New State Laws May Reduce Foreclosure Timelines

By: Morey Barnes Yost

Is this the beginning of the end for foreclosure mediation programs?

Currently under review by Missouri Governor Jeremiah “Jay” Nixon is House Bill 446, which would prohibit cities and counties from enacting laws or ordinances impacting the enforcement of servicing of real estate loans. (The Governor’s deadline for action is July 14.) The measure’s real impact: abolishing local-level foreclosure mediation programs, such as those in place in the city of St. Louis and St. Louis County since 2012 (until recently enjoined by Missouri courts).

The existing ordinances, and others like them around the country, permit a borrower to request a face-to-face mediation with his or her servicer, and impose documentation and other obligations on the responding servicer. (We discussed the impact of such programs in greater depth in client alerts issued in January 2012, November 2010, and November 2008.) Foreclosure mediation does not uniformly result in borrowers avoiding foreclosure, but one effect of these programs has been to extend the timeline for foreclosure in jurisdictions where they exist. In response to bank concerns about that effect – and, apparently to the surprise of consumer advocates, according to the St. Louis-Post Dispatch – the Missouri measure would prohibit any local law or ordinance that would “add to, change, delay enforcement of, or interfere with,” any loan agreement, security instrument, mortgage or deed of trust.

Could this be the new trend in foreclosure and servicing legislation – curtailing the impact of foreclosure mediation programs? It’s too soon to tell. True, the number of states and localities creating new programs has decreased drastically over the past few years. But at the same time, some states – most recently, Delaware and Vermont – are extending the life spans of existing foreclosure mediation laws – while just last week Florida enacted legislation to expedite one of the longest foreclosure processes in the nation. The Missouri measure may not signal the beginning of the end for foreclosure mediation, but it does suggest that states are more carefully considering how a web of laws, ordinances, and judicial orders created over the past several years impacts the conduct of the mortgage loan servicing businesses. And that is a trend on which we’ll be keeping a close eye.

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