2009 -- H 5557

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LC01587

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2009

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A N A C T

RELATING TO PROPERTY - MORTGAGE FORECLOSURES

     Introduced By: Representatives Pollard, Edwards, DaSilva, Carnevale, and Shallcross Smith

     Date Introduced: February 25, 2009

     Referred To: House Judiciary

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 34 of the General Laws entitled "PROPERTY" is hereby amended by

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adding thereto the following chapter:

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     CHAPTER 27.3

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SAVE RHODE ISLAND HOMES ACT OF 2009

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     34-27.3-1. Short title. – This chapter shall be known and may be cited as the "Save

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Rhode Island Homes Act of 2009."

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     34-27.3-2. Legislative findings. – (a) Many thousands of Rhode Island homeowners are

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at risk of losing their homes as a result of mortgage foreclosures in the immediate future;

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     (b) Foreclosure of a family's home often represents the loss of the family's most valuable

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financial asset, and foreclosures undermine the health and economic vitality of neighborhoods;

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     (c) Foreclosures result in the loss of millions of dollars in assets, not only those of the

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homeowners who are the victims of foreclosure, but also in terms of the property values of homes

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located in the vicinity of foreclosed properties, as well as millions in additional costs to state and

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local governments for the loss of property tax revenue;

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     (d) A recent report issued by the United States Government Accountability Office (GAO)

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found that defaults and foreclosures on mortgages have a significant negative economic impact

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on homeowners, lenders, and neighborhoods;

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     (e) According to a report issued in April 2008 by the State Foreclosure Prevention

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Working Group, which is composed of banking regulators and attorneys general of eleven (11)

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states, the collective efforts of mortgage lenders and government officials to address rising

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foreclosures has not resulted in meaningful improvement in foreclosure prevention, and new

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approaches, such as targeted efforts to slow down the foreclosure process, are needed to prevent

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millions of unnecessary foreclosures nationwide.

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     (f) Foreclosures are largely the result of subprime lending practices, which have placed

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many homeowners in loans that they cannot realistically afford, by using mortgage loan features

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such as low introductory rates which reset to higher, variable rates thereby increasing the risk of

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default for many homeowners in the state who, at an increasing rate, cannot sell their home or

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refinance their mortgage;

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     (g) Industry analysts estimate that, nationwide, about 1.5 million mortgages were due to

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reset in 2008, and that as many as three million subprime mortgages could end up in foreclosure

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over the next several years; and

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     (h) There is a compelling need for the state of Rhode Island to address the ongoing

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economic crisis in the subprime mortgage market and to provide the means by which

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homeowners can obtain a period of extension to adjust their finances in order to increase their

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ability to retain their homes, encourage mortgage lenders to modify mortgage loan terms and

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resolve foreclosure disputes, and protect local governments and neighborhoods from the negative

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social, economic, and fiscal consequences of foreclosure and abandonment.

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      34-27.3-3. Definitions. – As used in this chapter:

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     (1) "Creditor" means a state chartered bank, savings bank, savings and loan association or

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credit union, or person or entity required to be licensed under the provisions of the laws in the

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state of Rhode Island and any creditor named in the debt obligation including, but not limited to,

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servicers; except excluding any debt obligation titled "home equity loan."

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     (2) "Eligible borrower" means a borrower who is obligated to repay a loan secured by an

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introductory rate mortgage and who receives a notice of intention to foreclose that mortgage

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pursuant to the section 34-27.3-4, except that an "eligible borrower" shall not include a borrower

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who has previously exercised the right to obtain a three (3) year period of extension pursuant to

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section 34-27.3-5.

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     (3) "Fully indexed rate" means the sum of the current value of the index used for the

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adjustable rate mortgage and the margin disclosed in the loan agreement.

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     (4) "Introductory rate mortgage" means a consumer credit transaction in which the loan is

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secured by a mortgage on real estate in this state upon which there is located a one to four (4)

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family dwelling which is occupied by the borrower as the borrower's principal residence and

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which provides for an introductory rate that is set below the fully indexed rate at the time the loan

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originated and may adjust at the reset date regardless of whether the variable rate index has

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increased.

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     34-27.3-4. Notices. – (a) Prior to the date on which the interest rate in effect during the

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introductory period of an introductory rate mortgage resets to a variable interest rate under the

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terms of the mortgage, a creditor shall provide a series of written notices, separate and distinct

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from all other correspondence, to an eligible borrower. The creditor shall provide these notices at

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sixty (60) day and thirty (30) day intervals prior to the date the introductory interest rate resets.

