2015 -- H 6264 SUBSTITUTE A

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LC002779/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2015

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A N   A C T

RELATING TO PROPERTY - MORTGAGE FORECLOSURE AND SALE

     

     Introduced By: Representatives Shekarchi, Ackerman, Fogarty, Lima, and Blazejewski

     Date Introduced: May 29, 2015

     Referred To: House Judiciary

     It is enacted by the General Assembly as follows:

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     SECTION 1. Section 34-27-3.2 of the General Laws in Chapter 34-27 entitled "Mortgage

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Foreclosure and Sale" is hereby amended to read as follows:

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     34-27-3.2. Mediation conference. -- (a) Statement of policy. - It is hereby declared that

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residential mortgage foreclosure actions, caused in part by unemployment and underemployment,

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have negatively impacted a substantial number of homeowners throughout the state, creating a

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situation that endangers the economic stability of many of the citizens of this state as the

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increasing numbers of foreclosures lead to increases in unoccupied and unattended buildings and

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the unwanted displacement of homeowners and tenants who desire to live and work within the

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state.

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      (b) Purpose. - The statutory framework for foreclosure proceedings is prescribed under

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the provisions of chapter 27 of title 34. As the need for a mortgage mediation process has

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evolved, it is important for the state to develop a standardized, statewide process for foreclosure

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mediation rather than a process based on local ordinances that may vary from municipality to

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municipality. By providing a uniform standard for an early HUD-approved, independent

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counseling process in owner-occupied principal residence mortgage foreclosure cases, the

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chances of achieving a positive outcome for homeowners and lenders will be enhanced.

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      (c) Definitions. - The following definitions apply in the interpretations of the provisions

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of this section unless the context requires another meaning:

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      (1) "Default" means the failure of the mortgagor to make a timely payment of an amount

 

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due under the terms of the mortgage contract, which failure has not been subsequently cured.

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      (2) "Department" means the department of business regulation.

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      (3) "Good Faith" means that the mortgagor and mortgagee deal honestly and fairly with

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the mediation coordinator with an intent to determine whether an alternative to foreclosure is

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economically feasible for the mortgagor and mortgagee, as evidenced by some or all of the

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following factors:

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      (i) Mortgagee provided notice as required by this section;

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      (ii) Mortgagee designated an agent to participate in the mediation conference on its

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behalf, and with the authority to agree to a work-out agreement on its behalf;

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      (iii) Mortgagee made reasonable efforts to respond in a timely manner to requests for

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information from the mediation coordinator, mortgagor, or counselor assisting the mortgagor;

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      (iv) Mortgagee declines to accept the mortgagor's work-out proposal, if any, and the

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mortgagee provided a detailed statement, in writing, of its reasons for rejecting the proposal;

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      (v) Where a mortgagee declines to accept the mortgagor's work-out proposal, the

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mortgagee offered, in writing, to enter into an alternative work-out/disposition resolution

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proposal that would result in net financial benefit to the mortgagor as compared to the terms of

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the mortgage.

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      (4) "HUD" means the United States Department of Housing and Urban Development

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and any successor to such department.

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      (5) "Mediation conference" means a conference involving the mortgagee and mortgagor,

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coordinated and facilitated by a mediation coordinator whose purpose is to determine whether an

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alternative to foreclosure is economically feasible to both the mortgagee and the mortgagor, and

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if it is determined that an alternative to foreclosure is economically feasible, to facilitate a loan

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workout or other solution in an effort to avoid foreclosure.

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      (6) "Mediation coordinator" means a person employed by a Rhode Island-based, HUD-

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approved counseling agency designated to serve as the unbiased, impartial and independent

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coordinator and facilitator of the mediation conference, with no authority to impose a solution or

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otherwise act as a consumer advocate, provided that such person possesses the experience and

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qualifications established by the department.

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      (7) "Mortgage" means an individual consumer first-lien mortgage on any owner-

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occupied, one (1)-to-four (4) unit residential property that serves as the mortgagor's primary

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residence.

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      (8) "Mortgagee" means the holder of a mortgage, or its agent or employee, including a

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mortgage servicer acting on behalf of a mortgagee.

