AB568: Bill Text

November 6, 2007 - Introduced by Representatives Richards, Zepnick, A. Ott, Boyle, Musser, Berceau, Cullen, Hixson, Pocan, Hilgenberg, A. Williams, Albers, Grigsby, Sinicki, Fields, Gronemus and Mason, cosponsored by Senators Sullivan, Lehman, Lassa, Carpenter, Hansen and Harsdorf. Referred to Committee on Financial Institutions.

AB568,1,4 An Act to renumber 799.40 (4); and to create 227.01 (13) (rm), 799.40 (4) (b), 846.40 and 846.45 of the statutes; relating to: regulating foreclosure reconveyances and foreclosure consultants, staying certain eviction actions, providing an exemption from rule-making procedures, and providing a penalty.

Analysis by the Legislative Reference Bureau

Under current law, if the owner of real property that is subject to a mortgage defaults in making payments, the mortgagee, which is usually a financial institution, may commence a foreclosure action. If the mortgagee prevails and obtains a foreclosure judgment, the property owner (mortgagor) may redeem the property before a sheriff's sale by paying the amount of the judgment to the clerk of court. If the mortgagor does not redeem the property, it will be sold at a sheriff's sale after six months to one year, depending on the type of property and whether the mortgagor will owe a deficiency, which is the amount by which the judgment exceeds the amount obtained at the sale.

This bill addresses foreclosure reconveyances. A foreclosure reconveyance is defined as a transaction under which the mortgagor transfers title to residential real property in foreclosure to a third party, called a foreclosure purchaser in the bill. The foreclosure purchaser redeems the property and subsequently conveys, or promises to subsequently convey, to the mortgagor (foreclosed homeowner) an interest in the property that allows the foreclosed homeowner to remain in possession of the property, such as an interest in a land contract, a purchase agreement, an option to purchase, or a lease.

Under the bill, if a foreclosure purchaser enters into a foreclosure reconveyance, it must be by a written contract. The bill specifies the information that the contract must contain and requires that duplicate copies of a completed notice of cancellation be attached to the contract. The foreclosed homeowner may cancel the foreclosure reconveyance contract by delivering by any means a signed and dated notice of cancellation to the foreclosure purchaser within five business days after the foreclosed homeowner signs the contract. The bill prohibits any waiver of any of the foreclosure reconveyance provisions, except for the five-day right to cancel the contract if the property is to be sold at sheriff's sale within those five days and the foreclosed homeowner waives his or her right to cancel in a handwritten statement.

The bill contains various prohibitions and requirements that apply generally to foreclosure purchasers, including:

1. Prohibiting a foreclosure purchaser from entering into a foreclosure reconveyance unless, among other things, the foreclosure purchaser verifies that the foreclosed homeowner has the ability to pay for the subsequent conveyance of the interest back to the foreclosed homeowner.

2. Requiring a foreclosure purchaser either to ensure that title to the dwelling has been reconveyed to the foreclosed homeowner or to pay to the foreclosed homeowner consideration of at least 82 percent of the fair market value of the property within 150 days of either the eviction from the property of, or the voluntary relinquishment of possession of the property by, the foreclosed homeowner. If the foreclosure purchaser pays the foreclosed homeowner, the foreclosure purchaser must provide a detailed accounting of the basis for the payment amount on a form prescribed by the attorney general, in consultation with the secretary of agriculture, trade and consumer protection.

3. Prohibiting a foreclosure purchaser from entering into repurchase or lease terms, as part of the subsequent conveyance, that are unfair or commercially unreasonable and from engaging in any other unfair conduct.

4. Prohibiting a foreclosure purchaser from acting as an advisor or consultant or in any other manner representing that the foreclosure purchaser is acting on behalf of the foreclosed homeowner.

5. Prohibiting a foreclosure purchaser from making any other statements or engaging in any other conduct that is false, deceptive, or misleading.

6. Prohibiting a foreclosure purchaser from taking certain actions, such as accepting from the foreclosed homeowner any instrument of conveyance of any interest in the residence in foreclosure or transferring any interest in the residence to a third party, before the time for the foreclosed homeowner to cancel the transaction has fully elapsed.

