Mich. lawmakers may look to California for legislative compromise on foreclosure reform

LANSING — A legislative conference committee is close to finalizing a deal which will bring home foreclosure prevention reform to a final vote, something that could come later this week.

Different reform packages passed through both chambers of the legislature earlier this year with a House bill having options for homeowners to seek assistance from a judge during lender-homeowner negotiations and a Senate bill which removed the judicial intervention measure. And while supporters of the legislature argue it will begin to address Michigan’s foreclosure crisis, critics have complained previous versions have been weak and favor lenders.

The compromise measure could come to a vote in a House-Senate conference committee as soon as Thursday, Rep. Andy Coulouris, the Saginaw Democrat who who chairs the House Banking and Financial Services Committee, said in an interview on Tuesday night. “I think I would not be surprised we were ready Thursday.”

“We are looking to try to get a compromise that will allow judicial foreclosures but will allay some of the fears of the lending community,” Coulouris said.

Coulouris declined to discuss details of the compromise legislation.

“I just don’t want to sour it,” he said.

But Sen. Randy Richardville, the Monroe Republican who chairs the Senate Banking Committee told Michigan Messenger on Tuesday that the compromise could look like legislation commonly referred to as SB 1137, which was passed by the California state lawmakers and signed by Gov. Arnold Schwarzenegger last fall.

“In a nutshell,” Richardville said, “there is a list of criteria from California.”

But Coulouris said the committee was not considering “any one model.”

“There is no one model that is a topic of conversation,” Coulouris said.

Under SB 1137, the foreclosure process in California was slowed down by mandating that lenders meet additional requirements in the event of foreclosure. The main provisions of the law look like this:

The lender must contact the borrower that is in default at least 30 days prior to initiating foreclosure proceedings in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.

The lender must also inform the homeowner that he or she has a right to an additional meeting that must be scheduled within 14 days, upon request. These requirements effectively increase the advance notice period for a California foreclosure sale from 110 days to 154 days.

The lender must provide the borrower with the telephone number of a HUD certified counselor. The Act Authorizes the HUD certified counselor to represent the borrower in subsequent discussions with lenders regarding options to avoid foreclosure.

The lender must maintain a toll-free number providing access to a live representative during business hours.

The lender must provide any renters on the property with either a 60-day notice to quit or a new lease.

An owner of a vacant property acquired through the foreclosure process must maintain the exterior of the property or be subject to a fine (by a local government entity) of up to $1,000 per day.

The Michigan compromise legislation would strike out references to renters and maintenance of the property and focus only on the work-out provisions provided in the California law, according to sources.

Richardville said the move could “vastly reduce the number of potential court cases” which had caused Republicans to strike judicial proceedings provisions from the Senate version of the bill.

But Kevin Stein of the California Reinvestment Coalition said in an interview on Tuesday that the Golden State’s legislation has had very little real world impact.

“It didn’t do what we needed it to do to stop the bleeding in our state,” Stein said. “We would urge folks there to push for more, like we are doing here. There is very little that is required of financial institutions in terms of working with people to keep them in their homes. It [SB 1137] created a process. You had to have a meeting, a conversation. What we need is to impose something more meaningful.”

Stein said the the legislation was able to drastically reduce the number of foreclosures for a three-month time period, but the pace of the foreclosure boom has picked back up as lenders have moved beyond those additional necessary meetings without offering loan modifications.

“We think that [the foreclosure slow down] was not a bad outcome if that was not the only thing,” Stein said. He said the goal had been about fostering “loan modifications and workouts and I don’t think their is evidence that has happened.”

In fact, Stein said, the failure of the legislation is clear because Schwarzenegger called an emergency session of the legislature following the November elections and demanded that lawmakers not only address the state’s budget, but also additional foreclosure relief measures.