Insights

Like many other states, Washington state has experienced a continual rise in the rate of home foreclosures. In response to this increase, the Washington state legislature recently enacted the Foreclosure Fairness Act (House Bill 1362). The Act imposes new fee, reporting, borrower counseling, and mediation requirements for mortgage lenders conducting foreclosures of owner-occupied residential real property in Washington state.

New Foreclosure Fee and Reporting Requirements.

Effective April 14, 2011, the Foreclosure Fairness Act requires that no later than May 14, 2011, every beneficiary issuing notices of default on owner-occupied residential real property under Washington’s Deeds of Trust Act pay a one-time fee of $250 per property for which the beneficiary issued a notice of default between January 13, 2011 and April 13, 2011.

Beginning on October 1, 2011, and every quarter thereafter, beneficiaries must report to the Washington Department of Commerce the number of owner-occupied residential real properties for which the beneficiary issued a notice of default during the previous quarter and pay a sum of $250 multiplied by that number. The new fee and reporting requirements do not apply to any beneficiary or loan servicer that is a federally insured depository institution that certifies that it has issued fewer than 250 notices of default in the preceding year.

New Borrower Counseling Requirements.

The Foreclosure Fairness Act amends Washington’s current borrower contact and outreach requirements to impose additional requirements prior to sending a notice of default. Effective July 22, 2011, the new initial contact requirements apply to all deeds of trust recorded against owner-occupied residential real property. If a borrower requests a meeting, the beneficiary must schedule the meeting to occur before the notice of default is issued. During the meeting, the beneficiary must conduct an assessment of the borrower’s financial ability to modify or restructure the loan obligation. If, after the initial contact, a borrower has designated a housing counselor or attorney to discuss with the beneficiary options for the borrower to avoid foreclosure, the beneficiary must contact the borrower’s designated representative to arrange for a meeting.

A housing counselor who is contacted by a borrower has a duty to act in good faith to attempt to reach a resolution with the beneficiary on behalf of the borrower within the 90 days provided from the date the beneficiary initiates contact with the borrower and the date the notice of default is issued. A resolution may include, but is not limited to, modification of the loan, an agreement to conduct a short sale, a deed in lieu of foreclosure transaction, or some other workout plan. Nothing precludes a meeting or negotiations between the housing counselor, borrower, and beneficiary at any time, including after the issuance of the Notice of Default.

A housing counselor may refer the borrower to a mediation program, pursuant to the Foreclosure Fairness Act, if the housing counselor or attorney determines that mediation is appropriate based on the individual circumstances and a notice of sale on the deed of trust has not been recorded.

New Foreclosure Mediation Requirements.

Effective July 22, 2011, the Foreclosure Fairness Act establishes a foreclosure mediation program, which imposes new mediation requirements in foreclosure actions involving owner-occupied residential real property. The program applies only to borrowers who have been referred to mediation by a housing counselor or attorney.

The program requires the parties to discuss issues that may enable the borrower and the beneficiary to reach a resolution, such as:

(i) the borrower’s economic circumstances, including the borrower’s current and future income, debts, and obligations for the previous 60 days or greater time period as determined by the mediator;

(ii) the net present value of receiving payments pursuant to a modified mortgage loan as compared to the anticipated net recovery following foreclosure;

(iii) any affordable loan modification calculation and net present value calculation when required under any federal mortgage relief program. If such a calculation is not required, then the beneficiary must use the current calculations, assumptions, and forms that are established by the Federal Deposit Insurance Corporation; and

(iv) any other applicable loss mitigation guidelines to government-insured loans.

Federally insured depository institutions can avoid the new mediation requirements by annually certifying that the institution was not a beneficiary of deeds of trusts in more than 250 trustee sales of owner-occupied residential real property that occurred in Washington during the preceding calendar year.

Each of the Foreclosure Fairness Act’s requirements reflects a significant change to Washington’s foreclosure process, and these changes are coming soon! Now is the time to review and update your procedures to ensure your compliance with Washington’s new foreclosure requirements.

Catharine S. Andricos is an associate in the Washington, D.C., office of Hudson Cook, LLP. Catharine can be reached at 202-327-9706 or by email at candricos@hudco.com.