The bill specifies penalties that apply if a foreclosure purchaser violates any of the provisions, authorizes a court to order punitive damages for a violation, and specifies that a violation shall be considered a fraud and that a foreclosed homeowner may bring an action for damages. The bill also provides that a court must grant a stay in an eviction action if the property was the subject of a foreclosure reconveyance and the defendant was the owner of the property, has continuously occupied the property since it was conveyed to a third party, and has either commenced an action concerning the foreclosure reconveyance or asserts fraud or other deceptive practices in connection with the foreclosure reconveyance. The stay continues for 90 days if the defendant does not commence an action concerning the foreclosure reconveyance within 90 days or until there is a final decision in the action if an action concerning the foreclosure reconveyance already has been commenced or is commenced within 90 days.

The bill also addresses foreclosure consultants. A foreclosure consultant is defined as a person who offers to a foreclosed homeowner to perform for compensation any of various services that will assist the foreclosed homeowner with the loan default or foreclosure, such as stopping the foreclosure sale, assisting the foreclosed homeowner to obtain a loan, or saving the property from foreclosure. The bill, however, specifies numerous exceptions to the definition of "foreclosure consultant" for persons who provide those services, such as an attorney, real estate broker, or certified public accountant rendering such services in the course of his or her practice; a mortgage banker or broker; and a foreclosure purchaser.

The bill provides that any agreement (contract) between a foreclosure consultant and a foreclosed homeowner for the rendition of services must be in writing, and that a foreclosed homeowner who enters into a contract for services with a foreclosure consultant has the right to cancel the contract without penalty within three days by delivering, by mail, e-mail, or any other means, a notice of cancellation to the foreclosure consultant. The bill specifies the information that the contract must contain and requires that duplicate copies of a notice of cancellation be attached to the contract.

The bill sets out actions by a foreclosure consultant that are violations and for which the bill provides remedies. Violations include demanding or receiving compensation before every service under the contract has been performed, acquiring an interest, including a security interest, in the real property in foreclosure, inducing a foreclosed homeowner to enter into a contract that does not comply with the requirements set out in the bill, and charging interest of more than eight percent on any loan made to the foreclosed homeowner. The bill provides that a foreclosed homeowner or the attorney general may bring a legal action against a foreclosure consultant for a violation of the requirements under the bill and specifies the damages; that the secretary of agriculture, trade and consumer protection may bring an administrative action for a violation; and that any action is barred if not brought within four years of the violation. The bill also prohibits any waiver of any of a foreclosed homeowner's rights under the bill and provides that any provision in a contract requiring arbitration of any dispute arising under the provisions is void at the option of the foreclosed homeowner.

Because this bill creates a new crime or revises a penalty for an existing crime, the Joint Review Committee on Criminal Penalties may be requested to prepare a report concerning the proposed penalty and the costs or savings that are likely to result if the bill is enacted.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB568, s. 1 Section 1. 227.01 (13) (rm) of the statutes is created to read:

AB568,4,3 227.01 (13) (rm) Is a form prescribed by the attorney general for an accounting under s. 846.40 (8) (b) 2.

AB568, s. 2 Section 2. 799.40 (4) of the statutes is renumbered 799.40 (4) (a).

AB568, s. 3 Section 3. 799.40 (4) (b) of the statutes is created to read:

AB568,4,8 799.40 (4) (b) The court shall stay the proceeding in a civil action of eviction against a foreclosed homeowner, as defined in s. 846.40 (1) (b), under the circumstances and as provided in s. 846.40 (9).

AB568, s. 4 Section 4. 846.40 of the statutes is created to read:

AB568,4,11 846.40 Regulation of foreclosure reconveyances. (1) Definitions. In this section:

AB568,4,17 (a) "Closing" means an in-person meeting to complete final documents incident to the sale of real property or the creation of a mortgage on real property that is conducted by a closing agent who is not employed by, an affiliate of, or employed by an affiliate of, any foreclosure purchaser involved in the closing, and who does not have a business or personal relationship with any foreclosure purchaser involved in the closing other than the provision of real estate settlement services.

AB568,4,18 (b) "Foreclosed homeowner" means an owner of a residence in foreclosure.

AB568,5,2 (c) "Foreclosure purchaser" means a person that has acted as the acquirer in a foreclosure reconveyance. "Foreclosure purchaser" also includes a person that has acted in joint venture or joint enterprise with one or more acquirers in a foreclosure reconveyance. "Foreclosure purchaser" does not include any of the following:

AB568,5,5 1. A natural person who shows that he or she is not in the business of foreclosure purchasing and who has a prior personal relationship with the foreclosed homeowner.

AB568,5,7 2. A federal or state chartered bank, savings bank, savings and loan association, or credit union.

