SB255: Bill Text

LRB-0962/1

RPN:wlj:md

2009 - 2010 LEGISLATURE

2009 Senate BILL 255

August 11, 2009 - Introduced by Senators Taylor, Lassa, Wirch, Lehman and Holperin, cosponsored by Representatives Young, Grigsby, Berceau, Roys, Clark, Turner, A. Williams, Zepnick, Richards and Kessler. Referred to Committee on Judiciary, Corrections, Insurance, Campaign Finance Reform, and Housing.

SB255,1,3 An Act to amend 904.085 (2) (a); and to create 846.03 of the statutes; relating to: notification of default and mediation regarding residential real property subject to foreclosure and granting rule-making authority.

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 owes a first or second mortgage loan on a residential property to seek mediation when the borrower is in default on the loan and the mortgagee is beginning a mortgage foreclosure action. Under the bill, if the borrower has failed to make two consecutive mortgage loan payments, the mortgagee must send the borrower a notice when commencing a foreclosure action. The notice must inform the borrower of the default and what must be done to cure the default, state that the mortgagee intends to start a foreclosure action, and provide the names and addresses of credit counseling services available to homeowners.

Under the bill, when a mortgagee starts a foreclosure action, the mortgagee must inform the borrower of the right to request mediation by submitting a request to the director of state courts (director). If mediation is requested, the foreclosure action is stayed until mediation is completed. When the borrower requests mediation, the bill requires the director to refer the borrower to a financial analyst for advice regarding the mortgage foreclosure and to provide the mortgagee and borrower with names of persons who are available to provide mediation services. The bill requires the director to create a list of persons who have knowledge of financial matters to serve as mediators, create a separate list of persons to serve as financial analysts, and provide those persons with training related to their duties under the bill.

The bill requires the director to notify the parties of the time and place of the mediation session. The mediator may not compel a settlement between the parties, but must attempt to achieve a resolution of the issues involved in the mediation. The bill requires the parties to engage in the mediation in good faith, which includes attending the mediation sessions, providing full information to the mediator and other party, and considering debt restructuring alternatives as a method of resolving the default. The cost of the mediator may be added to the mortgage loan payments required by the borrower.

Under the bill, if the mediator determines that the borrower or mortgagee has not mediated in good faith, the mediator provides that information to the court. If the mortgagee has not mediated in good faith, the court may supervise the mediation directly, prohibit the mortgagee from continuing an action to foreclose on the residential property for 180 days, or order the mortgagee to pay the borrower's court costs, including attorney fees. If the borrower has not mediated in good faith, the mortgagee may proceed immediately to foreclose on the residential property.

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:

SB255, s. 1 Section 1. 846.03 of the statutes is created to read:

SB255,2,3 846.03 Notification and mediation before foreclosure of residential real property. (1) In this section:

SB255,2,6 (a) "Borrower" means the person who gives to the mortgagee a first or 2nd mortgage on the residential real property owned by the person, to provide security for repayment of the first or 2nd mortgage loan provided to the borrower.

SB255,2,7 (b) "Director" means the director of state courts.

SB255,3,2 (c) "First mortgage loan" means a loan on residential real property that is secured by a first lien real estate mortgage.

SB255,3,5 (d) "Mortgagee" means a person who receives a first or 2nd mortgage on residential real property to secure payment of a first or 2nd mortgage loan made to the owner of the residential real property.

SB255,3,9 (e) "Residential real property" means real property on which a one-family to 4-family dwelling is constructed or intended to be constructed in this state and that the owner of the real property uses, or intends to use, as his or her principal place of residence.

SB255,3,14 (f) "Second mortgage loan" means a loan on residential real property, including the renewal or refinancing of an existing 2nd mortgage loan, that is secured by a real estate mortgage, is subordinate to a first mortgage loan, includes a penalty for prepayment of the loan, and has a payment schedule that causes the principal balance to not decrease or to increase.

SB255,3,22 (2) Notice of default required. (a) If a borrower has failed to make full scheduled payments on a first or 2nd mortgage loan for 2 consecutive payment periods and the failure to make these payments renders the borrower in default under the terms of the first or 2nd mortgage loan, a mortgagee holding or servicing the first or 2nd mortgage loan shall, before commencing an action to foreclose on the first or 2nd mortgage loan, provide the borrower with a notice no later than 45 days after the due date for the 2nd payment period and shall make a good faith effort to speak to the borrower and inform him or her of the contents of the notice.

SB255,3,24 (b) The notice required under par. (a) shall inform the borrower of all of the following:

SB255,4,4 1. Any action or procedure required of the borrower to cure the default on the first or 2nd mortgage loan, including any amount that must be paid to cure the default and to bring the borrower current on the first or 2nd mortgage loan, and any date by which the action or procedure must be taken.

SB255,4,6 2. The names and addresses of adjustment service companies licensed under s. 218.02 that offer credit counseling services to homeowners.

SB255,4,8 3. The legal description and the postal address of the residential real property that is the subject of the first or 2nd mortgage loan.

SB255,4,10 4. That the mortgagee intends to bring an action to obtain a court judgment of foreclosure on the first or 2nd mortgage loan.

SB255,4,15 (c) If a mortgagee commences an action to foreclose on the first or 2nd mortgage loan without meeting the requirements under this subsection, the court in which the action is commenced shall, on its own motion or on the motion of a party, dismiss the action and may charge the mortgagee with costs, including the borrower's attorney fees.

