LRB-1948/1
TKK:jld:md
2011 - 2012 LEGISLATURE
May 17, 2011 - Introduced by Representatives Clark, Bewley, Young, Spanbauer,
Berceau, Milroy, Hebl and Sinicki, cosponsored by Senators Holperin,
Hansen, Lassa and
S. Coggs. Referred to Committee on Financial
Institutions.
AB137,1,2
1An Act to create 846.015 of the statutes;
relating to: residential mortgage loan
2foreclosures.
Analysis by the Legislative Reference Bureau
Under current law, if a mortgagee brings an action for foreclosure of a mortgage
on a residential property, the homeowner (mortgagor or borrower) is served with a
summons and complaint and the normal civil procedural rules of pleadings,
discovery of evidence, pretrial, and trial apply. If the court finds that the mortgagee
has the right to the foreclosure, the court issues a judgment for foreclosure of the
mortgage, which entitles the mortgagee to force a sale of the property after a
redemption period has ended.
This bill creates a process to allow a borrower who is in default on a first
mortgage loan on a residential property (a one-family to four-family dwelling) to
pursue a loan modification during a mortgage foreclosure action. Under the bill,
before a first lien residential mortgage holder or its servicing agent (mortgagee) may
commence an action to foreclose the mortgage, the mortgagee must provide a written
notice (default-foreclosure notice) to the borrower that contains all of the following
information: 1) that the mortgage is in default and a mortgage foreclosure action
may be commenced, the reason that the mortgage is in default, and the action
required of the borrower to cure the default; 2) the name, address, and telephone
number of a mortgagee negotiator with authority to enter into negotiations
regarding modifications to the residential mortgage loan; 3) the names and
addresses of credit counseling services for homeowners; 4) that the borrower may
request loan modifications by sending the request to the mortgagee negotiator
within ten working days after receiving the notice; 5) the calculations and eligibility
criteria used to determine if the borrower is eligible for any loan modifications; 6) the
documents needed to determine the borrower's gross income; 7) that, if the borrower
makes a timely request for loan modifications and provides the documents needed
to determine the borrower's gross income, the borrower may meet with the
mortgagee negotiator to discuss the modifications accompanied by an attorney or
other person; 8) that, if the borrower does not make a timely request for loan
modifications or provide the documents needed to determine the borrower's gross
income, the mortgage foreclosure action may proceed; 9) that, if the parties reach an
agreement to modify the residential mortgage loan, the mortgage may not be
foreclosed if the borrower complies with the terms of the modified agreement; and
10) that the mortgagee and borrower may agree to a method other than loan
modifications to resolve the loan default.
A borrower, within ten working days of receiving this notice, may request loan
modifications by sending the request to the mortgagee negotiator. If a timely request
is made and if the documents are provided that are needed to determine the
borrower's gross income, the mortgagee negotiator and borrower must meet in
person in the county where the residential property is located or by telephone or
other communication to negotiate, in good faith, modifications to the residential
mortgage loan. Based on available information, the mortgagee negotiator must
determine if the borrower is eligible for a loan modification. The borrower is eligible
if the borrower's current housing-related debt is 38 percent or more of the borrower's
gross income. If the borrower is eligible, the mortgagee negotiator must offer one or
more of the following loan modifications to lower the borrower's housing-related
debt to less than 38 percent of the borrower's gross income: 1) an interest rate
reduction, subject to a floor of 3 percent, for a fixed period of at least five years, after
which the interest rate may increase within specified parameters; 2) an extension
of the amortization period for the residential mortgage loan term to 40 years or less
from the date of the loan modification; 3) the deferral of payment of up to 20 percent
of the unpaid balance of the residential mortgage loan, until maturity of the loan,
refinancing of the loan, or sale of the residential property; or 4) the reduction or
elimination of late fees or penalties. However, for certain residential mortgage loans,
the mortgagee negotiator must follow government guidelines for loan modifications.
Not later than 30 calendar days after the borrower submits the documents that
are needed to determine the borrower's gross income, the mortgagee negotiator must
notify the borrower as to whether the borrower is eligible for modifications to the
residential mortgage loan. If the borrower is not eligible, the notice must include a
statement explaining the eligibility criteria and why the borrower has not met these
criteria. If the borrower is eligible, the notice must include two copies of the mortgage
modification agreement proposed by the mortgagee negotiator along with a notice
telling the borrower to sign a copy of the proposal and return it to the mortgagee
negotiator within ten working days after receipt of the proposal. If the borrower is
eligible, but the mortgagee negotiator determines that it is not possible to lower the
borrower's housing-related debt to less than 38 percent of the borrower's gross
income, the mortgagee negotiator shall inform the borrower of how that
determination was made. Regardless of whether the borrower is eligible, the notice
must include a copy of any calculations used by the mortgagee negotiator to
determine the borrower's eligibility. The notice must also include, if requested by the
borrower, a copy of the program, process, or guidelines the mortgagee negotiator used
to determine which loan modification to offer the borrower or that none of the
available modifications lower the borrower's housing-related debt to less than 38
percent of the borrower's gross income. If the borrower is eligible, the borrower must,
to accept the proposal, mail his or her signed acceptance of the proposed mortgage
modification agreement to the mortgagee negotiator within ten working days of
receiving it.