AB568,5,9 (d) "Foreclosure reconveyance" means a transaction involving all of the following:

AB568,5,13 1. The transfer of title to real property by a foreclosed homeowner during a foreclosure proceeding, either by a transfer of interest from the foreclosed homeowner or by the creation of a mortgage or other lien or encumbrance during the foreclosure process.

AB568,5,18 2. The subsequent conveyance, or promise of a subsequent conveyance, of an interest back to the foreclosed homeowner by the acquirer or a person acting in participation with the acquirer that allows the foreclosed homeowner to possess either the residence in foreclosure or other real property, which interest includes an interest in a land contract, purchase agreement, option to purchase, or lease.

AB568,5,21 (e) "Primary housing expenses" means the sum of payments for regular principal, interest, rent, utilities, fire and casualty insurance, real estate taxes, and association dues.

AB568,5,23 (f) "Resale" means a bona fide market sale of the property subject to the foreclosure reconveyance by the foreclosure purchaser to an unaffiliated 3rd party.

AB568,5,24 (g) "Resale price" means the gross sale price of the property on resale.

AB568,6,6 (h) "Residence in foreclosure" means residential real property that consists of one to 4 family dwelling units and with respect to which real property there is a delinquency or default on any loan payment or debt secured by or attached to the residential real property, including land contract payments. The owner of the residential real property may, but is not required to, occupy the residential real property as the owner's principal place of residence.

AB568,6,14 (2) Contract requirement; form and language. A foreclosure purchaser that enters into any foreclosure reconveyance shall do so by a written contract. Every contract must be written in letters of not less than 12-point boldface type, in the same language principally used by the foreclosure purchaser and foreclosed homeowner to negotiate the sale of the residence in foreclosure, and must be fully completed, signed, and dated by the foreclosed homeowner and foreclosure purchaser before the execution of any instrument of conveyance of the residence in foreclosure.

AB568,6,16 (3) Contract terms. (a) Every contract required by sub. (2) must contain the entire agreement of the parties and must include all of the following terms:

AB568,6,18 1. The name, business address, and telephone number of the foreclosure purchaser.

AB568,6,19 2. The address of the residence in foreclosure.

AB568,6,21 3. The total consideration to be given by the foreclosure purchaser in connection with or incident to the sale.

AB568,6,24 4. A complete description of the terms of payment or other consideration, including any services of any nature that the foreclosure purchaser represents he or she will perform for the foreclosed homeowner before or after the sale.

AB568,7,2 5. The time at which possession is to be transferred to the foreclosure purchaser.

AB568,7,5 6. A complete description of the terms of any related agreement designed to allow the foreclosed homeowner to remain in possession of the home, such as a rental agreement, repurchase agreement, land contract, or lease with option to purchase.

AB568,7,7 7. The time for determining the fair market value of the property, as provided under sub. (8) (b) 2. b.

AB568,7,8 8. A notice of cancellation as provided in sub. (5) (b).

AB568,7,12 9. Immediately above the statement required by sub. (5) (a), in not less than 14-point boldface type if the contract is printed or in capital letters if the contract is typed, and completed with the name of the foreclosure purchaser, the following notice:

AB568,7,13 NOTICE REQUIRED BY WISCONSIN LAW

AB568,7,16 Until your right to cancel this contract has ended, ...... (Name of foreclosure purchaser) or anyone working for ...... (Name of foreclosure purchaser) CANNOT ask you to sign or have you sign any deed or any other document.

AB568,7,19 (b) The contract required by this subsection survives delivery of any instrument of conveyance of the residence in foreclosure and has no effect on persons other than the parties to the contract.

AB568,7,25 (4) Contract cancellation. (a) In addition to any other right of rescission, the foreclosed homeowner has the right to cancel any contract with a foreclosure purchaser until midnight of the 5th business day following the day on which the foreclosed homeowner signs a contract that complies with subs. (2) to (6) or until 8:00 a.m. on the last day of the period during which the foreclosed homeowner has a right of redemption, whichever occurs first.

AB568,8,9 (b) Cancellation occurs when the foreclosed homeowner delivers, by any means, a signed and dated written notice of cancellation. The contract and notice of cancellation form under sub. (5) (b) must contain a street or physical address to which notice of cancellation may be mailed or otherwise delivered. A post office box may be designated for delivery by mail only if it is accompanied by a street or physical address at which the notice may be delivered by a method other than mail. An e-mail address may be provided in addition to the street or physical address. If cancellation is mailed, delivery is effective upon deposit in the U.S. mail. If cancellation is sent by e-mail, delivery is effective upon transmission.

