Committee Substitute for SB0651CTS

SENATE CORPORATIONS AND TRANSPORTATION COMMITTEE SUBSTITUTE FOR

SENATE BILL 651

49th legislature - STATE OF NEW MEXICO - first session, 2009

AN ACT

RELATING TO REAL PROPERTY; ENACTING THE MORTGAGE FAIR FORECLOSURE ACT; PROVIDING PENALTIES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. SHORT TITLE.--This act may be cited as the "Mortgage Fair Foreclosure Act".

Section 2. LEGISLATIVE FINDINGS.--The legislature finds it to be the public policy of New Mexico that homeowners should be given reasonable notice of the fact of and basis for an alleged default on their mortgage and the opportunity to pay their home mortgages if they are deficient, and that lenders will be benefitted when residential mortgage debtors cure their defaults and return defaulted residential mortgage loans to performing status.

Section 3. DEFINITIONS.--As used in the Mortgage Fair Foreclosure Act:

A. "debtor" means a natural person shown on the record of a mortgage lender as being obligated to pay the obligation secured by that mortgage;

B. "lender" means a person that makes or holds a residential mortgage and a person to which a mortgage is assigned, but does not include the seller in a real estate sales contract that is otherwise binding under New Mexico law;

C. "loss mitigation" means any process designed to explore and pursue alternatives to foreclosure;

D. "mortgage" means a mortgage, security interest, deed of trust or the like, but not a real estate sales contract that is otherwise binding under New Mexico law, in which the security is a residential property in New Mexico such as a house, real property or condominium that is occupied, or is to be occupied, by the debtor, who is a natural person, or a member of the debtor's immediate family, as that person's residence; and

E. "servicer" means a person that, whether for compensation or gain from another or on its own behalf, engages in the business of receiving any scheduled periodic payments from a debtor pursuant to the terms of any mortgage loan, including amounts for escrow accounts, and making the payments of principal and interest and such other payments with respect to the amounts received from the debtor as may be required pursuant to the mortgage loan, the mortgage servicing loan documents or the servicing contract with a lender.

Section 4. APPLICABILITY.--The Mortgage Fair Foreclosure Act applies to all mortgages wherever made that have as their security such a residence in New Mexico, provided that the real property that is the subject of the mortgage shall not have more than four dwelling units, one of which shall be, or is planned to be, occupied by the debtor or a member of the debtor's immediate family as the debtor's or family member's residence at the time the mortgage is executed.

Section 5. WRITTEN NOTICE OF INTENT TO ACCELERATE LOAN OR FORECLOSE.--

A. Upon a failure to perform any obligation of a mortgage by a debtor and before any lender or servicer may accelerate the maturity of a mortgage obligation and commence a foreclosure or other legal action to take possession of the property that is the subject of the mortgage, the lender or servicer shall give the debtor written notice of such intention at least thirty days in advance of such action.

B. Notice of intent to accelerate the maturity of a mortgage obligation, commence a foreclosure or take any other legal action to take possession of the property that is the subject of the mortgage shall be in writing, and either served personally on the debtor or sent to the debtor by registered or certified United States mail, postage prepaid and return receipt requested, at the debtor's last known address, and if different, to the address of the property that is the subject of the mortgage. If notice is accomplished by mail, notice shall also be sent to any alternative address that the debtor has provided to the lender or servicer. The notice is deemed to have been effectuated on the date the notice is served personally on the debtor or seven days following the date of the notice.

C. The written notice required pursuant to Subsection A of this section shall be printed in at least twelve-point font, be printed in English and Spanish and identify that the notice is being sent pursuant to the requirements set forth in this section. The written notice shall clearly and conspicuously state in a manner reasonably calculated to apprise the debtor of the following:

(1) the property that is the subject of the security instrument being foreclosed upon, the particular obligation or real estate security interest being foreclosed upon and the parties to any such obligation or interest; (2) the nature of the default claimed;

(3) the right of the debtor to cure the default as provided in Section 7 of the Mortgage Fair Foreclosure Act;

(4) what performance, including the sum of money, if any, required to cure the default as of the date specified pursuant to Paragraph (6) of this subsection;

(5) the allocation of money due and owing to principal, interest, fees and any other applicable allocation, including a projection of the change in money due as a result of daily accrual during the thirty-day period set forth in Paragraph (6) of this subsection;

(6) the date by which the debtor shall cure the default to avoid initiation of foreclosure proceedings or the initiation of any other legal action to take possession of the residential property that is the subject of the mortgage, which date shall not be less than thirty days after the notice is effectuated, and the name, address and telephone number of a person to whom the payment or tender shall be made;

(7) the lender's right to take steps to terminate the debtor's ownership in the property by commencing a foreclosure suit in a court of competent jurisdiction, or by taking other legal action to take possession of the residential property that is the subject of the mortgage, if the debtor does not cure the default by the date specified pursuant to Paragraph (6) of this subsection;

(8) the right, if any, of the debtor to transfer the real property that is the subject of the mortgage to another person, subject to the security interest, which transferee shall have the right to cure the default as provided in the Mortgage Fair Foreclosure Act, subject to the mortgage documents;

