BUSINESS

Bill could strip struggling Hoosiers of rights to save homes

John Russell
john.russell@indystar.com

When Mark Keefe ran into financial trouble and missed a few mortgage payments on his Southside house in 2012, he got a letter that made him feel ill. The mortgage company was beginning foreclosure proceedings.

Keefe called the lender and pleaded for a repayment plan to save his $120,000 tract house. “I wound up getting nowhere,” he said.

Then he learned about an Indiana law that gives struggling homeowners the right to demand a settlement conference under court supervision. Keefe went through the steps, worked out a plan and was able to keep his house, making lower payments.

But now that law is up in the air, and some housing advocates are warning that those consumer protections might disappear.

A bill winding its way through the Indiana General Assembly contains language supported by the Indiana Mortgage Bankers Association that could eliminate the right of distressed homeowners to sit down with lenders and save their houses.

Housing advocates and foreclosure experts say the bill would strip away a protection that has helped more than 6,000 Hoosiers save their houses over the past five years.

The law went into effect in 2010, when the foreclosure crisis was in full swing and struggling homeowners across the state were in danger of losing their houses.

This week, Indiana Attorney General Greg Zoeller weighed in, warning that the bill was bad for consumers. He urged the General Assembly to torpedo the proposal before it went any further.

“The worst of the foreclosures may be behind us, but that’s no reason to grow complacent and take away this procedure that provides a measure of fairness for distressed homeowners in dire financial situations,” Zoeller said in a statement on Tuesday. “It is imperative that lawmakers act in the best interest of their homeowner-constituents and do the right thing to preserve this important and effective tool for homeowners.”

Twists and turns

The legislation in question, Senate Bill 415, sailed through the Senate last month on a 50-0 vote and is now before the House’s Local Government Committee.

The bill’s authors say that stripping away the right to foreclosure settlements was not their intention, and they are trying to fix any problems in the bill.

But the legislation has had a long, strange journey, with several major mistakes in recent months.

The legislation, introduced by Sen. James Merritt, R-Indianapolis, is not even primarily about mortgage settlements. It deals mostly with the tax sale process and a vacant and abandoned properties registry.

The problem cropped up with Sen. Karen Tallian, D-Portage, introduced an amendment dealing with mortgage settlements. Tallian is a longtime advocate for homeowner rights and was the main sponsor of the current law requiring mortgage lenders to hold conferences with distressed lenders.

Tallian said her amendment was meant to reconcile state law on foreclosure rights with a newer federal law, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Her amendment quickly ran onto the rocks. As originally written, it would have completely scrapped a homeowner’s right to have a settlement conference with the bank, overseen by a judge.

Housing advocates and legal experts saw the first version of the bill and began raising the alarm.

“It essentially gutted the entire law,” said Chase Haller, an attorney for the Neighborhood Christian Legal Clinic, the agency that helped Keefe save his Southside house by mediating an agreement with his mortgage lender.

Last month, Tallian acknowledged her amendment was poorly written. She blamed it on a misunderstanding with the Indiana Legislative Services Agency, a state agency that researches and drafts bills.

“We made a little error when we drafted the bill,” she told The Star last month. “Judges were saying, ‘We’ve been thrown out of the conference procedure.’ But that’s not what we intended to do.”

2 different systems

Tallian said she was simply trying to reconcile differences between the state and federal laws on mortgage settlements. State law requires banks to offer a settlement conference, under court supervision, after filing a foreclose notice, in an attempt to find a solution to let a homeowner keep his or her house.

Federal law requires big banks to contact homeowners in advance of a foreclosure, and let them know what their loan-modification options are. The banks governed under federal law can’t file for foreclosure unless the borrower is 120 days or more delinquent.

In February, Tallian rewrote her amendment to restore the court-supervised settlement conferences. But she said they wouldn’t apply to big banks that are subject to federal regulations adopted under the Dodd-Frank law.

That language was supported by the Indiana Mortgage Bankers Association, a trade group that represents hundreds of mortgage lenders around the state. They say mortgage lenders should not have to deal with two different systems. Going through two processes is expensive, time consuming and unnecessary, the association said.

“The federal system was drafted by the Consumer Financial Protection Bureau and is much more comprehensive in its requirements than the current state requirements,” Tom Dinwiddie, a lawyer for the mortgate bankers group, wrote in an email.

The Indiana Senate unanimously passed the bill on Feb. 17, with Tallian’s rewritten amendment.

Still seeking a fix

But housing advocates say the bill still removes important protections from homeowners by exempting almost all Indiana mortgage lenders from the state law.

“Basically, no one will be left,” said Judith Fox, a law professor who specializes in foreclosure law at the the University of Notre Dame. “This would effectively eliminate the program and all the protections for Indiana homeowners.”

And now the attorney general’s office is taking full aim at the amendment, calling for the General Assembly to sink it.

“Lawmakers should remove this offensive amendment from the bill and shelve the amendment permanently, and allow settlement conferences to continue,” Zoeller said in a statement.

He pointed out that even though the bill’s supporters claim the state and federal laws overlap and are unnecessarily time-consuming, the federal protections are not enough for Indiana homeowners. The federal protections occur before a house goes into foreclosure and don’t give homeowners a final opportunity to save their homes after foreclosure begins.

Zoeller has long pushed for consumer protection for homeowners. In 2010, he joined a multistate investigation of five major mortgage lenders whose “robo-signing” practices contributed to the foreclosure crisis. That investigation led to the banks agreeing to pay a $25 billion settlement, including $28.8 million to Indiana.

In response to Zoeller’s criticism, Tallian said Friday she would meet with bankers next week to take another look at the language.

Merritt, the main sponsor of the bill, said he planned to meet with Zoeller’s office. “If what we have is incorrect or wrong, we will amend it out of the bill,” Merritt said. “I’m very open to getting this right.”

And Keefe, who was able to save his house under the Indiana law, says he hopes the law will remain to help other homeowners.

“Before I got Neighborhood Christian Legal Clinic involved, I had no leverage to get the lender to the table and talk to me,” he said. “The clinic knew my rights and helped me save my house.”

Call Star reporter John Russell at (317) 444-6283 and follow him on Twitter @johnrussell99.