a blanket reduction of 120 days from the post-foreclosure redemption period but now contains a right of inspection and a right to pursue a cause-based action for summary possession during redemption. Despite opposition, SB 380 and 383 were eventually reported along party lines, along with HB 4765 and 4766. HB 4765 and 4766 were then passed on Thursday night by a vote of 98-9 and 99-8, respectively. Voting against the largely uncontroversial portion of the package were Reps. Theresa Abed, D-Grand Ledge (on HB 4765 only); Rashida Tlaib, D-Detroit; Harvey Santana, D-Detroit; Brian Banks, D-Detroit; Rosemary Robinson, D-Detroit; Fred Durhal, D-Detroit; Alberta Talabi, D-Detroit; and John Olumba, I-Detroit. In the version of the package that is approaching finalization, there are several items to note:
- The state 90-day pre-foreclosure law is rendered ineffective after the CFPB rules take effect next January, despite several powerful lobby interests and intense consumer advocacy community to retain the 90-day requirement in addition to the CFPB-mandated120-day process;
- The attempt to require all institutions regardless of size or mortgage volume to follow the "large servicer" requirements under the CFPB rules for loss mitigation, etc., was successfully removed from the legislation. Very few credit unions in the state would NOT have been able to avail themselves of the small servicer exemptions with regard to the delinquent borrower contact and loss mitigation provisions of the CFPB rule;
- The biggest banks, subject to the national settlement, are still required to comply with a new in-person meeting requirement, and credit unions successfully avoided being subject to this requirement. This provides a statutory recognition that credit unions and community institutions did not cause the foreclosure crisis and related problems;
- The redemption period for abandoned property in all cases is reduced to one month;
- Foreclosing institutions that purchase property at sheriff sale will be entitled to a right of inspection on the property after sale and periodically throughout the redemption period. This provides an opportunity to document damage and finally get proof to hold borrowers accountable for damage;
- If an inspection reveals damage or abandonment, or imminent threat of such, the foreclosing institution (purchaser at sale) may bring an action for summary possession of the property and any other relief needed to protect the property. This provides a cause based reduction tool, and can occur at any point in the redemption period. If successful, the action extinguishes the remaining redemption period.
Despite strong bi-partisan support of the Senate bill package, some consumer advocates continue to push against the package in the House and with the Snyder administration. Both chambers are expected to take up the others’ bills during the final week of session before the summer recess, after waiting the constitutionally mandated five-day minimum time period required for passage after transfer from the originating chamber.