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Rhode Island’s Innovative Foreclosure Law: Navigating the Path Forward

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

Brennan, Recupero, Cascione, Scungio & McAllister, LLP – USFN Member (Rhode Island)

R.I.G.L. 34-27-3.2 and the Opportunity to Mediate
A new and progressive law, R.I.G.L. 34-27-3.2, has really shaken things up in the Rhode Island foreclosure arena. This law mandates that certain borrowers in Rhode Island be given the opportunity to participate in mediation, also known as conciliation, in an attempt to obtain a workout or other alternative to foreclosure with their lender. This law went into effect September 13, 2013.

The law is modeled after the five local ordinances already put in place by Providence, Cranston, Warwick, East Providence, and Warren. Like the local ordinances, the law only applies to 1-4 unit owner-occupied residential properties. It is important to note, though, that mortgagees headquartered in Rhode Island who service their mortgages in the state and provide full mortgage service functions, including loss mitigation, in Rhode Island, are exempt from this law.

The statewide law supersedes the five local ordinances and shall apply to all new foreclosure files moving forward, in lieu of the local ordinances. R.I.G.L. 34-27-3.2 applies a strict deadline that all lenders must comply with: mortgagees are required to notify owners of their right to a mediation conference BEFORE the mortgage is 120 days delinquent by mailing “3.2 Notices” to not just borrowers, but also to any owners on title. These 3.2 Notices have been promulgated by the Rhode Island Department of Business Regulation and they must be mailed, in triplicate, to the borrowers and owners in English, Portuguese, and Spanish. Simultaneously, the mediation coordinator at Rhode Island Housing, Archie Martins, must be notified and a $150 fee must be made payable to Rhode Island Housing for the mediation service (regardless of whether the borrower/owner actually requests a mediation). It is important to note that this $150 is a cost to the mortgagee that cannot be passed on to the mortgagor. And, Rhode Island Housing has been certified by the Department of Business Regulation to provide these mediation services.

A key difference exists between the statewide foreclosure law and the five local ordinances that have been in existence for a few years: If and when a foreclosure was conducted improperly under the local ordinances, the clerk at the registry of deeds had the option of rejecting the foreclosure deed and accompanying affidavits. If this were to happen, the mortgagee had the ability to start again — a second chance if you will — to get it right. However, because the new statewide law has imposed a 120-day delinquency deadline in an attempt to alert borrowers early on of their right to mediate, if a mortgagee now misses that deadline and fails to conduct the foreclosure process properly, its only recourse is to move forward with a judicial foreclosure. As a mortgagee can never again go back in time and ensure that the borrower receives timely notice of his or her right to mediate, mortgagees must seek court action to foreclose on the secured property.

3.2 Notices, then 3.1 Notices

Once the 3.2 Notices have been mailed to all borrowers and owners on title, a 60-day timeline begins to run within which the borrower or owner must take action and request mediation with the lender through Rhode Island Housing. If within the 60-day time frame, the borrower and lender are able to work out an agreement (which is defined as a trial period, a loan modification, forbearance, or any sort of workout whatsoever), that agreement must be reduced to writing. If the borrower defaults again on that written agreement within 12 months from the date of the agreement, then no further mediation is necessary and the lender may move forward with the foreclosure process.

However, if the borrower defaults on this written agreement more than 12 months after the agreement became effective, then the lender must abide by RIGL 34-27-3.2 all over again and the mediation process must once again be offered to the borrowers and any owners on title.

Now, if this 60-day period passes and no workout is achieved, the mortgagee must state, in writing, why a workout was not feasible. Mortgagees must then mail out a separate notice, the 3.1 Notice, which is mandated by R.I.G.L. 34-27-3.1. It may seem awkward to send 3.2 Notices prior to sending 3.1 Notices; however, there is a method to the madness. The 3.2 Notices that go out to all borrowers and owners on title are mediation notices, designed to inform borrowers and owners of their right to mediate with their lender. The 3.1 Notices, however, are sent after this mediation period has expired and advise borrowers of their right to further foreclosure counseling (akin to a last-resort attempt to help the borrowers avoid foreclosure).

A key difference is that although the 3.2 Notices must be mailed to both borrowers and owners on title, the 3.1 Notices are only required to be mailed to borrowers. Now, R.I.G.L. 34-27-3.1 requires that after these 3.1 Notices are mailed, borrowers be given an additional 45 days before the mortgagee initiates the foreclosure process and the notice of foreclosure sale letters are mailed. Thus, on the 46th day after the 3.1 Notices are mailed, the notice of foreclosure sale can be mailed to the borrowers. This letter informs them as to when the foreclosure auction will take place and when news of the sale will be published in a local newspaper.

Exemption from R.I.G.L. 34-27-3.2

There are some foreclosure properties that are exempt from the new Rhode Island foreclosure law, R.I.G.L. 34-27-3.2: If any foreclosure involves a borrower that was delinquent for 120 days or more before 9/13/13, then this new law DOES NOT APPLY and 3.2 Notices do not have to be sent to the borrowers and owners on title. However, if a foreclosure involves a borrower that was delinquent for less than 120 days before 9/13/13, then the new foreclosure law does apply and the new 3.2 Notices must be mailed.

Recording the Foreclosure Deed
In order to record a foreclosure deed, the mortgagee will have to provide the appropriate certification to show that it has complied with the requirements of the new law. If the foreclosure in question is exempt from R.I.G.L. 34-27-3.2, then a 3.2 exemption affidavit must be recorded to explain why this particular property is exempt.

Conclusion
This new foreclosure mandate has a significant effect on lenders, as they must now decipher which of their files are exempt from the new law versus those files that must comply with the new law. Rhode Island foreclosure attorneys are fielding numerous inquiries from their lender clients and servicers. The Department of Business Regulation has proven instrumental in assisting both firms and lenders through this period of adjustment. Although it is anticipated that these next few months might endure some bumps along the way, the Department of Business Regulation and Rhode Island Housing are both pillars of information to guide the way until lenders are completely comfortable implementing the new law.

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