SB255,4,23 (3) Commencement of mortgage foreclosure and mediation notice. (a) When the mortgagee commences an action to foreclose on a first or 2nd mortgage loan, the mortgagee shall provide the borrower with a notice regarding the right to mediation and a mediation request form. The mediation request form shall include spaces to fill in the information necessary to identify the mortgagee, borrower, and residential real property involved and the date the form was received from the mortgagee and shall include the location where the form should be sent. The notice shall inform the borrower of all of the following:

SB255,5,4 1. That the borrower has the right to request mediation regarding the first or 2nd mortgage loan, provided that the borrower has not participated in mediation within the past 2 years, or agreed to certain loan modifications with the same mortgagee on the same residential real property within the past 3 years. The notice shall include an explanation of when the limit on mediation as the result of a loan modification applies.

SB255,5,6 2. That the right to mediation under this section regarding a first or 2nd mortgage loan applies only once.

SB255,5,9 3. That to request mediation, the borrower must submit a request for mediation to the director within 14 working days after receipt of the notice of the right to mediation.

SB255,5,12 4. That the action to foreclose the residential real property will be stayed until the mediation ends if mediation is requested within 10 days after receipt of the notice.

SB255,5,14 5. That if mediation is not requested within 10 working days, the mortgagee may immediately continue the action to foreclose on the first or 2nd mortgage loan.

SB255,5,16 6. That if mediation is requested, the director will provide financial analysis assistance to the borrower to prepare for the mediation.

SB255,5,17 7. The name, telephone number, and address of the mortgagee.

SB255,5,18 8. The address where the request for mediation must be sent.

SB255,5,21 (b) To request mediation, the borrower shall submit a completed mediation request form, or a substantially similar form, to the director within 10 working days after receipt of the right to mediation from the mortgagee.

SB255,6,8 (4) Request for mediation. (a) Within 10 working days after receipt of a notice of the right to mediation under sub. (3), the borrower may submit a request to the director for mediation. If the director receives a request for mediation, the director shall notify the parties of the request as provided in sub. (6). Within 5 working days after notifying the parties, the mortgagee may submit information to the director asserting that the borrower is not eligible for mediation under pars. (b) or (c). If the mortgagee submits the information, the director shall immediately provide the borrower with the information and allow the borrower 5 working days to submit information to the director in response to the mortgagee's assertion. The director shall determine if the borrower has the right to mediation and notify both parties of that decision within 15 working days of receipt of the mortgagee's submitted information. The director's determination is appealable to the circuit court.

SB255,6,11 (b) If the borrower has participated in mediation with the same mortgagee on the same residential real property within the past 2 years, the borrower is not eligible for mediation under this section.

SB255,6,18 (c) If the borrower has agreed to a loan modification with the same mortgagee on the same residential real property within the past 3 years, the borrower is not eligible for mediation under this section. This paragraph does not apply if the loan modification did not meet the debt-to-income guidelines established by a federal agency that insures or guarantees loans. This paragraph does not apply if the loan modification did not take into account the borrower's ratio of current assets to current liabilities at the time the loan modification was completed.

SB255,6,23 (d) If a borrower has requested mediation under this subsection and has not been found ineligible for mediation under par. (a), (b), or (c), the director shall notify the court that the borrower has requested mediation and is eligible for mediation under this section. Upon receipt of the notification, the court shall stay the foreclosure action until the mediation is completed.

SB255,7,7 (5) Mediators and financial analysis. (a) The director shall create a list of persons who have the character and ability to serve as mediators, and who have knowledge of financial or residential housing matters and of mediation processes, to act as mediators under this section. The director shall create a list of persons who have the character and ability to serve as financial analysts, and who have knowledge of financial and residential housing matters, to act as financial analysts under this section. The director shall provide each mediator with sufficient training to develop or maintain the skills necessary to perform his or her duties under this section.

SB255,7,16 (b) The mortgagee shall compensate mediators and financial analysts for travel and other necessary expenses in amounts the director approves. A mortgagee may recover the costs of compensating any mediator and financial analyst used in the mediation by adding that cost to the periodic payments made by the borrower on the first or 2nd mortgage loan. A mortgagee may not recover the costs of compensating mediators and financial analysts under this paragraph if the mortgagee does not mediate in good faith. If a mortgagee mediates in good faith but the borrower does not mediate in good faith, the borrower shall compensate any mediator and financial analyst used in the mediation.

SB255,7,18 (c) Mediators and financial analysts are immune from civil liability for any act or omission within the scope of their performance of their duties under this section.

SB255,7,24 (d) All mediators and financial analysts shall keep confidential all information and records obtained in performing their duties under this section. The director shall keep confidential all information and records that may serve to identify any party to mediation under this section. Any information required to be kept confidential under this paragraph may be disclosed if the director and the parties agree to disclosure.

SB255,8,6 (6) Mediation process. (a) Within 3 working days after receipt of a request for mediation, the director shall notify the borrower and mortgagee of receipt of the request and provide the mortgagor with the name, telephone number, and address of a financial analyst who can without charge provide the borrower with advice and written materials to help him or her prepare for the mediation. The financial analyst may meet with the borrower to prepare for the mediation.