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     (b) Each notice required pursuant to subsection (a) of this section shall include, in plain

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language and in at least fourteen (14) point bold type:

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     (1) The current interest rate under the terms of the introductory rate mortgage;

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     (2) The date on which the interest rate resets from a fixed interest rate applicable during

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the introductory period to a variable interest rate;

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     (3) An explanation of how the reset interest rate and monthly payment would be

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determined;

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     (4) The best estimate by the creditor of the amount of the monthly payment that will

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apply after the date of the reset, and the assumptions upon which the estimate is based;

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     (5) A list of alternatives an eligible borrower may pursue before the date of the reset,

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including any refinancing of the loan offered by the creditor or any renegotiation of loan terms

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offered by the creditor;

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     (6) An explanation of the borrower's right to obtain a period of extension prior to the

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initial interest rate reset of an introductory rate mortgage pursuant to this act and an explanation

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of the procedure that a borrower must follow to obtain a period of extension; and

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     (7) A certification of extension form not to exceed two (2) pages that can be completed

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by a borrower in order to obtain a period of extension authorized pursuant to section 34-27.3-5.

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     34-27.3-5. Extension. – (a) Notwithstanding any law or regulation to the contrary, prior

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to the initial interest rate reset of an introductory rate mortgage, a creditor shall provide an

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eligible borrower a period of extension for three (3) years as provided in this section, during

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which the interest rate on the introductory rate mortgage shall not increase above the original

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introductory rate, provided the eligible borrower completes and returns a certification of

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extension to the creditor in accordance with the provisions of this section.

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     (b) In order to obtain the period of extension, the eligible borrower shall provide to the

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creditor, prior to the date that the interest rate resets under the terms of the introductory rate

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mortgage, a completed certification of extension form signed by the eligible borrower which

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contains:

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     (1) The name of the eligible borrower;

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     (2) The address of the property; and

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     (3) An affirmative statement that the eligible borrower:

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     (i) Does not have sufficient monthly income, after deductions for necessary living

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expenses, to pay the monthly payments that will apply after the date that the interest rate resets;

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     (ii) Requests the period of extension;

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     (iii) Agrees to continue, during the period of extension, monthly payments, which shall

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include principal and interest calculated at the introductory rate on the date that the introductory

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rate mortgage was originated, as well as amounts for applicable taxes required, insurance, and

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any other amounts being paid under the terms of the mortgage prior to the interest rate reset;

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     (iv) Agrees to pay the creditor, at the time of the borrower's transfer of the title to the

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property, any interest deferred on account of the period of extension;

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     (v) Agrees to accept the creditor's placement of a subordinate lien on the property to

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secure the repayment of the interest deferred on account of the period of extension; and

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     (vi) Agrees to sign a loan modification agreement, not to exceed two (2) pages that

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contains the terms and conditions of the period of extension.

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     (c) The creditor, upon receiving the completed certification of extension, shall grant the

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eligible borrower the three (3) year period of extension, which shall commence on the date that

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the introductory rate is due to reset under the terms of the introductory rate mortgage.

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     (d) Within a reasonable amount of time after the receipt of a completed certification of

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extension from an eligible borrower, a creditor shall provide to the eligible borrower a written

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acknowledgment that the certification of extension has been received. The acknowledgment shall

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contain the following:

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     (1) The monthly payment amount that is due from the eligible borrower during the period

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of extension, which shall include principal and interest, calculated at the introductory rate on the

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date the introductory rate mortgage was originated, as well as amounts for applicable taxes

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required, insurance, and any other amounts being paid under the terms of the mortgage prior to

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the interest rate reset;

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     (2) A schedule of payments, indicating the date that the first monthly payment is due and

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the dates that each subsequent monthly payment is due during the period of extension;

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     (3) The address to which the borrower shall send the monthly payment; and

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     (4) A statement of any proposed subordinate lien, which shall include:

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     (i) A notice to the borrower if the creditor intends to place a subordinate lien on the

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property that is the security for the introductory rate, to secure the borrower's repayment of the

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amount of interest deferred by the period of extension.

