On Thursday, before a packed chamber, the state Senate Banking and Financial Institutions Committee reported Senate Bills 380-383, sponsored by Sens. Darwin Booher, R-Evart; Randy Richardville, R-Monroe; Jim Marleau, R-Lake Orion, and Mike Nofs, R-Battle Creek. As a package, the legislation would extend the state’s 90-day pre-foreclosure workout period through Jan. 9, 2014, to cover the gap between the current sunset and the pending effective date of the CFPB’s rules on mortgage servicing, which will then replace the state law system.
The current state law would cease to be effective as of that date, and the actual language would fall off the books by June 30, 2014. For purposes of borrower contact and loss mitigation only under the federal rules, the state law would disable the federal exception for “small servicers” so that all institutions would follow the same processes for distressed borrowers leading into foreclosure. In return, however, the package then reduces the post-foreclosure redemption period by 120 days, or 60 days in the event that a borrower has actively engaged with the lender in attempts at loss mitigation and has sought sale or short sale of the property prior to the expiration of the front-end 120 pre-foreclosure period required by the federal rules.
The legislation was vigorously contested by consumer groups and activists defending the length of the current redemption period, as well as by Realtors. However, as both banks and credit unions pointed out, with the new federal rules, the process itself would not be drastically shortened but the emphasis on productive efforts with the borrower would be shifted to pre-foreclosure negotiations. It was also pointed out that very few borrowers take advantage of the current 90-day law, and it is extremely rare to see a redemption.
The Senate is expected to act quickly, and send the legislation to the House for consideration prior to the legislature breaking for the summer work period in mid-June, although further amendments are likely. However, the legislation is expected to be presented to the governor in time to beat the June 30, 2013 sunset date for the current 90-day workout law.