Bill to help people facing foreclosure needs to pass

Foreclosure protection law set to expire July 1, a bill would keep it in place

By Bob Plain in Rhode Island’s Future

Nearly 10,000 homes went into foreclosure during the mortgage crisis in Rhode Island. Then, in 2013, the General Assembly passed the Foreclosure Reduction Act, which mandated banks to work with homeowners before repossessing property. 

Since then, the law helped some 600 Rhode Islanders avoid losing their homes.

But the Foreclosure Reduction Act is set to expire in July, which would leave Rhode Island as one of only 15 states in the country that wouldn’t require either a judicial or mediation process prior to a foreclosure. 

The other states are: New Hampshire, West Virginia, Virginia, North Carolina, Tennessee, Georgia, Alabama, Mississippi, Missouri, Minnesota, South Dakota, Nebraska, Texas, Wyoming, Montana, and Arizona.

“Were the mediation statute to sunset,” Rhode Island Housing attorney Michael Zabin told the Senate Judiciary Committee in written testimony, “we would be back to the wild, wild West that existed before the statue.”

Because Rhode Island, like about half of all states, doesn’t require a judge to decide on a foreclosure, lenders “would just mail a notice of intent to foreclose, advertise in the newspaper, and sell the house at auction,” Zabin wrote to the Committee. 

“Avoidable foreclosures will occur, creating a viscous cycle in which property values will go down. Vacant properties that are poorly maintained will become uninhabitable which would decrease available housing stock. Former owners and evicted tenants would create a higher demand for this decreased supply of housing – creating a situation in which both rents and homelessness increase.”

To avoid all this, nine legislators and Attorney General Peter Kilmartin propose nixing the sunset provision of Foreclosure Reduction Act and continuing homeowner protection law. The Senate Judiciary Committee heard the bill in March. The Senate Judiciary Committee heard the Senate bill in March.

“It is imperative to maintain the mediation process to help those who continue to struggle and to have a working program in place when we experience another recession,” Kilmartin told RI Future. “While the economy has improved and the housing market is once again strong, the percentage of Rhode Islanders facing foreclosure today is still four times higher than pre-crisis levels.”

In testimony provided to the Senate Judiciary Committee, Kilmartin wrote, “In addition to the legal concerns above, our communities have seen throughout the housing crisis what devasting effecting foreclosures can have. 

Not only does the foreclosure have a distressing impact on families who lose their home, foreclosures also lead to cantant homes that may lead to public nuisances and destablilizes our neighborhoods by driving down property values. Avoiding foreclosure is in the best interests of the homeowner, the lender, and the community as a whole.”

The bills are being backed by nine cities or towns: Central Falls, Cranston, Exeter, Jamestown, Middletown, Pawtucket, Portsmouth, Providence, and Warwick. Mayors, Jorge Elorza, of Providence, James Diossa, of Central Falls, and Republican Scott Avedesian, of Warwick, submitted testimony to the Senate Judiciary Committee. So did Direct Action for Rights and Equality. (Read all written testimony here.)

“Foreclosures and related evictions continue to fetter economic recovery, strain available housing stock, and precipitate homelessness in Rhode Island,” wrote Malchus Mills, vice president of DARE’s board of directors, to the Senate committee. “Rhode Island literally cannot afford to allow any more struggling homeowners to be forced into a poorly regulated and insufficient rental market, especially with housing costs rising.”

The only person to submit testimony opposing extending the Foreclosure Reduction Act was a lobbyist for the Rhode Island Bankers Association. “As the foreclosure crisis continues to wind down,” wrote Will Farrell, on behalf of the Rhode Island Bankers Association, “the achievements of the program continue to decline while the cost of the program continues to mount.”

But mediation is a small cost for some of the banks accountable to the law (local banks are exempt). Wells Fargo spends just over $100,000 a year on mediation on net income of more than $22 billion, according to a document from Rhode Island Housing, which provides mediators to homeowners facing foreclosure and is advocating for the Foreclosure Reduction Act to be extended.

“Prior to this Act, Rhode Island had one of the least restrictive foreclosure processes in the country,” Barbara Fields, executive director of Rhode Island Housing, told the Senate Judiciary Committee. 

“While the foreclosure rates have improved since the economic crisis, the percentage of Rhode Island homeowners who are more than 90 days delinquent on their mortgage is still 80% higher than pre-crisis rates, and Rhode Island is still 13th in the country in the percentage of loans in foreclosure. The Foreclosure Mediation Act is providing important protections for these homeowners, and should remain in place.”

Bob Plain is the editor/publisher of Rhode Island's Future. Previously, he's worked as a reporter for several different news organizations both in Rhode Island and across the country.