A mortgagee may only foreclose on a residential property if: 1) the mortgage
has been properly recorded; 2) the borrower has defaulted on a condition of the
mortgage that gives the mortgagee the right to foreclose; 3) there is a record chain
of title for the mortgage, if the mortgagee is not the original mortgagee; and 4) the
mortgagee has satisfied the requirements specified above, unless the mortgagee and
borrower agreed within the previous three years to a loan modification and the
mortgagee but not the borrower complied with the terms of the modification
agreement.
If the mortgagee negotiator determines that the borrower is not eligible for a
modification to the residential mortgage loan, or that none of the available
modifications reduce the borrower's housing-related debt to less than 38 percent of
gross income, the mortgagee must wait at least 20 working days after mailing the
ineligibility notice before commencing an action to foreclose on the mortgage. If the
mortgagee negotiator determines that the borrower is eligible for a loan
modification, the mortgagee may only commence the action if the mortgagee
negotiator in good faith offered the borrower a mortgage modification agreement and
the borrower failed to timely accept it.
A court must dismiss the foreclosure action of a mortgagee that has failed to
comply with the requirements of the bill. The bill applies only to foreclosure actions
commenced on or after the bill's effective date and before December 31, 2014, or
involving default-foreclosure notices provided before December 31, 2014.
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:
AB137, s. 1
1Section
1. 846.015 of the statutes is created to read:
AB137,3,3
2846.015 Mortgage foreclosure procedures for residential property. (1)
3 In this section:
AB137,4,3
1(a) "Borrower" means the owner of residential property who gives a mortgage
2on the residential property to the mortgagee to provide security for repayment of a
3residential mortgage loan made to the owner of the residential property.
AB137,4,54
(b) "Condominium assessments" means regular and special assessments for
5common expenses and charges owed by a condominium owner.
AB137,4,86
(c) "Housing-related debt" means mortgage loan principal and interest
7payments, property taxes, property insurance premiums, and condominium
8assessments.
AB137,4,109
(d) "Mortgagee" means a person who receives a mortgage to secure payment of
10a residential mortgage loan.
AB137,4,1311
(e) "Mortgagee negotiator" means a mortgagee or mortgage servicer who has
12the authority to enter into negotiations regarding modifications to a residential
13mortgage loan.
AB137,4,1414
(f) "Mortgage servicer" means the servicing agent of a mortgagee.
AB137,4,1515
(g) "Rate ceiling" means the lesser of the following:
AB137,4,1716
1. The fully indexed and fully amortizing interest rate applicable to the
17borrower's residential mortgage loan before any modification to the loan is made.
AB137,4,2118
2. The Federal Home Loan Mortgage Corporation's primary mortgage market
19survey rate for 30-year fixed-rate conforming mortgage loans, rounded to the
20nearest 0.125 percent, determined as of the date of preparation of a loan modification
21document.
AB137,4,2322
(h) "Residential mortgage loan" means a loan that is secured by a first lien real
23estate mortgage, or equivalent security interest, in a residential property.
AB137,5,224
(i) "Residential property" means real property on which a one-family to
254-family dwelling is constructed or intended to be constructed, including individual
1condominium units, that the borrower uses, or intends to use, as his or her principal
2place of residence.
AB137,5,4
3(2) A mortgagee or mortgage servicer may foreclose on a residential property
4only if all of the following apply:
AB137,5,55
(a) The residential mortgage loan has been properly recorded.
AB137,5,86
(b) The borrower has defaulted on a condition of the residential mortgage loan
7that gives the mortgagee or mortgage servicer the right to foreclose on the residential
8mortgage loan.
AB137,5,129
(c) If the mortgagee or mortgage servicer is not the original mortgagee or
10mortgage servicer, a record chain of title exists evidencing the assignment or transfer
11of the mortgage to the mortgagee or mortgage servicer foreclosing on the residential
12mortgage loan.
AB137,5,1413
(d) Except as provided in sub. (3), the mortgagee or mortgage servicer complies
14with subs. (4) to (9).
AB137,5,20
15(3) If the mortgagee or mortgage servicer and borrower have agreed to modify
16the residential mortgage loan within the previous 3 years and the mortgagee or
17mortgage servicer has complied with the terms of the agreement, but the borrower
18has not complied with the terms of the agreement, the mortgagee or mortgage
19servicer may commence an action to foreclose on the residential mortgage loan
20without complying with subs. (4) to (9).
AB137,5,24
21(4) Before commencing an action to foreclose on a residential mortgage loan,
22a mortgagee or mortgage servicer shall provide to the borrower at his or her
23last-known address by certified mail a written notice that contains all of the
24following information:
AB137,6,3
1(a) That the residential mortgage loan is in default and a mortgage foreclosure
2action may be commenced, the reason that the residential mortgage loan is in
3default, and the action required of the borrower to cure the default.
AB137,6,44
(b) The name, address, and telephone number of the mortgagee negotiator.
