June 8, 2015
by Joseph A. Camillo, Jr.
Shechtman Halperin Savage, LLP – USFN Member (Rhode Island)
On May 15, 2015 a decision was issued by the Providence Superior Court for the State of Rhode Island and Providence Plantations, Fontaine v. U.S. Bank National Association. The case, which included several consolidated foreclosure matters, revisited the applicability of R.I.G.L. § 34-27-3.2 to loans that were over 120 days delinquent as of September 13, 2013, the date that the statute went into effect.
The 2013 version of the statute stated that “when a mortgage is not more than one hundred twenty (120) days delinquent, the mortgagee … shall provide to the mortgagor written notice … that the mortgagee may not foreclose on the mortgaged property without first participating in a mediation conference.” Under this version of the statute, any loan that was over 120 days delinquent as of September 13, 2013 was exempt from the requirement of sending the notice of mediation.
The statute was further amended on October 6, 2014, eliminating the language that limited its applicability to only those mortgages that were over 120 days delinquent as of September 12, 2013. The 2014 version of the statute, subsection (d), states that “The mortgagee shall, prior to initiation of foreclosure of real estate pursuant to 34-27-4(b), provide to the mortgagor written notice … that the mortgagee may not foreclose on the mortgaged property without first participating in a mediation conference.”
The Fontaine decision states that mediation notices are required to be sent on all loans, regardless of the date of default. In reaching its conclusion, the court looked at the plain meaning of the statute, and determined that since the exemption for loans over 120 days delinquent was left out of the final version of the statute, the intent of the General Assembly was to require notice of mediation to be sent to all mortgagors. In relevant part, subsection (m) of R.I.G.L. § 34-27-3.2 states that “Failure of the mortgagee to comply with the requirements of this section shall render the foreclosure void.” Therefore, looking to the plain meaning of the statute, it is likely that any foreclosure where mediation would have applied (but was exempt due to the date of delinquency) will ultimately be deemed invalid if the mediation notice was not sent.
In line with this judicial decision, it should be noted that the Rhode Island Department of Business Regulation has scheduled a public hearing (June 17, 2015 at 10:00 a.m., at the Department of Business Regulation: 1511 Pontiac Avenue, Cranston, Rhode Island 02920), at which they plan to discuss a proposed amendment to Banking Regulation 5, Section 5(B), which would exclude any exemption from the mediation requirements for loans that were over 120 days delinquent as of September 13, 2013. (The proposed amended regulation and a summary of proposed non-technical amendments are available for review here.)
What It Means for Servicing
As recently as Friday, May 22, 2015, several major title insurance companies issued an alert that for foreclosures initiated (meaning the notice of sale is sent) on or after September 13, 2013 and before October 6, 2014, the mortgagee may prove its exemption from compliance with the mediation requirements of R.I.G.L. § 34-27-3.2 by using the Affidavit of Exemption provided by the Rhode Island Department of Business Regulation in Banking Regulation 5, and checking off paragraph 3(B) of the affidavit (i.e., that the mortgagor was more than one hundred twenty days delinquent on or before September 12, 2013). For foreclosures initiated on or after October 6, 2014, the mortgagee must prove compliance with the mediation requirements of R.I.G.L. § 34-27-3.2 and the Affidavit of Exemption created by the Department of Business Regulation in Banking Regulation 5 will NOT be accepted as a substitute for compliance if paragraph 3(B) of the affidavit is checked off as the reason for the exemption.
Servicers will need to review any set sale that did not comply with the statute to determine whether to proceed to sale, or cancel in order to send the mediation notices. Furthermore, any sale that has proceeded, but the deed has yet to be recorded, also needs review. This is because not all of the major national title insurance companies have taken a position as to the insurability of title in such a scenario. Should these sales be deemed uninsurable, the sales will need to be rescinded to allow for mediation notices to be provided. If the deed has been recorded, court action would be necessary to rescind the sale.
Due to the above factors, many servicers are cancelling sales and re-starting the foreclosure to comply with the mediation statute.
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