BILL REQ. #:  S-3918.1 

Read first time 01/20/10.   Referred to Committee on Labor, Commerce & Consumer Protection.

     AN ACT Relating to protecting and assisting consumers and homeowners from unfair lending practices and during foreclosure proceedings; reenacting and amending RCW 61.24.005; adding new sections to chapter 61.24 RCW; adding a new section to chapter 36.22 RCW; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds and declares that: (1) The rate of home foreclosures is rising to unprecedented levels, both for prime and subprime loans and foreclosures are expected to rise because homeowners will not be able to afford payments due to rising adjustable loan payments, reset of interest rates, and rising unemployment and job loss; (2) homeowners will continue to have problems selling their properties at the value of their home loans due to falling housing prices; (3) foreclosures contribute to the decline in the state's housing market, loss of property values, and loss of tax revenues; and (4) with the number of nonjudicial foreclosures climbing the current system for resolving foreclosure matters is inadequate.

NEW SECTION.  Sec. 2   This act may be known and cited as the protect Washington homeowners act.

Sec. 3   RCW 61.24.005 and 2009 c 292 s 1 are each reenacted and amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Affiliate of beneficiary" means any entity which controls, is controlled by, or is under common control with a beneficiary.
     (2) "Beneficiary" means the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation.
     (3) "Borrower" means a person or a general partner in a partnership, including a joint venture, that is liable for all or part of the obligations secured by the deed of trust under the instrument or other document that is the principal evidence of such obligations, or the person's successors if they are liable for those obligations under a written agreement with the beneficiary.
     (4) "Commercial loan" means a loan that is not made primarily for personal, family, or household purposes.
     (5) "Department" means the department of financial institutions.
     (6) "Fair value" means the value of the property encumbered by a deed of trust that is sold pursuant to a trustee's sale. This value shall be determined by the court or other appropriate adjudicator by reference to the most probable price, as of the date of the trustee's sale, which would be paid in cash or other immediately available funds, after deduction of prior liens and encumbrances with interest to the date of the trustee's sale, for which the property would sell on such date after reasonable exposure in the market under conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under duress.
     (((6))) (7) "Grantor" means a person, or its successors, who executes a deed of trust to encumber the person's interest in property as security for the performance of all or part of the borrower's obligations.
     (((7))) (8) "Guarantor" means any person and its successors who is not a borrower and who guarantees any of the obligations secured by a deed of trust in any written agreement other than the deed of trust.
     (((8))) (9) "Owner-occupied" means property that is the principal residence of the borrower.
     (((9))) (10) "Person" means any natural person, or legal or governmental entity.
     (((10))) (11) "Record" and "recorded" includes the appropriate registration proceedings, in the instance of registered land.
     (((11))) (12) "Residential real property" means property consisting solely of a single-family residence, a residential condominium unit, or a residential cooperative unit.
     (((12))) (13) "Tenant-occupied property" means property consisting solely of residential real property that is the principal residence of a tenant subject to chapter 59.18 RCW or other building with four or fewer residential units that is the principal residence of a tenant subject to chapter 59.18 RCW.
     (((13))) (14) "Trustee" means the person designated as the trustee in the deed of trust or appointed under RCW 61.24.010(2).
     (((14))) (15) "Trustee's sale" means a nonjudicial sale under a deed of trust undertaken pursuant to this chapter.