AB568,8,11 (c) A notice of cancellation given by the foreclosed homeowner need not take the particular form provided under sub. (5) (b).

AB568,8,15 (d) Within 10 days following receipt of a notice of cancellation given in accordance with this subsection, the foreclosure purchaser shall return without condition any original contract and any other documents signed by the foreclosed homeowner.

AB568,8,22 (5) Notice of cancellation. (a) 1. The contract must contain conspicuously and in immediate proximity to the space reserved for the foreclosed homeowner's signature, in not less than 14-point boldface type if the contract is printed or in capital letters if the contract is typed, the following statement: "You may cancel this contract for the sale of your house without any penalty or obligation at any time before .... (date and time of day). See the attached notice of cancellation form for an explanation of this right."

AB568,8,24 2. The foreclosure purchaser shall accurately enter the date and time of day on which the cancellation right ends.

AB568,9,7 (b) The contract must be accompanied by a completed form in duplicate, captioned "Notice of cancellation" in 12-point boldface type if the contract is printed or in capital letters if the contract is typed, followed by a space in which the foreclosure purchaser shall enter the date on which the foreclosed homeowner executes the contract. This form must be attached to the contract, must be easily detachable, and must contain, in not less than 10-point type if the contract is printed or in capital letters if the contract is typed, the following statement:

AB568,9,8 NOTICE OF CANCELLATION

AB568,9,9 (Enter date contract signed)

AB568,9,11 1. You may cancel this contract for the sale of your house, without any penalty or obligation, at any time before .... (date and time of day).

AB568,9,16 2. To cancel this transaction, you may mail or otherwise deliver a signed and dated copy of this notice of cancellation, or you may e-mail a notice of cancellation, to .... (name of purchaser) at .... (street or physical address of purchaser's place of business), or .... (e-mail address of purchaser's place of business) NOT LATER THAN .... (date and time of day).

AB568,9,17 3. I hereby cancel this transaction.

AB568,9,18 (Date) ....

AB568,9,19 (Seller's signature) ....

AB568,9,22 (c) The foreclosure purchaser shall provide the foreclosed homeowner with a copy of the contract and the attached notice of cancellation form at the time the contract is executed by all parties.

AB568,9,24 (d) The 5-day period under sub. (4) (a) during which the foreclosed homeowner may cancel the contract does not begin to run until all parties to the contract have executed the contract and the foreclosure purchaser has complied with this subsection.

AB568,10,8 (6) Waiver. Any waiver of any of provisions of this section is void and unenforceable as contrary to public policy, except that a foreclosed homeowner may waive the 5-day right to cancel under sub. (4) (a) if the property is subject to a foreclosure sale within the 5 business days and the foreclosed homeowner agrees to waive his or her right to cancel in a handwritten statement signed by all parties holding title to the foreclosed property.

AB568,10,12 (7) Liability. Any provision in a contract entered into on or after the effective date of this subsection .... [revisor inserts date], that attempts or purports to require arbitration of any dispute arising under this section is void at the option of the foreclosed homeowner.

AB568,10,15 (8) General prohibitions and requirements. (a) A foreclosure purchaser may not enter into, or attempt to enter into, a foreclosure reconveyance with a foreclosed homeowner unless all of the following are satisfied:

AB568,11,3 1. The foreclosure purchaser verifies and can demonstrate that the foreclosed homeowner has a reasonable ability to pay for the subsequent conveyance of an interest back to the foreclosed homeowner. In the case of a lease with an option to purchase, payment ability also includes the reasonable ability to make the lease payments and purchase the property within the term of the option to purchase. There is a rebuttable presumption that a foreclosed homeowner is reasonably able to pay for the subsequent conveyance if the foreclosed homeowner's payments for primary housing expenses and regular principal and interest payments on other personal debt, on a monthly basis, do not exceed 60 percent of the foreclosed homeowner's monthly gross income. There is a rebuttable presumption that the foreclosure purchaser has not verified reasonable payment ability if the foreclosure purchaser has not obtained documents other than a statement by the foreclosed homeowner of assets, liabilities, and income.

AB568,11,6 2. The foreclosure purchaser and the foreclosed homeowner complete a closing for any foreclosure reconveyance in which the foreclosure purchaser obtains a deed or mortgage from a foreclosed homeowner.