(9) the debtor's right to seek counsel from an attorney of the debtor's own choosing concerning the debtor's mortgage default, and that, if the debtor is unable to obtain an attorney, the debtor may contact the New Mexico bar association or lawyer referral services in the county in which the real property securing the mortgage loan is located, and that if the debtor is unable to afford an attorney, the debtor may contact the legal services programs in the county in which the property is located;

(10) a listing of any loss mitigation counselors certified by the federal department of housing and urban development located in New Mexico to discuss feasible loss mitigation options;

(11) the name and address of the lender and the telephone number of a representative of the lender whom the debtor may contact if the debtor disagrees with the assertion that a default has occurred or the accuracy of the calculation of the action or amount required to cure the default;

(12) the name, address and telephone number of a person with the authority to modify or otherwise affect the debtor's obligation under the subject security interest; and

(13) the debtor's right to redeem a foreclosed mortgage obligation.

D. The notice of intent to foreclose required to be provided pursuant to this section shall not be required if the debtor has voluntarily surrendered in writing the real property that is the subject of the mortgage that is in default.

E. The duty of the lender pursuant to this section to serve notice of intent to foreclose is independent of any other duty to give notice pursuant to common law, principles of equity, state or federal statute, rule of court or any other right or remedy the lender may have as a result of the failure of a lender to give such notice.

F. Compliance with this section shall be set forth in the pleadings of any legal action referred to in this section. If the plaintiff in any complaint seeking foreclosure of a mortgage alleges that the property subject to the mortgage has been abandoned or voluntarily surrendered, the plaintiff shall plead the specific facts upon which this allegation is based.

Section 6. ACCOUNTING.--In conjunction with the notice required pursuant to Subsection C of Section 5 of the Mortgage Fair Foreclosure Act, the lender shall also provide the debtor with an accounting of the loan obligation covering the twelve-month period prior to the date of the alleged default. The lender shall certify that the information contained in the accounting is true and accurate to the best of its knowledge. The accounting shall include, at a minimum, a history of all payments made during the eighteen-month period prior to the date of the alleged default and the lender's or servicer's allocation of those payments to principal, interest and any applicable fees.

Section 7. RIGHT TO CURE DEFAULT--PROCEDURE.--

A. Notwithstanding the provisions of any other law to the contrary, as to any residential mortgage for which a notice of intent to foreclose is required pursuant to Section 5 of the Mortgage Fair Foreclosure Act, whether or not such required notice was in fact given, the debtor or anyone authorized to act on the debtor's behalf shall have the right at any time, up to the entry of final judgment by the court, to cure the default or reinstate the mortgage by tendering the amount or performance specified in Subsection B of this section. The payment or tender shall be made to the person designated in the notice pursuant to Paragraph (6) of Subsection C of Section 5 of the Mortgage Fair Foreclosure Act.

The debtor may exercise the right to cure a default as to a particular mortgage and reinstate the mortgage only once in a one-hundred-eighty-day period; provided, however, that this limitation shall not apply if the mortgage debtor cures a default by the date specified in Paragraph (6) of Subsection C of Section 5 of the Mortgage Fair Foreclosure Act. The one-hundred-eighty-day time period shall run from the date of cure and reinstatement.

B. To cure a default pursuant to this section, a debtor shall:

(1) pay or tender to the person identified pursuant to Paragraph (6) of Subsection C of Section 5 of the Mortgage Fair Foreclosure Act, in the form of cash, cashier's check or certified check, all sums due and owing;

(2) perform any other obligation that the debtor would have been bound to perform in the absence of the default or the exercise of an acceleration clause, if any; and

(3) pay all contractual late charges, as provided for in the mortgage or other security instrument.

C. To cure a default pursuant to this section, a debtor shall not be required to pay any charge, fee or penalty attributable to the exercise of the right to cure a default as provided for in the Mortgage Fair Foreclosure Act.

D. Cure of a default reinstates the debtor to the same position as if the default had not occurred. It nullifies, as of the date of cure, any acceleration of any obligation under the mortgage or other security instrument arising from the default.

E. If a default is cured after the filing of a foreclosure action, the lender shall give written notice of the cure to the court. Upon such notice, the court shall dismiss the action without prejudice.

F. The right to cure a default pursuant to this section is independent of any right of redemption or any other right or remedy pursuant to common law, principles of equity, state or federal statute or rule of court.

Section 8. PRE-LITIGATION OBLIGATIONS.--

A. Notwithstanding the provisions of any law to the contrary, with respect to a residential mortgage for which a notice of intent to foreclose is required pursuant to Section 5 of the Mortgage Fair Foreclosure Act, a person with authority to modify or otherwise affect the debtor's obligation pursuant to the subject security interest identified pursuant to Paragraph (12) of Subsection C of Section 5 of the Mortgage Fair Foreclosure Act shall be required to participate in good faith in loss mitigation with the debtor prior to the commencement of any foreclosure proceeding.

B. Any loss mitigation conducted pursuant to Subsection A of this section shall include the participation of a counselor certified by the federal department of housing and urban development, if available, to assist the parties in identifying options to be considered for returning the loan to performing status or otherwise avoiding foreclosure.

