1

Washington Foreclosure

Fairness Act 2011

Slide Show By Natalie FujiiPresented by Fred Corbit,

Rory O’Sullivan, and Natalie FujiiNorthwest Justice Project

Presentation Roadmap

1. Foreclosure Process

2. The Home Affordable Modification Program (HAMP)

3. Problems with HAMP

4. The New Mediation Law

5. The Impact of the Mediation Requirement

Three Ways to Finance a Home

Purchase

� Seller Financed Real Estate Contracts –RCW 61.30

� Real Estate Mortgages – RCW 61.12

� Deeds of Trust (The vast majority of home sales) – RCW 61.24

2

Deed of Trust

Lender

Trustee

Borrower

Factors leading to foreclosure

� Loss of Income

� Economy

� Illness/Injury

� Increase in monthly payments (adjustable rate loans)

Foreclosure Process

(Under a Deed of Trust)

At least 190 days from the date of default to the date of the foreclosure sale

90 days from notice of trustee sale to

the actual date of the sale

30 day notice

of default

30 day

notice to

avoid

foreclosure

20 days

from trustee

sale to move

out

Borrower can cure default

until 11 days before the

trustee sale

Trustee sale must take place

on a Friday unless Friday is a

holiday then it can take place

the following Monday

Motion to restrain

sale should be filed at

least 5 days before

sale

3

Deed of Trust Act

� At least 190 days between the date of default and the trustee sale (see subsection 8 of the form for the notice of foreclosure as set forth in RCW 61.24.040(2))

� For Deeds of Trust made between 2003 and 2007, the servicer must contact the borrow in an attempt to avoid foreclosure at least 30 days before issuing a notice of default - RCW 61.24.031

� If the attempt to avoid foreclosure is unsuccessful the servicer or trustee can send the borrower a notice of default

� Borrower has 30 days to cure the default RCW 61.24.030(8)� If default is not cured the trustee records a notice of trustee sale� Notice must be recorded and served 90 days prior to the trustee

sale RCW 61.24.040� Borrower can cure up to 11 days before the sale RCW

61.24.040� Motion to restrain sale should be filed at least 5 days before sale

RCW 61.24.130(2)

Options to Avoid Foreclosure

�Refinance

�Modification

�Short Sale

�Deed in Lieu

�Bankruptcy

Home Affordable Modification

Program - HAMP

4

Different Agencies Have Different

Loan Modification Programs

HAMP Eligibility

� Homeowner is delinquent or delinquency is reasonably foreseeable

� First lien, originated prior to Jan 1, 2009

� No Previous HAMP Modification

� Single Family, Owner Occupied

� Owner suffered a hardship

� Loss of Employment, Increase in Expenses, Federal Disaster

Successful HAMP Modification

� Reduction in monthly payments (including taxes, insurance, HOA fees) to 31% of borrowers’ gross income.

5

Problems with HAMP

Lenders:

� “lose” paperwork

� Ignore requests for modification

� Issue a trial modification that is never made permanent

� Claim homeowner does not pass the Net Present Value (NPV) Test

Net Present Value

� Will the investor get more money from foreclosure or from modifying the loan?

Net Present Value

� ↓ equity + ↑ borrower income = NPV pass

+ =

6

Net Present Value

� ↑ equity + ↓ borrower income = NPV fail

+ =

Net Present Value

� Borrowers with more than 20 percent equity will likely fail the NPV test

The New Mediation Program

� Washington’s Foreclosure Fairness Act

� Effective July 22, 2011

7

Eligibility

1. Owner-occupied properties

2. Lender completed 250 or more foreclosures during previous year

� Yes – BofA, Wells Fargo, Chase, Citi

� No – Credit unions, small banks

Requesting Mediation

� Request for Mediation must be made by Housing Counselor or Attorney

� Mediation request is additional step that postpones the foreclosure process

� Request made to Dept of Commerce

� Showing of need for mediation not required

Mediation Request Timeline

DefaultNotice of Default

30 days; 90 days if borrower requests meeting

Pre-ForeclosureNotice;

Meet and Confer

Notice of Trustee Sale

TrusteeSale

At least 30 daysRequest Mediation

At least 90 daysRequest MediationOnly if notice of default received prior to July 22, 2011