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      (e) A creditor who grants a period of extension to an eligible borrower shall have the

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right to record a subordinate lien on the eligible borrower's property to secure the borrower's

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repayment of the amount of interest deferred by the period of extension. The subordinate lien

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shall be effective from the date of recording in the public records in the town or city where the

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property is located. Notwithstanding any law to the contrary, the subordinate lien shall have the

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same priority as the lien of the introductory rate mortgage. Upon payment by the eligible

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borrower of the total amount of interest deferred pursuant to the period of extension, the creditor

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shall record the discharge of the subordinate lien, or otherwise cause the subordinate lien to be

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discharged of record.

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     (f) An eligible borrower who has been granted a period of extension shall forfeit all rights

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concerning deferment of interest payments provided by this act if the eligible borrower fails to

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make payments under the schedule of payments set forth in the creditor's acknowledgment of the

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period of extension or fails to comply with the terms of any mortgage loan modification

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agreement entered into between the creditor and the eligible foreclosed borrower relating to the

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period of extension, such that the modification agreement becomes ninety (90) days delinquent.

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     34-27.3-6. Notice of intent to foreclose. – (a) A creditor that issues an eligible defaulting

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borrower a notice of intention to foreclose upon an introductory rate mortgage, as defined in this

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chapter, shall send to the eligible defaulting borrower a written notice in plain language which

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shall contain the following information:

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     (1) Alternatives to foreclosure that the eligible borrower may pursue, including any

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refinancing of the loan offered by the creditor and any renegotiation of loan terms offered by the

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creditor.

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     (2) An explanation of the eligible borrower's right to obtain a period of extension for

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three (3) years pursuant to this chapter and an explanation of the procedure that an eligible

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borrower must follow to obtain a period of extension.

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     (3) A statement that the notice should be read carefully and that the eligible borrower

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may wish to consult with an attorney to understand the rights that may be available under this

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chapter.

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     (4) A certification of extension form that can be completed by an eligible borrower in

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order to obtain the period of extension authorized pursuant to section 34-27.3-7 of this chapter.

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     (b) The notice required of this section shall be sent no later than ten (10) days prior to the

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notice of proposed foreclosure pursuant to subsection 34-27-4(b) by first class mail.

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     34-27.3-7. Extension process. – (a) Notwithstanding any law to the contrary, a creditor

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shall provide an eligible borrower a period of extension of three (3) years as provided in this

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section, during which time foreclosure proceedings shall be suspended and the eligible borrower

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shall continue to pay monthly payments, which shall include principal and interest, calculated at

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the introductory rate on the date that the introductory rate mortgage was originated, as well as

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amounts for applicable taxes required, insurance and any other amounts being paid under the

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terms of the mortgage prior to the interest rate reset, provided the eligible borrower completes and

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returns a certification of extension to the creditor in accordance with the provisions of this

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section.

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     (b) In order to obtain the period of extension, the eligible borrower shall provide to the

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creditor, no later than forty-five (45) days from the date that the creditor sends the notice required

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pursuant to section 34-27.3-6, a completed certification of extension form provided by the

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creditor and signed by the eligible borrower, which contains:

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     (1) The name of the eligible borrower;

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     (2) The address of the property; and

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     (3) An affirmative statement that the eligible borrower:

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     (i) Requests the period of extension;

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     (ii) Agrees to continue, during the period of extension, monthly payments which shall

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include principal and interest, calculated at the introductory rate on the date that the introductory

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rate mortgage was originated, as well as amounts for applicable taxes required, insurance, and

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any other amounts being paid under the terms of the mortgage prior to the interest rate reset;

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     (A) Agrees to pay the creditor, at the time of transfer of title to the property:

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     (I) Any reasonable fees and costs incurred by the creditor in connection with the

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foreclosure proceeding; and

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     (II) Any arrearages owed to the creditor for monthly principal and interest payments,

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homeowners insurance payments, property tax payments, and any other payments that the eligible

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borrower was required to pay, but failed to pay, under the terms of the introductory rate

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mortgage;

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     (B) Agrees to accept the creditor’s placement of a subordinate lien on the property to

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secure the repayment of amounts owed pursuant to subparagraph (C) of this paragraph; and

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     (C) Agrees to sign a loan modification agreement no longer than two (2) pages in length

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that contains the terms of the period of extension.

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     (c) The creditor, upon receiving the completed certification of extension within the time

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period specified in subsection (b) of this section, shall:

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     (1) Grant the eligible borrower the three (3) year period of extension, which shall

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commence no later than thirty (30) days from the date that the creditor receives the eligible

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borrower’s completed certification of extension; and

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     (2) Suspend all foreclosure proceedings.

