Comprehensive ‘Homeowners Bill of Rights’ would protect homeowners, improve the process and allow for legal recourse against banks
ST. PAUL (January 16, 2013) — The Minnesota House Committee on Housing Finance & Policy held an informational hearing this afternoon regarding H.F. 83, being dubbed the “Homeowner’s Bill of Rights.” The bill, authored by Rep. Mike Freiberg (DFL-Golden Valley), Rep. Raymond Dehn (DFL-Minneapolis) and Rep. Karen Clark (DFL-Minneapolis) addresses four key measures to tackle the ongoing foreclosure crisis in Minnesota. The committee, chaired by Clark, heard testimony from the public about the devastating effects foreclosures have on our communities. The bill is the first to be heard by the committee, noting the urgent and statewide nature of the crisis.
“This is a statewide problem that requires a statewide solution,” said Donna Cassutt, Director of Minnesotans for a Fair Economy. “Foreclosures impact all Minnesotans, regardless of geography, employment or economic status.”
Since 2006, more than 150,000 Minnesota homeowners have lost their homes to foreclosure. In 2012, there were three times more foreclosures in Minnesota than in 2005, continuing to have a disastrous effect on Minnesota communities. These foreclosures can and should be avoided.
A Minnesota Homeowner’s Bill of Rights would protect homeowners during the foreclosure process by:
- Implementing a foreclosure mediation program. There is growing recognition of the effectiveness of foreclosure mediation programs in preventing unnecessary foreclosures by bringing lenders and homeowners together for a face-to-face conversation about the homeowner’s situation and available options. There are now jurisdictions in 25 states that use foreclosure mediation.[i] Around the country, more than 70 percent of mediated cases reach a settlement – usually one that means a family stays in their home.[ii] Those for whom paying a mortgage is not a sustainable option also benefit by negotiating a “graceful exit” in how and when they move out.
- Banning dual tracking. The law would prohibit mortgage companies from pursuing foreclosure while a homeowner is seeking a loan modification, a process known as “dual tracking,” that has resulted in numerous foreclosures of homeowners who were actively working to stay in their homes. Modification departments at banks like Wells Fargo and Bank of America, for instance, often instructed homeowners to stop making payments in order for them to get assigned to the loan modification program. However, when the homeowners followed these directions, the banks often foreclosed on them anyway.[iii]
- Requiring a single point of contact. The law would require that mortgage companies assign struggling homeowners a “single point of contact – an individual who knows about the homeowner’s loan, has access to decision makers, and will handle the flow of documentation between the homeowner and the mortgage company. The law would also require mortgage companies to explicitly approve or deny a modification, verify foreclosure documents, and provide such documentation to homeowners upon request.
- Allowing homeowners to sue their bank following a dual tracking loss. Homeowners would have the right to seek damages, including attorney’s fees, if they incur a loss as a result of dual tracking. This private right of action has been extremely valuable for homeowners in other states. A judge in Louisiana, for instance, awarded a homeowner $3.1 million in damages because of “reprehensible actions” from Wells Fargo, which serviced the loan.[iv]
While the causes of Minnesota’s foreclosure crisis are complex, there is no doubt that the banks themselves have contributed greatly.
The failure of banks to work with homeowners to prevent foreclosures is undermining Minnesota’s economy. Foreclosures are part of a vicious economic cycle. As foreclosures drive property values down, homeowners have less wealth and cut back on consumer spending, resulting in lower sales for businesses, which in turn lay off workers, who then fell behind on their mortgages.
[i] “Foreclosure Mediation Programs: A Crucial and Effective Response by States, Cities, and Counties, and Courts to the Foreclosure Crisis,” The St. Louis Bar Jounral, Summer 2012, Karen Tokarz, Kim L. Kirn, and Justin Vail, p. 28
[ii] “Walk the Talk: Best Practices on the Road to Automatic Foreclosure Mediation,” Alon Cohen, Center for American Progress, November 2010, p. 2
[iii] “How California’s New Homeowners’ Bill of Rights Protects Against Wrongful Foreclosures,” Think Progress, Travis Waldron, July 3, 2012
[iv] “How California’s New Homeowners’ Bill of Rights Protects Against Wrongful Foreclosures,” Think Progress, Travis Waldron, July 3, 2012