On May 20, 2009, the Democrat-controlled Ohio House of Representatives passed Ohio House Bill 3. The bill, which would implement a moratorium on foreclosures, additional requirements for commencing foreclosures, and new regulations on mortgage servicers, will now move to the Republican-controlled State Senate, where tough questions about constitutionality of the bill are likely to be argued. Some highlights of the bill are as follows:
Foreclosure Moratorium
The bill would impose a six-month moratorium on new or pending foreclosures. However, the moratorium would not apply to: (1) non-residential properties; (2) unoccupied properties, (3) properties that have already been sold at a sheriff’s sale and are awaiting the court’s confirmation of the sale; (4) depository institutions headquartered in Ohio having two and one-half billion dollars or less in total assets, and which originated and service the mortgage; and (5) credit unions.
Under the bill, new foreclosure actions can still be filed and the action necessary to perfect service of the summons may also proceed. However, unless one of the above-mentioned exceptions applies, the case will otherwise be stayed.
In cases stayed by the moratorium, the borrower will be required to make payments each month in an amount equal to one-half of the monthly payment that was in effect at the time the foreclosure action was filed, or other amount that the judge determines is just and equitable. If the borrower misses one of the monthly one-half payments for a period of 30 days, the mortgage holder may petition the court to allow the foreclosure to proceed. During the moratorium, the borrower must also make a good faith effort to maintain the property and must allow inspections.
A New “Tax” On Foreclosures
In addition to the usual court cost required to file a foreclosure complaint, mortgage holders whom the bill does not exempt, must also pay a non-refundable fee of $750.00 directly to the State Department of Commerce, upon commencing a foreclosure. Those funds are then deposited into the Ohio Housing Trust Fund. Unlike court costs, this fee cannot be charged to the borrower.
The fee will not be charged for foreclosures on unoccupied properties; properties for which a fee was paid during the past 24 months with respect to the same loan; foreclosures by credit unions; or foreclosures by the smaller depository institutions that are excepted from the moratorium provision.
Among other things, the purpose of the Ohio Housing Trust Fund will be to provide grants to counseling entities, emergency foreclosure prevention assistance loans, and relocation assistance.
Pre-Foreclosure Notice
At least 60 days prior to commencing a foreclosure on an occupied residential property, the mortgage servicer must provide the borrower a notice containing: (1) an itemized amount due; (2) the availability of resources to avoid foreclosure; and (3) the mortgage servicer’s contact information. The notice must be sent by mail to the last known address of the borrower, and must be evidenced by a certificate of mailing.
The mortgage servicer will be required to report the issuance of the notice to the Administrative Director of the Ohio Supreme Court within three business days after mailing the notice. The mortgage servicer must also report within seven days after entering into a modification agreement or a deed-in-lieu.
Additional Paperwork For Foreclosures
At the time of initiating a residential mortgage foreclosure action, the following must also be filed: (1) a statement that the plaintiff is the true party in interest; (2) a statement as to whether the note has been securitized and if so, the identity of the mortgage-backed security and the trustee; (3) a statement as to whether the residential property is occupied and the date that its occupancy status was last assessed; (4) evidence that the $750.00 fee was transmitted to the Department of Commerce; and (5) an appraisal of the property, completed by a certified or licensed appraiser within the prior three months.
General Requirements For Mortgage Servicers
In addition to a general requirement that mortgage servicers be registered with the State, the bill requires that mortgage servicers keep separate records pertaining to each loan serviced for at least four years after the servicer’s responsibility for the loan is completed, even if there has been a servicing transfer.
Payoff statements must be provided within five business days of request, and without charge one time during any twelve-month period.
The bill also contains some provisions that duplicate requirements of the Fair-Debt Collection Practices Act, in order to prevent unconscionable practices.
Some Controversial Provisions Deleted
As originally introduced, the bill included an unprecedented provision which would have permitted the state court judge in the foreclosure action to “cram-down” the loan, in the event the value of the property was less than the balance due on the mortgage. Although the bill’s chief sponsor, Rep. Michael Foley, advanced the cram-down provision as a key part of the legislation, the House subcommittee dropped this provision before the bill was brought to a floor vote in the House.
Also in its original form, the moratorium provision did not allow for service of the summons to be completed during the period of the moratorium. However, the bill as passed by the House allows for service of the summons to be completed, thereby slightly softening the effect of the moratorium.
Finally, the additional fee required to fund the Ohio Housing Trust Fund was originally proposed to be $1500.00, but was reduced to $750.00 in the final version passed by the House.
Constitutional Concerns
Some members of the House, even though not necessarily opposing a moratorium in principle, queried whether this bill will be constitutional. In particular, the provision targeting foreclosure plaintiffs with the requirement to provide funding for the Ohio Housing Trust Fund was questioned, but a motion to return the bill to the committee for further deliberation was defeated.
Also, provisions exempting smaller Ohio-based lenders and credit unions from both the moratorium and the funding requirement were pointed out as being likely issues to provoke a constitutional challenge in the event the bill becomes law. The debate is likely to be more vigorous in the Republican-controlled State Senate.
WWR will keep you advised as this continues to develop. For a complete copy of House Bill 3, go here.
If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry Rothenberg is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at lrothenberg@weltman.com.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2009