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     A creditor shall grant relief pursuant to subdivisions (1) and (2) of this subsection, upon

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receipt of a completed certificate of extension from an eligible borrower after the time period

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specified in subsection (b) of this section.

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     (d) Within a reasonable period of time after the receipt of a completed certification of

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extension from an eligible borrower within the time period specified in subsection (b) of this

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section, a creditor shall provide to the eligible borrower a written acknowledgment that the

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certification of extension has been received. The acknowledgment shall contain the following:

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     (1) A statement that any foreclosure proceedings will be suspended during the period of

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extension;

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     (2) The monthly payment amount that is due from the eligible borrower during the period

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of extension, which shall include principal and interest, calculated at the introductory rate, and

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any other amounts being paid under the terms of the mortgage prior to the interest rate reset;

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     (3) A schedule of payments, indicating the date that the first monthly payment is due and

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the dates that each subsequent monthly payment is due during the period of extension;

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     (4) The address to which the borrower must send the monthly payment; and

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     (5) A statement of proposed subordinate lien, which shall include:

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     (i) A notice to the eligible borrower that the creditor may place a subordinate lien on the

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property that is the security for the introductory rate mortgage, to secure the eligible borrower’s

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repayment of the amounts provided for in subdivisions (1) of subsection (e) of this section, for

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which repayment is secured by the subordinate lien.

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     (e)(1) A creditor that grants a period of extension to an eligible borrower shall have the

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right to record a subordinate lien on the eligible borrower’s property to secure the borrower’s

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repayment of:

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     (i) The amount of interest deferred by the period of extension;

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     (ii) Any fees and costs already incurred in connection with the foreclosure proceeding

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before the receipt by creditor of borrower's completed extension certification; and

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     (iii) Any arrearages owed to the creditor for monthly payments of principal and interest,

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homeowner insurance payments, property tax payments, or any other payments that the eligible

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borrower was required to pay, but failed to pay, under the terms of the original introductory rate

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mortgage.

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     (2) The subordinate lien shall be effective from the date of recording in the public records

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in the municipality where the property is located. Notwithstanding any other law to the contrary,

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the subordinate lien shall have the same priority as the lien of the introductory rate mortgage.

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Upon payment by the borrower of the total amount of interest deferred and any other amounts

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representing the arrearages for which the subordinate lien secures repayment pursuant to this act,

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the creditor shall record a discharge of the subordinate lien.

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     (f) An eligible borrower who has been granted a period of extension shall forfeit all rights

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concerning deferment of interest payments, suspension of foreclosure, and deferment of payment

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of amounts secured by a subordinate lien, provided by the provisions of this act if the eligible

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borrower fails to make payments under the schedule of payments as set forth in the creditor’s

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acknowledgment of the period of extension or fails to comply with the terms of any mortgage

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loan modification agreement entered into between the creditor and the eligible borrower relating

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to the period of extension, such that the modification agreement becomes ninety (90) days

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delinquent.

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      34-27.3-8. Damages. – Any creditor who violates any provision of this chapter shall pay

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damages of no less than ten thousand dollars ($10,000) to the affected borrower, plus a

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reasonable attorneys' fees and costs. A civil action against the violating creditor may be taken by

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the affected borrower or by the attorney general's office.

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     34-27.3-9. Rules and regulations. – The state department of business regulation shall

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enforce the provisions of this chapter and in consultation with the attorney general shall adopt

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regulations pursuant to the Administrative Procedures Act.

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     34-27.3-10. Construction. – This chapter shall be liberally construed to effect its

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purpose.

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     34-27.3-11. Severability. – If any provision of this chapter or the application thereof to

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any person or circumstance is held invalid, such invalidity shall not affect other provisions or

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applications of the chapter, which can be given effect without the invalid provision or application,

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and to this end the provisions of this chapter are declared to be severable.

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     SECTION 2. This act shall take effect upon passage and remain in effect until January 1,

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2015.

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LC01587

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PROPERTY - MORTGAGE FORECLOSURES

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     This act would require creditors to provide a three (3) year period extension to borrowers

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who are obligated to repay introductory rate mortgage loans on residential properties under

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certain circumstances.

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     This act would take effect upon passage and remain in effect until January 1, 2015.

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LC01587

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