 

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      (9) "Mortgagor" means the person that has signed a mortgage in order to secure a debt or

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other duty, or the heir or devisee of such person provided that:

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      (i) The heir or devisee occupies the property as his or her primary residence; and

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      (ii) The heir or devisee has record title to the property, or a representative of the estate of

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the mortgagor has been appointed with authority to participate in a mediation conference.

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      (d) The mortgagee shall, prior to initiation of foreclosure of real estate pursuant to § 34-

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27-4(b), provide to the mortgagor written notice at the address of the real estate and, if different,

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at the address designated by the mortgagor by written notice to the mortgagee as the mortgagor's

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address for receipt of notices, that the mortgagee may not foreclose on the mortgaged property

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without first participating in a mediation conference. Notice addressed and delivered as provided

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in this section shall be effective with respect to the mortgagor and any heir or devisee of the

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mortgagor.

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      (1) If the mortgagee fails to mail the notice required by this subsection to the mortgagor

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within one hundred twenty (120) days after the date of default, it shall pay a penalty at the rate of

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one thousand ($1,000) per month for each month or part thereof, with the first month

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commencing on the one hundred twenty-first (121st) day after the date of default and a new

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month commencing on the same day (or if there is no such day, then on the last day) of each

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succeeding calendar month until the mortgagee sends the mortgagor written notice as required by

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this section.

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      Notwithstanding the foregoing, any penalties assessed under this subsection for any

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failure of any mortgagee to provide notice as provided herein during the period from September

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13, 2013, through the effective date of this section shall not exceed the total amount of one

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hundred twenty-five thousand dollars ($125,000) for such mortgagee.

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      (2) Penalties accruing pursuant to subsection (d)(l) shall be paid to the mediation

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coordinator prior to the completion of the mediation process. All penalties accrued under this

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section shall be transferred to the state within one month of receipt by the mediation coordinator

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and deposited to the restricted receipt account within the general fund established by § 42-128-

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2(3) and used for the purposes set forth therein.

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      (3) Issuance by the mediation coordinator of a certificate authorizing the mortgagee to

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proceed to foreclosure, or otherwise certifying the mortgagee's good-faith effort to comply with

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the provisions of this section, shall constitute conclusive evidence that, to the extent that any

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penalty may have accrued pursuant to subsection (d)(1), the penalty has been paid in full by the

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mortgagee.

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      (4) Notwithstanding any other provisions of this subsection, a mortgagee shall not accrue

 

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any penalty if the notice required by this subsection is mailed to the borrower:

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      (i) Within sixty (60) days after the date upon which the loan is released from the

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protection of the automatic stay in a bankruptcy proceeding, or any similar injunctive order issued

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by a state or federal court, or within sixty (60) days after a loan is no longer afforded protection

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under the Servicemember's Civil Relief Act (50 U.S.C. App. §§ 501-597b), or the provisions of §

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34-27-4(d) or within one hundred twenty (120) days of the date on which the mortgagor initially

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failed to comply with the terms of an eligible workout agreement, as hereinafter defined; and

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      (ii) The mortgagee otherwise complies with the requirements of subsection (d);

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provided, however, that if the mortgagee fails to mail the notice required by subsection (d) to the

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mortgagor within the time frame set forth in subsection (d)(4)(i), the mortgagee shall pay a

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penalty at the rate of one thousand dollars ($1,000) per month for each month or part thereof,

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with the first month commencing on the thirty-first (31st) day after the date upon which the loan

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is released from the protection of the automatic stay a bankruptcy proceeding or any similar

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injunctive order issued by a state or federal court and a new month commencing on the same day

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(or if there is no such day, then on the last day) of each succeeding calendar month until the

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mortgagee sends the mortgagor written notice as required by this section. Notwithstanding the

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foregoing, any penalties assessed under this subsection for any failure of any mortgagee to

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provide notice as provided herein during the period from September 13, 2013, through the

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effective date of this section shall not exceed the total amount of one hundred twenty-five

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thousand dollars ($125,000) for such mortgagee.

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      (5) Notwithstanding any other provisions of this section, a mortgagee may initiate a

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judicial foreclosure in accordance with § 34-27-1.