AB137,6,85
(c) The names and addresses of adjustment service companies licensed under
6s. 218.02, and of independent nonprofit organizations approved by the federal
7department of housing and urban development, that offer credit counseling services
8to homeowners.
AB137,6,119
(d) That the borrower may request modifications to the residential mortgage
10loan by sending the request to the mortgagee negotiator by 1st class mail within 10
11working days after receiving the written notice.
AB137,6,1412
(e) A description of the calculations that will be used to determine if the
13borrower is eligible for a modification and of the criteria used to determine that
14eligibility.
AB137,6,1815
(f) A list of the documents that the borrower needs to provide to the mortgagee
16negotiator that are reasonably necessary for the mortgagee negotiator to determine
17the monthly gross income of the borrower in order to make the calculations described
18in par. (e).
AB137,6,2119
(g) That within 20 working days after receiving the written notice the borrower
20is required to provide the documents described in par. (f) and, if the borrower is
21unable to provide some or all of the documents, a statement as to why.
AB137,7,222
(h) That, if the borrower requests modifications to the residential mortgage
23loan within 10 working days after receiving the written notice and provides the
24materials described in par. (g) within 20 working days after receiving the written
25notice, the borrower may meet with the mortgagee negotiator to discuss
1modifications in the residential mortgage loan accompanied by an attorney or an
2employee or member of a company or organization specified in par. (c), or both.
AB137,7,63
(i) That, if the borrower does not request the modifications within 10 working
4days after receiving the written notice or submit the materials described in par. (g)
5within 20 working days after receiving the written notice, the mortgage foreclosure
6action may proceed.
AB137,7,97
(j) That, if the parties reach an agreement to modify the residential mortgage
8loan, the mortgage may not be foreclosed if the borrower complies with the terms of
9the modification agreement.
AB137,7,1210
(k) That the process outlined in the written notice does not prohibit the
11borrower and mortgagee negotiator from agreeing to some other method of resolving
12the residential mortgage loan default.
AB137,7,19
13(5) (a) A borrower may request modifications to the residential mortgage loan
14by sending the request to the mortgagee negotiator by 1st class mail within 10
15working days after receipt of the notice under sub. (4). The borrower may contact an
16adjustment service company licensed under s. 218.02, or an independent nonprofit
17organization approved by the federal department of housing and urban
18development, that offers credit counseling services to homeowners to assist him or
19her in making this request and in negotiating with the mortgagee negotiator.
AB137,7,2220
(b) Within 10 working days after receipt of the borrower's request for
21modifications to the residential mortgage loan, the mortgagee negotiator shall notify
22the borrower that the request for modifications has been received.
AB137,8,223
(c) A borrower shall, within 20 working days after receipt of the notice under
24sub. (4), provide the mortgagee negotiator with the documents listed in the notice as
1provided under sub. (4) (f) and, if the borrower is unable to provide some or all of the
2documents, a statement as to why.
AB137,8,53
(d) Within 10 working days after receipt of the materials required to be
4provided under par. (c), the mortgagee negotiator shall notify the borrower that the
5materials have been received.
AB137,8,76
(e) The mortgagee or mortgage servicer may proceed with the foreclosure action
7if either of the following occurs:
AB137,8,98
1. The borrower does not submit a request for modifications within 10 working
9days after receipt of the notice under sub. (4).
AB137,8,1110
2. The borrower does not provide the materials required under par. (c) within
1120 working days after receipt of the notice under sub. (4).
AB137,8,22
12(6) If the borrower makes a timely request for modifications under sub. (5) (a),
13and timely provides the mortgagee negotiator with the materials required under sub.
14(5) (c), the borrower and mortgagee negotiator shall meet either in person or by
15telephone or other communication method agreed upon by both parties to negotiate
16modifications to the residential mortgage loan. Both parties shall negotiate in good
17faith. The borrower may have a member of an adjustment service company licensed
18under s. 218.02, or of an independent nonprofit organization approved by the federal
19department of housing and urban development, that offers credit counseling services
20to homeowners assist the borrower at the meeting. Either party may be assisted by
21an attorney. Any meeting held in person shall be held at a time and place that is
22convenient to both parties in the county where the residential property is located.
AB137,9,4
23(7) (a) Based on the available information, the mortgagee negotiator shall
24determine if the borrower is eligible for modification of the residential mortgage loan.
25The borrower is eligible for a modification if his or her current housing-related debt
1is 38 percent or more of the borrower's gross income. If the borrower is eligible, the
2mortgagee negotiator shall offer one or more of the following modifications to the
3residential mortgage loan to lower the borrower's housing-related debt to less than
438 percent of the borrower's gross income:
AB137,9,105
1. An interest rate reduction, subject to a floor of 3 percent, for a fixed period
6of at least 5 years. A loan modification under this paragraph may allow the
7mortgagee or mortgage servicer to increase the interest rate after the fixed period of
8the interest rate reduction expires, but the mortgagee or mortgage servicer may not
9increase the interest rate by more than 1 percent per year and may not increase the
10interest rate to more than the rate ceiling.