C. The loss mitigation required pursuant to Subsection A of this section shall afford the debtor an opportunity to pursue a variety of alternatives to foreclosure, consistent with the debtor's current financial circumstances and willingness and ability to pursue such alternatives. These alternatives to foreclosure may include:

(1) reinstatement of the loan and dismissal of the foreclosure action upon the debtor's payment of applicable fees and demonstration that the debtor can bring the loan current;

(2) a repayment plan whereby the debtor agrees to resume making monthly payments, plus a portion of the past due payments each month, until the loan is brought current;

(3) a forbearance plan that may include one or more of the following features:

(a) suspension or reduction of payments for a period sufficient to allow the debtor to recover from the cause of default;

(b) a period during which the debtor is only required to make the regular monthly mortgage payment before beginning to repay the arrearage;

(d) allowing reasonable foreclosure costs and late fees accrued prior to the execution of the forbearance agreement to be included as part of the repayment schedule;

(4) an extension agreement whereby the debtor pays a portion of the amount of the total arrearage, and the remaining portion of the arrearage amount is added to the end of the loan;

(5) a loan modification plan that would permanently change one or more terms of the defaulted loan obligation, including:

(a) extending the amortization period of the loan;

(b) converting an adjustable rate mortgage into a fixed-rate mortgage;

(d) adding missed payments to the existing loan balance;

(6) a reasonable refinancing period of no fewer than sixty days during which the lender agrees not to pursue foreclosure and gives the debtor an opportunity to seek refinancing of the loan obligation with a third-party lender;

(7) a principal reduction agreement in those cases in which the debtor's loan obligation has a negative amortization;

(8) a principal forbearance agreement;

(9) a mortgage loan assumption agreement whereby a qualified third-party individual or entity can assume the loan's payment obligation and the lender waives any applicable "due on transfer" provision;

(10) an agreement by the debtor to execute a deed in lieu of foreclosure in exchange for the lender canceling the debt owed on the loan;

(11) a short sale; or

(12) a voluntary surrender of the home in exchange for cash consideration.

D. The obligation to participate in loss mitigation otherwise required pursuant to this section may be terminated by the lender when the lender has pursued loss mitigation efforts with the debtor and has determined, after a reasonable period of time, that loss mitigation options are not feasible in light of the totality of the circumstances.

E. A lender terminating loss mitigation pursuant to Subsection D of this section shall:

(1) document all efforts to inform the debtor and to evaluate loss mitigation opportunities; and

(2) within ten days of terminating loss mitigation, provide to the debtor a written statement setting forth the reasons for the alleged non-feasibility of loss mitigation efforts.

Section 9. SETTLEMENT CONFERENCE--MEDIATION--PROCEDURE.--

A. In the initial pleading filed by a lender, the lender shall certify that it has complied with Section 8 of the Mortgage Fair Foreclosure Act and specify the actions taken to comply with those obligations prior to the filing of the action.

B. At any time after the filing of any responsive pleading, the court may on its own motion or for good cause shown, enter an order directing the parties to participate in alternative dispute resolution as provided in Subsection C of this section.

C. An alternative dispute resolution process shall

be conducted at no direct or collateral cost to the debtor. All parties shall be required to participate, and a designated representative of each party with final decision-making authority shall participate. The alternative dispute resolution process may include:

(1) loss mitigation through a loss mitigation agency certified by the federal department of housing and urban development;

(2) a court-supervised settlement conference, a settlement conference with a court-appointed special master or a court-annexed mediation process; or

(3) the parties agreeing to private mediation with a mutually agreed-upon independent, neutral mediator.

Section 10. VIOLATIONS--SANCTIONS.--If a court finds that either party failed to negotiate in good faith during loss mitigation or alternative dispute resolution, or that there has been a material violation of any provision of the Mortgage Fair Foreclosure Act by the lender, the court may in its discretion dismiss the action, award sanctions or assess attorney fees and costs.

Section 11. DEFICIENCY JUDGMENTS.--

A. The court may, in the exercise of its discretion and for good cause shown, limit or altogether prohibit the availability of any deficiency judgment against a debtor who has occupied the real property that is the subject of the purchase-money mortgage obligation as the debtor's primary residence, provided that the debtor has occupied the home as the debtor's primary residence for no fewer than one hundred twenty days prior to the initiation of the foreclosure action.

B. The court may find good cause for limiting or prohibiting the availability of a deficiency judgment against a qualifying debtor pursuant to Subsection A of this section. Good cause may include a finding:

(1) that the debtor was locked into a predatory mortgage product or other nontraditional mortgage loan obligation; or

(2) that the debtor's financial circumstances are such that the debtor is not reasonably capable of satisfying a deficiency judgment.

Section 12. SEVERABILITY.--If any part or application of the Mortgage Fair Foreclosure Act is held invalid, the remainder or its application to other situations or persons shall not be affected.

Section 13. APPLICABILITY.--The provisions of this act apply to an action to foreclose on a mortgage, including any required notice, taken on or after July 1, 2009.

Section 14. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2009.

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