New law helps struggling homeowners
September 28, 2013
LAS VEGAS — Five years after the economic collapse began, Nevada's still on the injured list.
Thirty-nine percent of Nevada homes were underwater, almost one in 10 borrowers were 90 days behind on their payments or more, and an estimated 50,000 homes and condos in the Las Vegas area were thought to be vacant at the end of June — enough for the state Department of Business and Industry to give the market a D+ earlier this month on its housing stability index.
While trouble is still ahead for many homeowners, new laws taking effect Oct. 1 aim to ease the pain for those facing foreclosure and nudge along those who have been delaying the inevitable.
"There are people that are just too far in over their heads. They should've never been in the home they're in, and those are the people, unfortunately, that are going to have to face the foreclosure process," Assemblyman James Healey, D-Las Vegas, said at a recent panel discussion hosted by the southern Nevada chapter of the National Association of Hispanic Real Estate Professionals. "But there are many other families that don't need to go."
A new Homeowner's Bill of Rights, SB 321, aims to eliminate the runaround some homeowners got from banks by requiring lenders to assign homeowners a single person to contact. It bans dual-tracking, in which a bank pursues a foreclosure at the same time a homeowner is working on a short sale. And it eliminates "arm's length" rules, in which banks barred people from buying distressed properties from their relatives or other close associates.
The bill of rights also requires banks to provide 30 days' warning before filing the first notice that a loan is in default, and lenders must make several attempts to reach the homeowner by phone and mail to let them know about foreclosure alternative programs before filing.
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That's just the first layer of the safety net.
A separate bill taking effect Oct. 1, AB 273, will automatically enroll a borrower in the state's Foreclosure Mediation Program if they end up receiving an initial notice of default. The program, which has been optional, brings banks and homeowners together to discuss alternatives to foreclosure.
"The fact that they're automatically enrolled — it's one less step that the homeowner has to do," said Verise Campbell, deputy director of the Foreclosure Mediation Program, in an interview with KSNV-TV. "If we can get people past taking that first step, then normally they're on a pathway to where they can deal with this."
In turn, the homeowner is held to certain deadlines, and needs to be opening their mail. If a borrower is offered a foreclosure alternative, they must accept it or reject it within 14 days, and a bank can foreclose if a homeowner doesn't respond or doesn't pay the $200 fee to enter mediation.
The measures are far from state lawmakers' first attempt to pad homeowners against the blows of Nevada's housing market, which claimed the nation's top foreclosure rate for five straight years and returned to the top once again in August.
Legislators launched a mediation program in 2009 that's worked with about 18,000 borrowers since its inception, according to Michael Sommermeyer, the program's quality assurance manager. About 15 percent of borrowers facing foreclosure are taking advantage of the program, although the automatic enrollment law could raise that number significantly.
Homeowners are able to work out an agreement with their banks in about 50 percent of mediation cases, Sommermeyer said, and give up the home in the other half.
In 2011, lawmakers passed AB 284, which aimed to prevent indiscriminate foreclosures — "robo-signing" — by requiring lenders to prove they owned the loan and had personal knowledge of its ownership history before they could foreclose.
Earlier this year, legislators went through months of negotiations to tweak AB 284, which many blamed for tying the hands of banks seeking to foreclose.
Critics say it set an impossibly high standard of documentation for certain mortgages, which passed from company to company in bundles during the housing heyday.
Without the threat of foreclosure, some homeowners continue to live in their houses without paying their mortgages, preventing the properties from returning to a market that's hungry for the inventory.
"We wanted to make sure we didn't repeat the mistakes of the past … so someone couldn't use the bill, use the processes that are set out, in order to stay in their homes for years to come," said Sen. Justin Jones, D-Las Vegas, who sponsored the bill of rights. "We feel this was a great balance to protect the homeowner but also to ensure that those homeowners that really can't afford their mortgage, and perhaps should be in a rental, move along."
So will the market see big changes come Oct. 1?
Foreclosure starts are expected to drop sharply and remain low for several months as banks adjust to new provisions that require more advance notification to borrowers.
"The reality is, change takes time," said Bill Uffelman of the Nevada Bankers' Association. "I have to rewrite my playbook."
The law's impact will be somewhat muted because about 60 percent of homeowners already enjoy protections offered by the Homeowner's Bill of Rights. Their lenders were among the five banks involved in last year's national, $25 billion mortgage settlement, on which the bill's protections are modeled.
The bill also exempts small lenders who processed 100 or fewer foreclosures in the past year.
Bankers see some potential pitfalls, including the provision calling for a single point of contact. While it's meant to keep cases with the professionals who know them, slowdowns could arise if a case worker is sick, on vacation, or overwhelmed with other cases, Uffelman said.
Jones, the bill author, acknowledges the law is not going to help everybody. But he believes it could help end an era of a painful, bewildering foreclosure process like the one he witnessed in his own grandparents' lives.
"We're hopeful we will see changes," he said.