AB568,11,10 3. The foreclosure purchaser obtains the written consent of the foreclosed homeowner to a grant by the foreclosure purchaser of any interest in the property during such times as the foreclosed homeowner maintains any interest in the property.

AB568,11,17 4. The foreclosure purchaser complies with the requirements for disclosure, loan terms, and conduct under the federal Home Ownership Equity Protection Act, 15 USC 1639, or its implementing regulations, 12 CFR 226.31, 226.32, and 226.34, for any foreclosure reconveyance in which the foreclosed homeowner obtains a vendee's interest in a land contract, regardless of whether the terms of the land contract meet the annual percentage rate or points and fees requirements for a covered loan under 12 CFR 226.32 (a) and (b).

AB568,11,18 (b) A foreclosure purchaser shall do either of the following:

AB568,11,20 1. Ensure that title to the subject dwelling has been reconveyed to the foreclosed homeowner.

AB568,12,5 2. Make a payment to the foreclosed homeowner such that the foreclosed homeowner has received consideration in an amount of at least 82 percent of the fair market value of the property within 150 days after either the eviction of, or voluntary relinquishment of possession of the dwelling by, the foreclosed homeowner. The foreclosure purchaser shall make a detailed accounting of the basis for the payment amount, or a detailed accounting of the reasons for failure to make a payment, including providing written documentation of expenses, within this 150-day period. The accounting shall be on a form prescribed by the attorney general, in consultation with the secretary of agriculture, trade and consumer protection. For purposes of this subdivision, all of the following apply:

AB568,12,8 a. There is a rebuttable presumption that an appraisal by a person licensed or certified by an agency of the federal government or this state to appraise real estate constitutes the fair market value of the property.

AB568,13,2 b. The time for determining the fair market value amount shall be specified in the foreclosure reconveyance contract as either at the time of the execution of the foreclosure reconveyance contract or at resale. If the contract states that the fair market value shall be determined at the time of resale, the fair market value shall be the resale price if it is sold within 120 days after the eviction of, or voluntary relinquishment of the property by, the foreclosed homeowner. If the contract states that the fair market value shall be determined at the time of resale, and the resale is not completed within 120 days after the eviction of, or voluntary relinquishment of the property by, the foreclosed homeowner, the fair market value shall be determined by an appraisal conducted during this 120-day period and payment, if required, shall be made to the foreclosed homeowner, but the fair market value shall be recalculated as the resale price on resale and an additional payment amount, if appropriate based on the resale price, shall be made to the foreclosed homeowner within 15 days after resale, and a detailed accounting of the basis for the payment amount, or a detailed accounting of the reasons for failure to make additional payment, shall be made within 15 days after resale, including providing written documentation of expenses. The accounting shall be on a form prescribed by the attorney general, in consultation with the secretary of agriculture, trade and consumer protection.

AB568,13,15 c. "Consideration" means any payment or thing of value provided to the foreclosed homeowner, including unpaid rent or land contract payments owed by the foreclosed homeowner prior to the date of eviction or voluntary relinquishment of the property, reasonable costs paid to 3rd parties necessary to complete the foreclosure reconveyance transaction, payment of money to satisfy a debt or legal obligation of the foreclosed homeowner, the reasonable cost of repairs for damage to the dwelling caused by the foreclosed homeowner, or a penalty imposed by a court for the filing of a frivolous claim in an eviction action under sub. (9). "Consideration" does not include amounts imputed as a down payment or fee to the foreclosure purchaser, or a person acting in participation with the foreclosure purchaser, incident to a land contract, lease, or option to purchase entered into as part of the foreclosure reconveyance, except for reasonable costs paid to 3rd parties necessary to complete the foreclosure reconveyance.

AB568,13,18 (c) A foreclosure purchaser may not enter into repurchase or lease terms as part of the subsequent conveyance that are unfair or commercially unreasonable, or engage in any other unfair conduct.

AB568,13,20 (d) A foreclosure purchaser may not represent, directly or indirectly, any of the following:

AB568,13,23 1. That the foreclosure purchaser is acting as an advisor or a consultant, or in any other manner represent that the foreclosure purchaser is acting on behalf of the foreclosed homeowner.

AB568,14,3 2. That the foreclosure purchaser has certification or licensure that the foreclosure purchaser does not have, or that the foreclosure purchaser is not a member of a licensed profession if that is untrue.