SB0406

SENATE BILL 406

50th legislature - STATE OF NEW MEXICO - first session, 2011

INTRODUCED BY

Michael S. Sanchez

AN ACT

RELATING TO PROPERTY; ENACTING THE MORTGAGE FAIR FORECLOSURE ACT; PROVIDING PENALTIES; DECLARING AN EMERGENCY.

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, apprised of all loss mitigation methods available to them in connection with their home loans prior to the loss of their home and afforded a meaningful opportunity to participate in loss mitigation to prevent the loss of homeownership. Further, the legislature finds that it is the public policy of this state, and to the benefit of consumers and businesses operating in this state, to facilitate whenever possible the cure of any default on residential mortgage loans and thereby preserve homeownership.

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

A. "creditor" means a person that makes or holds a residential mortgage, including a servicer as defined in Subsection F of this section, or any of their agents, and a person to which a mortgage is assigned, but "creditor" does not include the seller in a real estate sales contract that is otherwise binding pursuant to New Mexico law;

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

C. "loss mitigation" means any process designed to explore and pursue alternatives to foreclosure, including an evaluation of the facts and circumstances of a loan secured by residential property to determine:

(1) whether a mortgagor or grantor qualifies for a financially sustainable loan modification to preserve howeownership; and

(2) if there will be no loan modification, whether any other loss mitigation program may be available to the mortgagor or grantor;

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 primary residence;

E. "net present value analysis" means a comparison of the net financial proceeds from a judicial sale on the schedule estimated by the creditor compared to the estimated accumulated net financial proceeds from loss mitigation, while considering the value of future net financial proceeds from a judicial sale in the event the loss mitigation is unsuccessful; and

F. "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, 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. 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 creditor accelerates 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 creditor shall give the debtor written notice of such intention at least forty-five days in advance of such action.

B. Notice of intent to accelerate the maturity of a mortgage obligation, commence a foreclosure or initiate 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 creditor. 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 the notice is mailed.

C. The written notice required pursuant to Subsection A of this section shall be printed in at least twelve-point type, 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 mortgage 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;

(4) what performance, including the sum of money, if any, is 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 of interest 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 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 creditor'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 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 provisions of 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 if the debtor is unable to obtain or afford an attorney, the debtor's right to contact the state bar of New Mexico or lawyer referral services or legal services program in the county in which the real property securing the mortgage loan is located;

(10) the debtor's right to submit a loss mitigation or application, if applicable, request to the creditor and a list of any documents and information required;

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

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

(13) 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

(14) the debtor's right, including the time frame and procedure, to redeem a foreclosed mortgage obligation.

D. The creditor shall provide to the debtor, at the same time as the notice required pursuant to Subsection A of this section, copies of any applicable loss mitigation application, procedure or guidelines that will be used to evaluate loss mitigation, including all applicable deadlines and a list of documents required to be submitted.

E. 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.

F. The duty of the creditor pursuant to this section to serve written notice of intent to accelerate the loan or to foreclose is independent of any other duty to give notice pursuant to common law, principles of equity, state or federal statute or rule of court.

SECTION 5. ACCOUNTING.--In conjunction with the notice required pursuant to Subsection C of Section 4 of the Mortgage Fair Foreclosure Act, the creditor shall also provide the debtor with an accounting of the mortgage obligation covering the twelve-month period prior to the date of the alleged default. The accounting shall include, at a minimum, a history of all payments made during the twelve-month period prior to the date of the alleged default and the creditor's allocation of those payments to principal, interest, attorney fees and any other applicable fees. The creditor shall certify in writing that the information contained in the accounting is true and accurate to the best of its knowledge and that the information provided has been relied upon as the basis for the claim of default.

SECTION 6. PRE-FORECLOSURE LOSS MITIGATION OBLIGATIONS.--

A. Notwithstanding the provisions of any law to the contrary, with respect to a mortgage for which a notice of intent to foreclose is required pursuant to Section 4 of the Mortgage Fair Foreclosure Act, a creditor shall make good-faith efforts to contact the debtor to ascertain the debtor's current income, afford the debtor the opportunity to participate in loss mitigation and evaluate whether an affordable and sustainable alternative to foreclosure is feasible.

B. Notwithstanding the provisions of any law to the contrary, with respect to a mortgage for which a notice of intent to foreclose is required pursuant to Section 4 of the Mortgage Fair Foreclosure Act, upon a request by the debtor for loss mitigation, a person with authority to modify or otherwise affect the debtor's obligation pursuant to the subject security interest identified as required in Paragraph (13) of Subsection C of Section 4 of the Mortgage Fair Foreclosure Act shall be required to participate in good faith in loss mitigation efforts with the debtor prior to the commencement of any foreclosure proceeding.

