According to the loan modification lawyers at Progressive Legal Group, the U.S. has come a long way since the housing crisis of 2007-2009, but predatory lending practices continue to plague homeowners. Fortunately, new bills in Colorado reveal how legislation can effectively prevent unfair ethics.
The Denver Post reports that in April, Colorado legislators passed House Bills 1295 and 1130, which will protect homeowners from paying more than necessary to save their home, while expanding their ability to negotiate for a loan modification. Thanks to the bills’ sponsors, Rep. Beth McCann, D-Denver and Sen. Jessie Ulibarri, D-Westminster, homeowners are protected from “dual tracking” – an unethical lending strategy where the lender pursues foreclosure even as they negotiate with the borrower.
HB 1295 specifically prevents foreclosure from proceeding while homeowners are negotiating a loan modification. Previously, homeowners might have fought separately with foreclosure lawyers and the lenders who hired them, forcing them to put up a defense on two separate fronts. County public trustees now have the power to stop the foreclosure process while the modification is in process.
“A family should not lose their home when the borrower believes she is fulfilling all requirements for a loan modification. We believe negotiations between mortgage lenders and borrowers should be conducted in good faith,” McCann stated.
The second bill, HB 1130, protects homeowners from overpaying to stop foreclosure. In many cases, desperate borrowers would be asked to pay an excess of money in order to save their home from foreclosure lawsuits –called Rule 120 – that did not exist. Rule 120 is a hearing called by a judge who authorizes a foreclosed home to be auctioned off. But investigations by the Denver Post found many cases where homeowners were asked to pay for Rule 120 even though the case had never been filed in court.
To prevent these unfair practices, HB 1130 requires a final bill – or cure statement – to be filed with a public trustee. This certifies the legitimacy of the charges before payment can be made. Overpayments are returned to the homeowners rather than going into the pockets of lenders and lawyers.
Representatives at Progressive Legal Group, a coalition of loan modification and foreclosure attorneys, are strong advocates of the new laws and their promise of addressing foreclosure issues. “Home owners should be offered all the help they can get to help keep their home,” one Progressive Legal representative said. “Since the economic downturn, there’s been a major spike in foreclosures, and not only is it not good for the people involved, it’s not good for society as a whole.”
The bills will have profound benefits for borrowers, the rep added. “For one thing, they help to rein in the power of the banks. Previously, banks were able to negotiate with a homeowner while simultaneously enacting foreclosure proceedings. This allowed them to appear as if they were acting in good faith, when in reality they were already done with a borrower. It also forces banks to appoint a single person to act as the contact to a borrower who is dealing with foreclosure matters. No more wasting consumers’ time and forcing them to play phone tag with multiple people while precious days slip away.”
These changes come at a time when many speculate that foreclosures are on a downswing and are a shrinking problem. The statistics might look that way, but there’s more to the story. According to a Forbes report, there have been four million homes foreclosed since 2007. The crisis resulted in many lenders delaying their foreclosure processing, which created an artificial decrease. In 2011, there was a 24 percent decrease from 2010, with 830,000 homes foreclosed on. But by the time 2013 rolled around, delayed filing picked up in activity, resulting in a so-called second wave of foreclosures.
“The average time for a mortgaged home to transition from default to bank repossession in each of these three states has been over two years. Now those backlogged filings are pushing through the system at robust rates — in a wave of activity, if you will,” notes Morgan Brennan of Forbes.
According to Progressive Legal Group representatives, we’re still in a state of recovery from the housing crisis, but these new laws are a vital step in the right direction. Progressive Legal Group’s mission is to help people save their homes without taking drastic actions.
The predatory practices of banks and lenders have long been scrutinized by regulators and legal advocates since the bursting of the $8 trillion housing bubble. Indeed, the Federal Reserve and the OCC settled lawsuits worth $9.3 billion with 13 banks in 2013. These settlements ended probes into their unethical seizing of homes.
Just five years ago, it was common to see once-bustling residential neighborhoods dotted with “Bank Owned” signs and overgrown yards. While the mortgage crisis is still in a state of recovery, it’s clear that we’ve come a long way. Today’s mortgage environment is much kinder to borrowers thanks to the dedication of legislators and legal advocates like Progressive Legal Group.
Carly Fiske contributed to this article.