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CLIENT ADVISORY - January 30, 2008
Kentucky Legislature Considers Two Bills Regarding Mortgage Foreclosure Counseling and Education
by Philip Q. Ratliff, Esq.
In recent years Kentucky has been ranked among the nation's leaders in its foreclosure ratings. In response, Kentucky's General Assembly is considering two proposed bills to help consumers who may be in danger of losing their homes.
Kentucky Senate Bill 41, introduced by Senator Gerald Neal, Louisville, would create the "Kentucky Homeownership Protection Center", administered by the Kentucky Housing Corporation. The Kentucky Housing Corporation is the State's housing finance agency that has traditionally offered a variety of homeownership education/counseling and rental assistance programs. The Center would be operational by January 1, 2009 and its purpose would be to provide a centralized location for information on, and referral to, public services available to assist a homeowner who has defaulted on their home loan.
The bill would require a mortgagee to register a new borrower's name and contact information with the Center and notify the Center if a borrower is 60 days or more delinquent on a payment. It would require the mortgagee to engage in "reasonable" loss mitigation activities as an alternative to foreclosure on a federally related mortgage loan. Failure to engage in loss mitigation activities or send the required notices could be used as a defense in a subsequent foreclosure. While it is clear that the bill is intended for new loans made after the Center becomes operational, it is less than clear how the bill, in its current form, would apply to loans made prior to its enactment.
Because many of its provisions are mandatory, Senate Bill 41 is more comprehensive than a similar proposal by State Representative Jim Glenn, (D), Owensboro, that would merely authorize the State's Office of Financial Institutions to provide free mortgage foreclosure counseling and education. This bill, designated HB 72 (BR 70), would authorize the Office of Financial Institutions to work with the Kentucky Housing Corporation to provide free counseling and education to homeowners who have defaulted or are in danger of defaulting on their home mortgages. In addition, the bill would permit the Office of Financial Institutions to establish a toll-free telephone number that homeowners can call to receive foreclosure counseling and education, as well as allow the Office to award grants to train counselors. The bill would further authorize the Office to establish a separate fund known as the "Mortgage Foreclosure Counseling and Education Trust Fund" in the State Treasury, funded by a $1.50 surcharge on the fee for recording and indexing mortgages. If this bill becomes law it will require the Office to submit an annual report to include, among other things, a summary of the foreclosure rates and trends in Kentucky and in the United States.
Each proposed bill was assigned to a committee on January 8, 2008, the first day of the 60-day legislative session. While it remains to be seen whether the Legislature will pass either of these bills, given the State's looming budget deficit, it does reflect an increased political scrutiny of mortgage lending and foreclosures.
Until now, Kentucky political figures have seemed rather reluctant to get involved in the foreclosure situation, but these proposed bills show that they are paying more attention as they gear up to address the current state of affairs. With Kentucky Senate Bill 41, lenders have cause to be concerned because it is not very clear how the bill applies to existing loans, in addition to the fact that specified items can be used as a defense against mortgage lenders and servicers in foreclosure cases. As a result, WWR anticipates that this bill will be highly debated.
Weltman, Weinberg & Reis Co., L.P.A. will keep you advised as the proposed legislation continues to develop. If you have any questions on this information, please contact Mr. Philip Q. Ratliff, Esq.
Philip Q. Ratliff is an associate in the foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. located in Cincinnati, Ohio. He is the Chairperson to the Real Property Law Section of the Kentucky Bar Association. Phil can be reached at (513) 723-2215 or via email at pratliff@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. ©2008