August 29, 2014
by Joseph A. Camillo, Jr.
Shechtman Halperin Savage, LLP – USFN Member (Rhode Island)
The foreclosure crisis has led many states to adopt mediation programs to improve communications between borrowers and lenders and achieve alternatives to foreclosure while stabilizing communities. Previously, Rhode Island enacted mediation legislation superseding several local ordinances. On July 8, 2014, the governor signed legislation amending the statute to clarify that process. It takes effect October 6, 2014, and Banking Regulation 5 will also be amended to incorporate these changes.
The new amendments provide significant changes to the 2013 statute. Specifically, the new law will mandate that mortgagees provide mediation notices to mortgagors prior to initiating foreclosure (subject to the exemptions), regardless of whether the date of delinquency is less than 120 days prior to September 13, 2013. Also, the previous exemptions from compliance were expanded to include reverse mortgages and non-first mortgages.
Furthermore, certain statutory definitions were clarified. Of particular significance is the definition of “mortgagor,” which was amended to eliminate non-borrower owners except to the extent they hold record title as an heir or devisee of a borrower and live in the property as their principal residence. This includes a representative of the estate appointed with authority to participate in a mediation conference. Additionally, “mortgage” was amended to mean a first-lien mortgage. Finally, “mortgagee” was amended to include agents or employees of a mortgagee, including a mortgage servicer acting on its behalf.
Previously, notice had to be sent by both certified and first-class mail. The new amendments change that requirement by simply providing that written notice to the mortgagor must be sent. The new amendments also eliminate the requirement for the plat and lot number to be included on the mediation notice.
One of the most significant changes is that R.I.G.L. 34-27-3.1 was repealed in its entirety, eliminating the 45-day notice of intent “NOI” requirement.
Another substantial change is the penalty provision for non-compliance with the statute. As the current statute reads, a mortgagee failing to send mediation notices within 120 days of delinquency must foreclose judicially under R.I.G.L. 34-27-1, et seq. Because, the Rhode Island judicial foreclosure process is somewhat undefined, title companies have been reluctant to opine as to what would be an insurable judicial foreclosure. This left many loans where the mediation notices were not sent within 120 days of delinquency, stalled as servicers wait for further direction. Under the new law, a mortgagee may now alternatively still proceed with mediation and nonjudicial foreclosure by paying a penalty of $1,000 per month until the notice is sent. These penalties will be paid directly to the mediation coordinator prior to completion of the mediation process. The aggregate penalty for violation has been capped for any servicer between the enactment of the original law (September 13, 2013) and the effective date of the amendment (October 6, 2014) to an amount of $125,000. Thus servicers should commence sending out notices for older loans fitting this description as soon as possible.
The amendment resolves many of the questions and issues that remained after the 2013 statute went into effect. In the months to come, it will be interesting to see the title insurance companies’ response as well as the penalty calculation methodology. Ultimately, the unified process and clarifications discussed above should facilitate compliance with the statute going forward.
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