C. Any loss mitigation conducted pursuant to Subsections A and B of this section may, at the request of the debtor, include the participation of a counselor certified by the federal department of housing and urban development, an attorney or other authorized representative to assist the parties or negotiate on behalf of the debtor potential options to be considered for loss mitigation.

D. The loss mitigation required pursuant to Subsections A and B 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) any loss mitigation program offered by the federal government in which the creditor participates and any other loss mitigation program offered by the creditor;

(2) 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;

(3) 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;

(4) a forbearance agreement 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;

(5) 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;

(6) 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;

(e) principal forebearance or forgiveness; or

(f) interest forebearance on some or all of the interest accrued or that may accrue in the future;

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

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

(9) a principal forbearance agreement;

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

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

(12) a short sale;

(13) a voluntary surrender of the home in exchange for cash consideration; or

(14) any other loss mitigation program for which the debtor is otherwise eligible.

E. Within seven days of terminating a loss mitigation effort, a creditor shall provide a written notice to the debtor signed by the person responsible for the decision to terminate loss mitigation. This notice shall:

(1) state that a loss mitigation alternative could not be implemented despite repeated attempts and set forth all efforts to inform the debtor of loss mitigation alternatives; or

(2) document that a loss mitigation effort was performed and set forth:

(a) all efforts to evaluate loss mitigation alternatives;

(b) a summary of any information relied upon as the basis for termination of the loss mitigation effort, including the specific loss mitigation calculations performed;

(c) the results of any net present value analysis and any information considered by the creditor in making the net present value analysis; and

(d) the specific reasons for the alleged non-feasibility of loss mitigation alternatives.

F. The loss mitigation required pursuant to Subsections A and B of this section shall include, if available, written notice to the debtor of any administrative, regulatory or internal review or protest process for the debtor to contest the creditor's factual basis or decision on loss mitigation. Any review or protest process afforded shall provide a reasonable opportunity for the debtor to pursue the review or protest process prior to initiation of the foreclosure action by the creditor.

G. A review or protest process provided by the creditor shall not in any way bar the right of the debtor to contest the foreclosure action and to challenge the loss mitigation and decision of the creditor in any court proceeding.

H. A creditor shall retain copies of all communications or records of communications between itself and the debtor or agent of the debtor until final sale of the property has been completed. The creditor shall transmit a copy of all such communications or records of communications to any subsequent servicer.

SECTION 7. CONDITIONS PRECEDENT TO FORECLOSURE.--

A. In the initial foreclosure pleading filed by a creditor, the creditor shall certify that it has complied with the notice requirements of the Mortgage Fair Foreclosure Act and any applicable federal laws or guidelines and:

(1) the debtor has not requested, verbally or in writing, loss mitigation; or

(2) if the debtor has requested loss mitigation, that the creditor has made a good-faith effort to negotiate loss mitigation, but loss mitigation was terminated as of a stated date, which date shall be the date upon which notice of loss mitigation termination was provided to the debtor.

B. In the event that the creditor alleges that the debtor has abandoned or voluntarily surrendered the property, the creditor shall plead the specific facts upon which that allegation is based.

C. Prior to entry of judgment in a foreclosure action, the court shall find that the creditor has met all certification requirements of the Mortgage Fair Foreclosure Act and that one of the following conditions has been met:

(1) the home has been abandoned;

(2) the debtor has voluntarily relinquished the property to the creditor in writing in return for valuable consideration;

(3) no loss mitigation is pending; or

(4) the debtor is at least ninety days in default on a loan modification agreed to by the debtor and creditor and no subsequent loss mitigation efforts are pending.

D. A debtor may request loss mitigation at any time up to seven days prior to the sale of the property, and if so requested, the foreclosure proceeding or the sale of the property shall be stayed until the loss mitigation is completed and certified to the court by the creditor.

E. A creditor's failure to timely certify as set forth in Subsection A of this section or failure to comply with any other provisions of the Mortgage Fair Foreclosure Act shall be a defense to a foreclosure action.

SECTION 8. VIOLATIONS--SANCTIONS.--If a court finds that there has been a material violation of any provision of the Mortgage Fair Foreclosure Act by the creditor, the court may in its discretion dismiss the action, void the sale, impose sanctions or assess attorney fees and costs.

SECTION 9. 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 10. APPLICABILITY.--

A. The Mortgage Fair Foreclosure Act applies to the foreclosure of all mortgages wherever made that have as their security a residence in New Mexico, provided that the real property that is the subject of the mortgage:

(1) shall not have more than four dwelling units; and

(2) at the time the mortgage is executed, 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 primary residence.

B. The Mortgage Fair Foreclosure Act applies to the foreclosure of any property used as a primary residence by the debtor or a member of the debtor's immediate family within the twelve months preceding the date of the initial notice of default.

C. The compiler shall compile this section.

SECTION 11. EMERGENCY.--It is necessary for the public peace, health and safety that this act take effect immediately.

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