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      (e) A form of written notice meeting the requirements of this section shall be

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promulgated by the department for use by mortgagees at least thirty (30) days prior to the

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effective date of this section. The written notice required by this section shall be in English,

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Portuguese, and Spanish, and may be combined with any other notice required under this chapter

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or pursuant to state or federal law.

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      (f) The mediation conference shall take place in person, or over the phone, at a time and

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place deemed mutually convenient for the parties by an individual employed by a HUD-

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approved, independent counseling agency selected by the mortgagee to serve as a mediation

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coordinator, but not later than sixty (60) days following the mailing of the notice. The mortgagor

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shall cooperate in all respects with the mediation coordinator including, but not limited to,

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providing all necessary financial and employment information and completing any and all loan

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resolution proposals and applications deemed appropriate by the mediation coordinator. A

 

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mediation conference between the mortgagor and mortgagee conducted by a mediation

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coordinator shall be provided at no cost to the mortgagor. The HUD-approved counseling agency

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shall be compensated by the mortgagee at a rate not to exceed five hundred dollars ($500) per

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engagement.

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      (g) If, after two (2) attempts by the mediation coordinator to contact the mortgagor, the

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mortgagor fails to respond to the mediation coordinator's request to appear at a mediation

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conference, or the mortgagor fails to cooperate in any respect with the requirements of this

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section, the requirements of the section shall be deemed satisfied upon verification by the

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mediation coordinator that the required notice was sent and any penalties accrued pursuant to

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subsection (d)(1) and any payments owed pursuant to subsection (f) have been paid. Upon

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verification, a certificate will be issued immediately by the mediation coordinator authorizing the

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mortgagee to proceed with the foreclosure action, including recording the deed. Such certificate

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shall be valid until the earlier of:

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      (1) The curing of the default condition; or

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      (2) The foreclosure of the mortgagor's right of redemption.

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      The certificate shall be recorded along with the foreclosure deed. A form of certificate

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meeting the requirements of this section shall be promulgated by the department for use by

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mortgagees at least thirty (30) days prior to the effective date of this section.

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      (h) If the mediation coordinator determines that after a good-faith effort made by the

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mortgagee at the mediation conference, the parties cannot come to an agreement to renegotiate

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the terms of the loan in an effort to avoid foreclosure, such good faith effort by the mortgagee

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shall be deemed to satisfy the requirements of this section. A certificate certifying such good faith

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effort will be promptly issued by the mediation coordinator authorizing the mortgagee to proceed

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with the foreclosure action and recording of the foreclosure deed; provided, however, that the

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mediation coordinator shall not be required to issue such a certificate until any penalties accrued

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pursuant to subsections (d)(1) and (d)(4)(ii) and any payments owed pursuant to subsection (f)

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have been paid. Such certification shall be valid until the earlier of:

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      (1) The curing of the default condition; or

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      (2) The foreclosure of the mortgagor's equity of redemption. The certificate shall be

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recorded along with the foreclosure deed. A form of certificate meeting the requirements of this

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section shall be promulgated by the department for use by mortgagees at least thirty (30) days

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prior to the effective date of this section.

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      (i) If the mortgagee and mortgagor are able to reach agreement to renegotiate the terms

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of the loan to avoid foreclosure, the agreement shall be reduced to writing and executed by the

 

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mortgagor and mortgagee. If the mortgagee and mortgagor reach agreement after the notice of

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mediation conference is sent to the mortgagor, but without the assistance of the mediation

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coordinator, the mortgagee shall provide a copy of the written agreement to the mediation

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coordinator. Upon receipt of a written agreement between the mortgagee and mortgagor, the

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mediation coordinator shall issue a certificate of eligible workout agreement if the workout

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agreement would result in a net financial benefit to the mortgagor as compared to the terms of the

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mortgage ("Certificate of Eligible Workout Agreement"). For purposes of this subsection,

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evidence of an agreement shall include, but not be limited to, evidence of agreement by both

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mortgagee and mortgagor to the terms of a short sale or a deed in lieu of foreclosure, regardless

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of whether said short sale or deed in lieu of foreclosure is subsequently completed.