NEW SECTION.  Sec. 4   A new section is added to chapter 61.24 RCW to read as follows:
     (1) A trustee, beneficiary, or authorized agent shall not record a notice of sale pursuant to RCW 61.24.040 on owner-occupied residential real property unless the beneficiary or authorized agent has made a good faith review of the borrower's financial situation and offered, whenever eligible, a loan modification, or other option to assist the borrower in bringing the arrears current.
     (2) A good faith review of the borrower's financial situation includes, but is not limited to, an evaluation of the borrower's eligibility for all loan modification programs established by the federal government or mortgage industry, and if the borrower elects, participation in the foreclosure mediation program established in this section. Failure to act in good faith constitutes a defense to a foreclosure and a violation of the consumer protection act.
     (3) The foreclosure mediation program shall address all the issues related to the foreclosure, including but not limited to, reinstatement, modification of the loan, and restructuring of the debt.
     (4) Prior to the recording of a notice of sale pursuant to RCW 61.24.040, a trustee, beneficiary, or authorized agent shall provide a notice to the borrower by both first-class and either certified or registered mail, return receipt requested, containing the following:
     (a) The contact information to reach a person with authority to negotiate a loan modification on behalf of the beneficiary of the deed of trust;
     (b) The contact information, including the toll-free telephone number for housing counseling agencies approved by the United States department of housing and urban development operating to assist homeowners in the state avoid foreclosure; and
     (c) A form notice, as proscribed by the department, explaining the availability of the foreclosure mediation program and upon which the grantor or person who holds title of record may indicate his or her election to enter into foreclosure mediation or to waive mediation. The notice must encourage the borrower to meet with a housing counselor or attorney prior to mediation. The notice must inform the borrower that the form must be returned to the department, or the department's designee, within thirty days or the right to foreclosure mediation is waived.
     (5) A trustee may not record a notice of sale under RCW 61.24.040 until thirty days after receiving a waiver of foreclosure mediation as provided in subsection (7) of this section or the certification as required by subsection (12) of this section.
     (6) If the borrower or the person who holds the title of record indicates on the form the election to enter into mediation, the department, or the department's designee, shall notify the beneficiary of the deed of trust and every other person with an interest by certified mail, return receipt requested, of the election of the borrower or the person who holds the title of record to enter into mediation. The foreclosure is stayed and no further action may be taken to proceed with the foreclosure until the certification of the foreclosure mediation is made by the mediator.
     (7) If the borrower or the person who holds the title of record indicates on the form his or her election to waive mediation or fails to return the form to the department or department's designee as required, the department or department's designee shall execute an affidavit attesting to that fact under penalty of perjury and mail a copy of the affidavit, together with the waiver of mediation by the borrower or the person who holds title of record, to the trustee, beneficiary, or authorized agent.
     (8) The department, or department's designee, shall maintain a list of foreclosure mediators and may establish a required training program for foreclosure mediators and require the training prior to being appointed. The following persons may serve as foreclosure mediators under this section:
     (a) An attorney who is an active member of the Washington state bar association;
     (b) A department certified housing counselor;
     (c) An employee or volunteer of a dispute resolution center; or
     (d) Any other person authorized by the department.
     (9) Within ten business days of the election by the borrower of mediation, the department shall provide the borrower and the beneficiary with the names, telephone numbers, and addresses of no fewer than two mediators in the geographical area in which the residential real property is located. Within five business days after the department provides this information, each party shall select a mediator and notify the department of the party's selection. If the parties agree on a mediator, the department shall notify them of the agreed upon mediator within five business days. If the parties do not agree on a mediator, if one party does not notify the department of a selection in a timely manner, or if both parties so request, the department shall select a mediator and notify the parties of the selection.
     (10)(a) The foreclosure mediator may schedule phone conferences, consultations with the parties individually, and other communications to ensure that the parties have all the necessary information to engage in a productive foreclosure mediation session. The foreclosure mediator shall convene a foreclosure mediation session no later than sixty days after receiving a referral from the department.
     (b) The foreclosure mediator shall send written notice of the time, date, and location of the foreclosure mediation session to the borrower and the beneficiary at least seven days prior to the foreclosure mediation session. The same notice must also state: (i) That the borrower may be represented in the foreclosure mediation session by an attorney or other advocate; (ii) that a person with authority to agree to a proposed settlement, loan modification, and dismissal or continuation of the foreclosure proceeding must represent the beneficiary at the foreclosure mediation session; and (iii) the complete list of documents and calculations that must be taken by the parties to the mediation, including the documents and calculations as required under subsection (12)(b) of this section.
     (11) The participants in a foreclosure mediation session shall address all issues of foreclosure, including but not limited to reinstatement, modification of the loan, or restructuring of the debt, that will enable the borrower and the lender to avoid foreclosure. Any loan modification offered to the borrower must comply with current federal and state law and the borrower must be able to reasonably afford to repay the loan, as modified, according to the scheduled payments. The mediator shall require the participants to address these issues by considering the following:
     (a) The borrower's current circumstances, including the borrower's current income, debts, and obligations;
     (b) The net present value of receiving payments pursuant to a modified mortgage loan as compared to the anticipated net recovery following foreclosure; and
     (c) Any affordable loan modification calculation and net present value calculation when required under the federal home affordable modification program. If the loan is insured by the federal housing administration, subject to federal national mortgage association or federal home loan mortgage corporation guidelines, or insured by the veterans administration, then the calculations required by those agencies must be used. If such a calculation is not required, then the beneficiary must use the current calculations, assumptions, and forms that are established by the federal deposit insurance corporation and published in the federal deposit insurance corporation loan modification program guide. Any worksheet, spreadsheet, or other calculation tool used to make the calculations, including all inputs and numerical assumptions, must be provided to the borrower.
     (12) The parties shall conduct all discussions in good faith. A violation of the obligation of good faith includes:
     (a) Failure to attend and participate in mediation sessions without good cause;
     (b) Failure of the beneficiary to bring to the foreclosure mediation session the following documentation: An accurate statement containing the balance of the loan; copies of original loan documents; proof that the entity claiming to be the beneficiary is the owner of any promissory note or obligation secured by the deed of trust; the amount of any arrearage; an itemized list of fees and charges outstanding; the payment history and schedule; an itemized statement of the arrearage, including a breakdown of all fees and charges claimed; an affordable loan modification calculation; a net present value calculation showing all inputs and the outcome of the net present value test expressed in a dollar amount; most recently available appraisal; any other relevant information as determined by the department; and if the beneficiary claims it is unable to implement a loan modification due to limitations in a pooling and servicing agreement, a copy of the pooling and servicing agreement containing the restriction and documentation of efforts the beneficiary made to obtain a waiver of the provision;
     (c) Failure of a party to designate a representative with adequate authority to fully settle, compromise, or otherwise mediate the matter;
     (d) The beneficiary or lender requests, as a condition of agreeing to a modification in the terms or conditions of the loan, that the borrower waive other rights or claims he or she may have in connection with the loan; or
     (e) Failure of a beneficiary to agree to a modification of the loan where the net present value of the modified loan exceeds the anticipated net recovery at foreclosure.
     (13) Within five business days after the conclusion of a foreclosure mediation session, the foreclosure mediator shall make a written certification to the department and send copies to the parties of:
     (a) The date, time, and location of the loan mediation session;
     (b) The names of all persons in attendance at the loan mediation session;
     (c) Whether the default was cured by entry of a reinstatement, modification of the loan, or restructuring of the debt;
     (d) If held, whether the parties participated in the foreclosure mediation in good faith; and
     (e) A description of the net present value test used, and a copy of the calculation including the result of the net present value test expressed in a dollar amount.
     (14) The failure of the beneficiary to act in good faith at the mediation constitutes a defense to a foreclosure and is a violation of the consumer protection act. If a mediation agreement was not reached and the report of the mediator indicates that the calculations showed the net present value of the modified loan exceeds the anticipated net recovery at foreclosure, the borrower may enjoin the foreclosure.
     (15) A loan mediator may charge fees as authorized by this subsection or by the department. Unless the fee is waived or as otherwise authorized by the department, a foreclosure mediator's fee is set by rule by the department but may not exceed four hundred dollars for a foreclosure mediation session lasting between one hour and three hours. A person representing the beneficiary shall tender the loan mediator's fee in full at the outset of the session. Fifty percent of the loan mediator's fee may be added to the outstanding balance of the loan if the foreclosure mediator certifies that the beneficiary participated in the loan mediation session in good faith.
     (16) The department shall report annually to the legislature on:
     (a) The performance of the program, including the numbers of homeowners who are notified of mediation and who attend mediation;
     (b) The results of the mediation program, including the numbers of loans restructured or modified, the number of principal write-downs and interest rate reductions, and the number of homeowners who default within a year of restructuring or modification; and
     (c) Make recommendations for any changes to the program to the legislature.

