SENATE JUDICIARY COMMITTEE SUBSTITUTE FOR

SENATE BILL 1

50th legislature - STATE OF NEW MEXICO - second session, 2012

AN ACT

RELATING TO PROPERTY; ENACTING THE MORTGAGE FAIR FORECLOSURE ACT; REQUIRING WRITTEN NOTICE PRIOR TO FORECLOSURE; REQUIRING AN ACCOUNTING; PROVIDING OPPORTUNITY FOR MITIGATION OF LOSS; PROVIDING FOR SANCTIONS; 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 loans, apprised of all loss mitigation methods available to them in connection with their mortgage 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 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. "creditor's representative" means a person who is designated by a creditor to have the authority to negotiate the terms of and modify a mortgage loan;

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

          D. "dwelling" means a residential structure that contains one to four units, whether or not that structure is attached to real property, and includes an individual condominium unit, as defined in the Condominium Act, and an individual cooperative unit, a mobile home or a trailer if used as a residence;

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

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

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

          F. "mortgage loan" means any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling as defined in the Mortgage Fair Foreclosure Act. "Mortgage loan" does not include a real estate sales contract or reverse mortgage that is otherwise binding under New Mexico law;

          G. "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

          H. "servicer" means a person that collects or receives payments, including principal, interest and trust items such as hazard insurance, property taxes and other amounts due, on behalf of a note holder or investor in accordance with the terms of a residential mortgage loan and that works with the debtor on behalf of a note holder or investor, when the debtor is in financial hardship or default to modify, either temporarily or permanently, the terms of an existing mortgage loan. "Servicer" does not include a person or business entity whose business is strictly limited to collecting and distributing payments without contractual obligations to perform any other requirements of the mortgage loan.

     SECTION 4. APPLICATION.--

          A. The Mortgage Fair Foreclosure Act applies to the foreclosure of all mortgage loans, wherever made, that have as their security a dwelling in New Mexico; provided that the dwelling that is the subject of the mortgage loan:

                (1) at the time the mortgage is executed, was, or was 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; and

                (2) was 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.

          B. The Mortgage Fair Foreclosure Act shall not apply to:

                (1) a mortgage loan on which the default occurred less than one hundred twenty days after the date on which the subject mortgage loan was executed; or

                (2) an investment property or residence other than a primary residence or residential property taken in whole or in part as collateral for a commercial loan.

     SECTION 5. WRITTEN NOTICE.--

          A. No later than five days after the first notice of default is sent to the debtor, the creditor shall send in a written manner reasonably calculated to apprise the debtor:

                (1) a notice of foreclosure prevention options;

                (2) copies of any applicable loss mitigation applications, procedures or guidelines that will be used to evaluate loss mitigation, including all applicable deadlines and a list of documents required to be submitted by the debtor;

                (3) the phone number for the New Mexico housing and foreclosure hotline, upon implementation by the office of the attorney general;

                (4) a statement explaining the debtor's right to seek counsel from an attorney of the debtor's own choosing concerning the debtor's mortgage loan 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 a legal services program in the county in which the dwelling securing the mortgage loan is located;

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

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

                (7) the name and address of the creditor and the current telephone number, email address and facsimile number of the creditor's representative or the designated servicing department whom the debtor may contact:

                     (a) if the debtor disagrees with the assertion that a default has occurred;

                     (b) to contest the accuracy of the calculation of the amount required to cure the default; or

                     (c) to request loss mitigation; and

                (8) an accounting of the mortgage loan obligation covering the twelve-month period prior to the date of the alleged default that shall include:

                     (a) 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; and

                     (b) written certification that the information contained in the accounting is true and accurate to the best of the creditor's knowledge and that the information provided has been relied upon as the basis for the claim of default.

          B. The documents listed in Subsection A of this section shall be served on the debtor by personal service or sent to the debtor by regular mail and by registered or certified United States mail, postage prepaid and return receipt requested.

          C. Documents sent by mail shall be sent to all addresses the debtor has provided to the creditor, including the debtor's last known address and to the address of the dwelling that is the subject of the mortgage loan.

          D. Notice is deemed to have been effectuated on the date the notice is served personally on the debtor or seven days following the date notice is mailed.

          E. The duty of the creditor to serve notice of foreclosure prevention options is independent of any other duty to give notice pursuant to common law, principles of equity, state or federal statute or rule of court.

          F. The documents listed in Subsection A of this section shall be printed in at least twelve-point type, in both English and Spanish, and identify that the notice is being sent pursuant to the requirements set forth in the Mortgage Fair Foreclosure Act.

          G. The documents listed in Subsection A of this section shall not be required to be sent if the debtor has in writing voluntarily surrendered the dwelling that is the subject of the mortgage loan that is in default.

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

          A. Notwithstanding the provisions of any law to the contrary, 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, upon a request by the debtor for loss mitigation, the creditor shall designate a creditor's representative with authority to modify or otherwise affect the debtor's obligation pursuant to the subject security interest and shall provide to the debtor the current contact information, including the name, address, telephone number, facsimile number and email address of the designated creditor's representative. The creditor or the creditor's representative shall 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 housing 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 mortgage loan and dismissal of the foreclosure action upon the debtor's payment of applicable fees and demonstration that the debtor can bring the mortgage 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 mortgage 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 loan payment before beginning to repay the arrearage;

                     (c) a repayment period of at least six months for accrued arrearages, penalties or other fees; or

                     (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 mortgage loan;

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

                     (a) extending the amortization period of the mortgage loan;

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

                     (c) reducing the mortgage loan interest rate temporarily or permanently;

                     (d) adding missed payments to the existing mortgage 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 mortgage loan obligation with a third-party lender;

                (8) a principal reduction agreement in those cases in which the debtor's mortgage 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 mortgage 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 mortgage 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 the creditor or the creditor's representative and the debtor or agent of the debtor until the mortgage has been satisfied or the final sale of the dwelling 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 that:

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

                (2) if the debtor has requested loss mitigation, 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 dwelling, 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, has notified all interested parties and that one of the following conditions has been met:

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

                (2) no loss mitigation is pending;

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

                (4) the home has been abandoned and:

                     (a) the debtor is in default; or

                     (b) the debtor has not taken any action to request loss mitigation.

          D. After commencement of a foreclosure proceeding, a debtor may request loss mitigation. Upon the debtor's request for loss mitigation, the court may, in its discretion and for good cause shown, stay the foreclosure proceedings or the sale of the dwelling until the loss mitigation is completed.

          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, impose sanctions, assess attorney fees and costs and order any other relief provided by law.

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

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