With foreclosure rates persistently high in Washington, some legislators are trying to add to the rules lenders have to follow before they can repossess someone's home.
Bills in the House and the Senate would strengthen some of the provisions of a 2009 law designed to ease foreclosures in the state and, more controversially, would set up a third-party mediation process for homeowners who request it.
“This is a well-considered, unfortunately necessary way to put the brakes on what has become a tsunami of foreclosures,” said Sen. Adam Kline, a Seattle Democrat and the primary sponsor of Senate Bill 5275.
According to RealtyTrac, a website that tracks foreclosure rates by state, Washington ranked 10th in the nation in terms of total foreclosed properties in October 2010, up from a ranking of 24th in 2009. In December, there were 4,029 foreclosure filings in Washington, mostly in King, Pierce and Snohomish counties.
The bills would expand and extend requirements, known as “meet and confer,” that means lenders must offer to meet with and give certain information to borrowers facing foreclosure. They would also make it a violation of the Consumer Protection Act if lenders don’t follow the rules laid out in the bill and establish a fee when foreclosed properties are sold to help pay for the measure.
One of the most controversial parts of the bill, which is based on a foreclosure program in Nevada, would establish mandatory mediation for borrowers who cannot reach loan-modification agreements with their lenders. In mediation, a third party would be able to determine whether the lenders have acted in good faith, which would mean providing documents and participating in mediation, among other actions.
If the mediator were to report that the lender did not act in good faith, the borrower could use that to defend against the foreclosure action in court.
The mediator’s fees would be split by the lender and the borrower.
Representatives from Washington banks opposed this idea, saying it gives the mediators too much discretion because lenders might be found not to be acting in good faith based on technicalities.
Between them, the bills have 67 Democratic sponsors and one Republican sponsor.
Another political challenge the bills face is cost; the fiscal note attached to the bills says their net cost would be about $1.5 million over the next biennium.
Kline said he would want to make sure the bill did not end up having a financial effect by raising the fees on sales of foreclosed properties until they covered the entire cost of the measure.
Democratic Rep. Jamie Pedersen of Seattle, chairman of the House Judiciary Committee, where one of the bills had a hearing Wednesday, said the bill would probably go through some revisions, but he thought it would be passed out of committee.
“I imagine it’s likely to be one of the big questions in play between the House and the Senate up until the last week of session,” he said of the proposal.
Katie Schmidt: 360-786-1826 firstname.lastname@example.org