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      (j) Notwithstanding any other provisions of this section, where a mortgagor and

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mortgagee have entered into a written agreement and the mediation coordinator has issued a

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certificate of eligible workout agreement as provided in subsection (i), if the mortgagor fails to

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fulfill his or her obligations under the eligible workout agreement, the provisions of this section

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shall not apply to any foreclosure initiated under this chapter within twelve (12) months following

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the date of the eligible workout agreement. In such case, the mortgagee shall include in the

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foreclosure deed an affidavit establishing its right to proceed under this section.

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      (k) This section shall apply only to foreclosure of mortgages on owner-occupied,

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residential real property with no more than four (4) dwelling units that is the primary dwelling of

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the mortgagor and not to mortgages secured by other real property.

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      (l) Notwithstanding any other provisions of this section, any locally-based mortgagees

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shall be deemed to be in compliance with the requirements of this section if:

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      (1) The mortgagee is headquartered in Rhode Island; or

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      (2) The mortgagee maintains a physical office, or offices, exclusively in Rhode Island

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from which office, or offices, it carries out full-service mortgage operations, including the

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acceptance and processing of mortgage payments and the provision of local customer service and

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loss mitigation and where Rhode Island staff have the authority to approve loan restructuring and

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other loss mitigation strategies; and

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      (3) The deed offered by a mortgagee to be filed with the city or town recorder of deeds

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as a result of a mortgage foreclosure action under power of sale contained a certification that the

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provisions of this section have been satisfied.

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      (m) No deed offered by a mortgagee as a result of a mortgage foreclosure action under

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power of sale shall be submitted to a city or town recorder of deeds for recording in the land

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evidence records of the city or town until and unless the requirements of this section are met.

 

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Failure of the mortgagee to comply with the requirements of this section shall render the

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foreclosure void voidable, without limitation of the right of the mortgagee thereafter to re-

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exercise its power of sale or other means of foreclosure upon compliance with this section. The

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rights of the mortgagor to any redress afforded under the law are not abridged by this section.

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      (n) Any existing municipal ordinance or future ordinance that requires a conciliation or

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mediation process as a precondition to the recordation of a foreclosure deed shall comply with the

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provisions set forth herein and any provisions of said ordinances that do not comply with the

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provisions set forth herein shall be determined to be unenforceable.

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      (o) The provisions of this section shall not apply if:

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     (1) the The mortgage is a reverse mortgage as described in chapter 25.1 of title 34; or

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     (2) The date of default under the mortgage is on or before May 16, 2013.

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      (p) Limitations on actions. - Any person who claims that a foreclosure is not valid due to

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the mortgagee's failure to comply with the terms of this section shall have one year from the date

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that the first notice of foreclosure was published to file a complaint in the superior court for the

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county in which the property is located and shall also file in the records of land evidence in the

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city or town where the land subject to the mortgage is located a notice of lis pendens, the

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complaint to be filed on the same day as the notice of lis pendens, or within seven (7) days

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thereafter. Failure to file a complaint, record the notice of lis pendens and serve the mortgagee

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within the one-year period shall preclude said mortgagor,or any other person claiming an interest

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through a mortgagor, from subsequently challenging the validity of the foreclosure. Issuance by

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the mediation coordinator of a certificate authorizing the mortgagee to proceed to foreclosure or

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otherwise certifying the mortgagee's good-faith effort to comply with the provisions of this

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section shall constitute a rebuttable presumption that the notice requirements of subsection (d)

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have been met in all respects.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PROPERTY - MORTGAGE FORECLOSURE AND SALE

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     This act would substitute the word "voidable" for the word "void" relative to foreclosure

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deeds whenever the mortgagee fails to comply with the requirements of the general laws

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pertaining to mediation conferences held for the purpose of avoiding foreclosure proceedings if at

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all possible. The word change would bring the statute into conformity with other provisions

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addressing a one year limitation for action to declare the mortgage foreclosure process invalid.

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     This act would also provide for additional protection when a mortgage is subject to either

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the federal or state Servicemember's Civil Relief Act.

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     This act would take effect upon passage.

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