Loan Modification Legislation Skirted in Washington – For Now

By Holly Chisa, Tower Ltd.

The Washington State Legislature adjourned on April 12, one month later than originally planned, and with a few, last minute bills introduced to attempt to modify the foreclosure process.

Throughout the session we were successful in heading off bills that would have significantly impacted foreclosure in Washington. Most concerning was SB 6648, which would have required mandatory mediation at least 30 days before filing the final note of sale. This bill died in the Senate Ways and Means Committee, after passing the Senate Commerce and Labor Committee. Other legislation proposed during the regular session would have required a foreclosure be put into abatement if a homeowner was on Unemployment Insurance, forestalling the foreclosure process.

Due to an inability to reach agreement on a budget, the Washington Legislature had to move into a special session – an additional 30 days at the end of the traditional 60 day session – to try and figure out how to close a $2.6 billion budget shortfall. During a special session, lawmakers can introduce legislation on any issue, and those bills can move through the process if supported. During the special session two bills on foreclosure were introduced. HB 3214 created the option of a shared appreciation loan for borrowers and beneficiaries. 30 days prior to filing the notice of sale, the beneficiary was required to inform the homeowner of the option to modify their loan to a shared appreciation loan. The loan would then be modified to 1) lower the value of the mortgage to the current market value of the home; and 2) allow the homeowner and the beneficiary to split the future appreciation of the home’s value up to 50%.

HB 3215 required a mandatory loan modification to be offered 30 days prior to the filing of the notice of sale. It required the beneficiary to perform a good faith review of a borrower’s financial standing, and if a loan modification could be offered, the beneficiary would be required to do so. The trustee would not be allowed to record a notice of sale until 30 days after the date that a homeowner waived his right to a loan modification.

While both of these bills failed to move forward, advocates continue to work to force mandatory loan modification. This summer Initiative 1104 has been proposed. This initiative would require a mandatory loan modification of either a lowering of the mortgage value to the current market price on the home, or a reduction of 2% of the mortgage interest rate. The initiative would apply to first or second homes, property used for agriculture, or low-income housing. If the initiative passes, it would be retroactive, and affect any property actively moving through the foreclosure process on the effective date of the law.

Advocates in Washington continue to push for mandatory arbitration, mediation, and loan modifications. With a half a dozen bills proposed during the legislative session and a possible initiative this summer, it’s clear they will continue to push to radically change the foreclosure process.