LRB-2635/1
PJK&RPN:bjk&jld:nwn
2007 - 2008 LEGISLATURE
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
1An Act to renumber 799.40 (4); and
to create 227.01 (13) (rm), 799.40 (4) (b),
2846.40 and 846.45 of the statutes;
relating to: regulating foreclosure
3reconveyances and foreclosure consultants, staying certain eviction actions,
4providing 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
1Section
1. 227.01 (13) (rm) of the statutes is created to read:
AB568,4,32
227.01
(13) (rm) Is a form prescribed by the attorney general for an accounting
3under s. 846.40 (8) (b) 2.
AB568, s. 2
4Section
2. 799.40 (4) of the statutes is renumbered 799.40 (4) (a).
AB568, s. 3
5Section
3. 799.40 (4) (b) of the statutes is created to read:
AB568,4,86
799.40
(4) (b) The court shall stay the proceeding in a civil action of eviction
7against a foreclosed homeowner, as defined in s. 846.40 (1) (b), under the
8circumstances and as provided in s. 846.40 (9).
AB568, s. 4
9Section
4. 846.40 of the statutes is created to read:
AB568,4,11
10846.40 Regulation of foreclosure reconveyances. (1) Definitions. In this
11section:
AB568,4,1712
(a) "Closing" means an in-person meeting to complete final documents incident
13to the sale of real property or the creation of a mortgage on real property that is
14conducted by a closing agent who is not employed by, an affiliate of, or employed by
15an affiliate of, any foreclosure purchaser involved in the closing, and who does not
16have a business or personal relationship with any foreclosure purchaser involved in
17the closing other than the provision of real estate settlement services.
AB568,4,1818
(b) "Foreclosed homeowner" means an owner of a residence in foreclosure.
AB568,5,219
(c) "Foreclosure purchaser" means a person that has acted as the acquirer in
20a foreclosure reconveyance. "Foreclosure purchaser" also includes a person that has
1acted in joint venture or joint enterprise with one or more acquirers in a foreclosure
2reconveyance. "Foreclosure purchaser" does not include any of the following:
AB568,5,53
1. A natural person who shows that he or she is not in the business of
4foreclosure purchasing and who has a prior personal relationship with the foreclosed
5homeowner.
AB568,5,76
2. A federal or state chartered bank, savings bank, savings and loan
7association, or credit union.
AB568,5,98
(d) "Foreclosure reconveyance" means a transaction involving all of the
9following:
AB568,5,1310
1. The transfer of title to real property by a foreclosed homeowner during a
11foreclosure proceeding, either by a transfer of interest from the foreclosed
12homeowner or by the creation of a mortgage or other lien or encumbrance during the
13foreclosure process.
AB568,5,1814
2. The subsequent conveyance, or promise of a subsequent conveyance, of an
15interest back to the foreclosed homeowner by the acquirer or a person acting in
16participation with the acquirer that allows the foreclosed homeowner to possess
17either the residence in foreclosure or other real property, which interest includes an
18interest in a land contract, purchase agreement, option to purchase, or lease.
AB568,5,2119
(e) "Primary housing expenses" means the sum of payments for regular
20principal, interest, rent, utilities, fire and casualty insurance, real estate taxes, and
21association dues.
AB568,5,2322
(f) "Resale" means a bona fide market sale of the property subject to the
23foreclosure reconveyance by the foreclosure purchaser to an unaffiliated 3rd party.
AB568,5,2424
(g) "Resale price" means the gross sale price of the property on resale.
AB568,6,6
1(h) "Residence in foreclosure" means residential real property that consists of
2one to 4 family dwelling units and with respect to which real property there is a
3delinquency or default on any loan payment or debt secured by or attached to the
4residential real property, including land contract payments. The owner of the
5residential real property may, but is not required to, occupy the residential real
6property as the owner's principal place of residence.
AB568,6,14
7(2) Contract requirement; form and language. A foreclosure purchaser that
8enters into any foreclosure reconveyance shall do so by a written contract. Every
9contract must be written in letters of not less than 12-point boldface type, in the
10same language principally used by the foreclosure purchaser and foreclosed
11homeowner to negotiate the sale of the residence in foreclosure, and must be fully
12completed, signed, and dated by the foreclosed homeowner and foreclosure
13purchaser before the execution of any instrument of conveyance of the residence in
14foreclosure.
AB568,6,16
15(3) Contract terms. (a) Every contract required by sub. (2) must contain the
16entire agreement of the parties and must include all of the following terms:
AB568,6,1817
1. The name, business address, and telephone number of the foreclosure
18purchaser.
AB568,6,1919
2. The address of the residence in foreclosure.
AB568,6,2120
3. The total consideration to be given by the foreclosure purchaser in connection
21with or incident to the sale.
AB568,6,2422
4. A complete description of the terms of payment or other consideration,
23including any services of any nature that the foreclosure purchaser represents he or
24she will perform for the foreclosed homeowner before or after the sale.
AB568,7,2
15. The time at which possession is to be transferred to the foreclosure
2purchaser.
AB568,7,53
6. A complete description of the terms of any related agreement designed to
4allow the foreclosed homeowner to remain in possession of the home, such as a rental
5agreement, repurchase agreement, land contract, or lease with option to purchase.
AB568,7,76
7. The time for determining the fair market value of the property, as provided
7under sub. (8) (b) 2. b.
AB568,7,88
8. A notice of cancellation as provided in sub. (5) (b).