NEW SECTION.  Sec. 5   A new section is added to chapter 61.24 RCW to read as follows:
     (1) The legislature finds and declares that any duty that servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a deed of trust pool, not to any particular parties, and that a servicer acts in the best interests of all parties if it agrees to or implements a deed of trust modification or workout plan for which both of the following apply:
     (a) The deed of trust is in payment default, or payment default is reasonably foreseeable; and
     (b) Anticipated recovery under the deed of trust modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.
     (2) The mortgagee, beneficiary, or authorized agent shall offer the borrower a deed of trust modification or workout plan if the modification or plan is consistent with its contractual or other authority.

NEW SECTION.  Sec. 6   The legislature finds that the practices covered by sections 3 and 4 of this act are matters vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW. A violation of this chapter is not reasonable in relation to the development and preservation of business and is an unfair or deceptive act in trade or commerce and an unfair method of competition for the purpose of applying the consumer protection act, chapter 19.86 RCW.

NEW SECTION.  Sec. 7   A new section is added to chapter 36.22 RCW to read as follows:
     A surcharge in an amount determined by the department of financial institutions by rule but no greater than the amount of the superior court civil filing fee shall be charged by the county auditor at the time of recording of each notice of sale under RCW 61.24.040. The auditor may retain up to two percent of the funds collected to administer collection. The remaining funds shall be transmitted monthly to the director of financial institutions who shall deposit the funds into the protect Washington homeowners mediation program under section 7 of this act. The department of financial institutions is responsible for the distribution of the funds in the account and shall develop rules for the use of these funds to fund the protect Washington homeowners mediation program and to fund housing counseling agencies approved by the United States department of housing and urban development operating to assist homeowners in the state avoid foreclosure.

NEW SECTION.  Sec. 8   A new section is added to chapter 61.24 RCW to read as follows:
     The protect Washington homeowners mediation program account is created in the custody of the state treasurer. All receipts from the surcharge under section 7 of this act must be deposited into the account. Expenditures from the account may be used only for the purposes set forth in section 7 of this act. Only the director of financial institutions or the director's designee may authorize expenditures from the account. The account is subject to allotment procedures under chapter 43.88 RCW, but an appropriation is not required for expenditures.