By Peter Vieth
Published: January 21, 2011
A long list of far-reaching foreclosure reform bills at the 2011 General Assembly has set the stage for a showdown between Virginia bankers and mortgage reformers from both parties.
Among the measures in the hopper are bills to transform Virginia into a judicial foreclosure state and to undermine the use of a Virginia-based firm to hold legal title to mortgage notes. Other legislation would double or triple the current 14-day notice period required for foreclosure sales and mandate that mortgage assignments be registered in county courthouses.
The collection of foreclosure reform bills was notable for bringing together advocates from opposite ends of the political spectrum. Conservative Del. Robert G. Marshall, R-Prince William County, actually hugged consumer lawyer Del. Robin A. Abbott, D-Newport News, at a Capitol news conference where they announced sponsorship of similar bills.
Representatives of the banking industry were quick to respond.
“We believe state law already provides ample protection against wrongful foreclosure,” said Bruce T. Whitehurst, president and CEO of the Virginia Bankers Association.
The banks’ message is that, while foreclosures are always unfortunate, the system in Virginia is not broken. Whitehurst said the average foreclosure in Virginia involves property where mortgage payments have been in arrears for around a year.
Whitehurst said the most significant proposal would change Virginia into a judicial foreclosure state. Foreclosures can take months longer in states where the paperwork must be approved by a judge before a sale can take place.
Currently, under Virginia law, a lender need only file papers with a court clerk and provide 14 days notice to the homeowner before auctioning off the property, a process that allows “drive-by foreclosures,” in the words of one delegate. Whitehurst noted most Virginia foreclosures actually take about three times as long.
Whitehurst said the much-maligned practice of “robo-signing” has only emerged where foreclosure paperwork has to be approved by a judge. “That’s not even relevant in Virginia,” Whitehurst said.
“We are well aware there are way more foreclosures than anyone wants to see, and it is a difficult and painful process,” Whitehurst said.
Sen. A. Donald McEachin said it’s a process that should go before a judge. “We need objective oversight of this process,” he said. Anticipating bankers’ complaints about undue delay, he offered to work on speeding up the procedure. “If they’re really serious and want to negotiate, we could figure out an expedited process for them,” he said.
Foreclosure reform bills include:
? House Bill 1506. Introduced by Marshall, it requires courthouse recording of all assignments of the mortgage and evidence of the interest of a person claiming to hold the note. The bill also provides a 45-day notice period for foreclosure sales and establishes a $5,000 civil penalty for using false documents.
? HB 1920. Sponsored by Abbott, it calls for recording assignments of the mortgage in local land records.
? HB 1921. Another Abbott bill, this one requires recording any assignment of the mortgage note.
? Senate Bill 795. Introduced by McEachin, D-Richmond, the bill demands recordation of documents showing the authority of a substitute trustee, provides for a 45-day notice period for a proposed foreclosure sale, requires a detailed affidavit for any situation where a note is unavailable, and creates fiduciary duties for a trustee at foreclosure with penalties available under the Virginia Consumer Protection Act.
? SB 798. McEachin’s second bill would provide that foreclosure sales must be ordered by a court.
? SB 836. Patroned by Sen. J. Chapman Petersen, D-Fairfax, it would provide for a 30-day foreclosure notice period, require identification of the owner of the mortgage, and create a private cause of action for damages and attorney fees for noncompliance.
? SB 837. Petersen proposes a civil penalty of $2,500, plus attorney fees, for use of forged or fabricated documents in obtaining a mortgage.
? SB 838. Petersen also would mandate recordation of assignments of a mortgage note in the court clerks’ office.
The bills requiring court registration target an electronic mortgage title database called the Mortgage Electronic Registration System, or MERS. Created by banks in the mortgage industry, and based in Northern Virginia, MERS claims to accurately track and report land ownership information, so there is no need to record every transfer at a courthouse.
A skeptical Petersen said MERS operates with no government oversight. “It’s basically a system that’s run by the banks, for the banks, of the banks. That’s the system we have today.”
Marshall said he was moved to draft a reform bill after a constituent told him he could not find out who to pay to avoid losing his home. “The more I inquired, the more disturbed I was at the lack of authenticity of the records, of the lack of tracking of the records,” Marshall said.
“If you cannot count on your local courthouse to keep track of who owns your mortgage, then where can you find that information and who can you rely on for that information?” asked Petersen.
“The fact that we represent such a broad ideological spectrum should tell the public that this is a core value, this is a core responsibility of government,” Marshall said. “We must act or we’re giving the big banks a big gift,” he said.
All the foreclosure legislation has been referred to the House and Senate courts committees.