Indiana Foreclosure Task Force Proposes More Stringent Foreclosure Requirements

 Consumer Law, Foreclosure, Indiana  Comments Off on Indiana Foreclosure Task Force Proposes More Stringent Foreclosure Requirements
Jan 042011

A foreclosure-prevention task force established by the Indiana Supreme Court has developed a list of guidelines to provide assurances to lenders, servicers, courts and borrowers that state and federal laws are being followed for the protection of homeowners. If adopted by the Indiana Supreme Court, the following protections would become mandatory for all residential foreclosures in Indiana:

Right to Forclose: A lot of the the national news about foreclosures has centered on whether the lender bringing the foreclosure actually has the right to foreclose. To give homeowners, courts and title companies confidence that the lender/plaintiff has the right to foreclose, mortgage lenders would be required to produce the original signed mortgage note when asked by the court (or other legal proof if the original cannot be located) and the chain of title proving that the lender has the right to enforce the note. Some courts around the state are already doing this (e.g., Judge Love in Hendricks County), but hopefully more will follow even before this proposal is adopted.

Settlement Conferences: Homeowners already have the right to a settlement conference with their lender. However, most homeowners have not taken advantage of this opportunity, generally because they did not know they had this right (most of the 1-page notices are buried in the foreclosure complaint, which homeowners rarely read), or they may have been told by their lender that they did not need a settlement conference. This proposal beefs up this right by (1) requiring the court to send a notice to the borrower of their legal right to a settlement conference with the lender; (2) prohibiting the mortgage lender from asking the borrower to waive his or her legal right to a settlement conference; and (3) prohibiting the judge from entering a judgment against the homeowner until a settlement conference report has been filed with the court.

Sanctions: Because no consumer protections work without a stick to use against recalcitrant creditors, the proposal would allow courts to impose monetary sanctions on lenders who fail to comply with these requirements. During a related pilot project in Allen and St. Joseph counties, judges there have ordered sanctions of between $150 to $2,500 for similar violations.

Loan Modifications & Loss Mitigation: The Attorney General’s office added a couple recommendations to the task force’s proposal. These additions would require the mortgage lender to show, by verified affidavit, that the lender complied with federal requirements concerning borrowers’ legal rights during foreclosure, including providing borrowers with reasons for a denial of modification or other loss mitigation. In addition, a court could not order a foreclosure if the borrower is being evaluated for a loan modification under the federal Home Affordable Modification Program (HAMP) or similar program.

Right now, these proposals are merely recommendations; individual courts may adopt them if they wish, but are not required to do so. The Indiana Supreme Court will review these proposals; if adopted by the Supreme Court, then they will become mandatory for all Indiana courts. Let’s hope that they do.