8

Foreclosure Process Begins

Homeowner’s Default

Pre-Foreclosure Notice

30 Days Prior to sending Notice of Default: Lender must give Pre-Foreclosure Notice

Pre-Foreclosure Notice

� Gives notice of Homeowner’s right to request in-person meeting (meet and confer);

� Advises Homeowner to seek a housing counselor or attorney; and

� Gives notice of Homeowner’s right to request mediation (pending)

9

Pre-Foreclosure Notice

Lender must perform due diligence:

� Mail letter to Homeowner first class

� Call Homeowner three times, at three different times of day

� Mail a certified letter to Homeowner

Pre-Foreclosure Notice

� If Homeowner Responds – additional 60 days (total of 90 days) before Notice of Default can be filed

� Meet and Confer – if requested:

� Homeowner and Lender meet in Person

� Evaluate Homeowner’s financial situation

� No teeth here – no requirements for meeting

5 Ways in Which Foreclosure Process

Can Continue

1. Homeowner did not request in-person meeting

2. Meeting occurs but Lender still forecloses

3. Lender unable to reach borrower

4. Homeowner gives property back to Lender

5. Homeowner files for bankruptcy

10

Notice of Right to Request Mediation

� Sent Prior to Notice of Trustee Sale

� Must give Homeowner Notice of Mediation Right

� Advises Homeowner to seek Housing Counselor or Attorney

� Homeowner has 30 days to respond

� If no response – right waived and Notice of Trustee Sale can be recorded

Timing of Mediation Request

� Received Notice of Default on or before July 22, 2011 and house has not yet been sold at foreclosure sale

� likely request mediation up to date of sale

� Otherwise:

� request mediation before Notice of Trustee Sale recorded

Mediation Timeline

MediationRequest

SelectMediator;

Notify Parties

Within 10 days

Mediation

Set Time,Date,Place

ExchangePaperwork

10 days

15 days

Certification Received:Record Notice of

Trustee Sale

Stops ForeclosureProcess

Within 7 business days

45 daysmax

No Certification Received:

Record Notice of

Trustee Sale

11

Mediator

� Assigned by Dept of Commerce

� Sends notices to Bank and Homeowner to request documents

� Determines whether all parties have provided necessary documents at the mediation

Document Exchange

� Homeowner provides to Lender and Mediator� Financial statement w/ current and future income

� Debts and obligations

� Last 2 years of tax returns

Document Exchange

� Lender provides to Homeowner and Mediator� Loan balance

� Itemized list of fees and charges

� Payment history

� Net present value and loan modification inputs

� Other Documents

12

Mediation

� Bank representative must attend in person and have authority to modify the loan

� Fees: $200 each for Bank and Homeowner

� Parties participate in good faith

� Mediator encourages examination of all issues

Notice of Trustee Sale

Trustee can file Notice of Trustee Sale:

� After receiving notice that mediation is complete

OR

� If Trustee did not yet receive certification 10 days after mediator’s certification was due

Enjoining Trustee Sale

Enjoin Sale if Mediator’s Certification shows :

� Homeowner passed the Net Present Value test OR

� Bank did not act in Good Faith

� Failed to timely participate

� Failed to provide necessary documents

� Failure to pay for the mediation

� Bank’s Representative did not have required authority to modify loan

13

Other Provisions

� Failure to meet and confer � violation of CPA

� Money to pay housing counselors and attorneys

� Violation of Duty of Good Faith – Homeowner can collect attorneys fees + treble damages

� Department of Commerce Forms

� Mediation referral for clients

� Mediators’ forms

Key Points to Remember

� Mediation must be requested by housing counselor or attorney

� Request for Mediation must be made before Notice of Trustee Sale is filed*

� Request for Mediation postpones the foreclosure process

� Lender representative must have authority to modify the loan

� Failure to meet and confer = CPA violation

*Exception: if Notice of Default is filed prior to July 22, 2011, mediationRequest can likely be made anytime before the Trustee Sale takes place.

Impact of the Foreclosure Fairness

Act

� Allow Homeowner and Lender to communicate effectively

� Requires disclosure of relevant information

� Allows for quicker modification if Homeowner qualifies

14

Questions?