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INDIANAPOLIS – Indiana lawmakers took time during the recent legislative session to tackle the continuing problem of home foreclosures – by, for instance, limiting unfair practices and requiring settlement conferences for Hoosiers facing the loss of their homes.
“I hope we are getting close to being ahead of the problems,” said Sen. Dennis Kruse, R-Auburn, a sponsor on one related bill. “There are a lot of adjustments being made in the marketplace, and I think we are on track to reform the system and make it better.”
Foreclosures continue to plague the housing sector nationally and across the Hoosier State. The most recent state statistics show foreclosures rose 17 percent in Indiana in March.
The most significant piece of foreclosure-related legislation that passed in April – and was signed into law by Gov. Mitch Daniels last week – was Senate Bill 492.
Its most important provision is a two-part notification process aimed at heading off foreclosures.
First, a creditor considering filing foreclosure proceedings must send a notice to the borrower at least 30 days in advance, encouraging the debtor to work with a mortgage foreclosure counselor. The notice also must include contact information for the Indiana Foreclosure Prevention Network.
Tom Dinwiddie, who represented the Indiana Mortgage Bankers Association during the legislative process, said many creditors are already taking this step voluntarily.
But he said the Indiana Housing and Community Development Authority will help the process by putting together a uniform notice that isn’t full of legal jargon.
“The goal is to get people to take advantage of the counseling process,” Dinwiddie said.
If it doesn’t work, a second notification will follow when the creditor files a foreclosure lawsuit. This notice must inform the debtor that he or she may schedule a settlement conference by notifying the court within 30 days.
“Indiana’s high rate of foreclosures has adversely affected property values, and we risk letting home values drop even lower as the foreclosure crisis continues,” said Sen. Karen Tallian, D-Portage, the author of the bill. “It is in the public’s best interest for the state to encourage homeowners and lenders to work out foreclosure alternatives.”
She noted that these face-to-face meetings have been successful in other states at helping homeowners understand that lenders are willing to work with them.
Dinwiddie said the process is most successful when the borrower takes the initiative to set up the meeting.
And he said a new $50 fee for filing foreclosures will help pay for counseling sessions.
Dinwiddie said out-of-state lenders can also participate in the meetings by phone so long as they are represented by a lawyer in person. And the law requires the borrower to provide some financial information in advance to help reach a settlement.
“If a borrower has a job, there is a very good chance we believe it’s likely that something can be worked out,” he said.
“This is a bill we are actually proud of working on. Lenders are interested in avoiding foreclosures and this, we hope, adds another opportunity to do that.”
John Niederman, president of Pathfinder Services in Huntington, also is excited about the new law. His organization provides foreclosure counseling, and he noted with frustration how hard it is to get a lender to meet sometimes.
“Often we can’t get the two people connected for a workout or loss mitigation meeting,” he said. “There are a whole host of missed opportunities for a settlement to actually happen, so this is a win-win for both parties.”
Pathfinder has helped about 70 families in recent months deal with foreclosure proceedings. But he encouraged people not to wait until the foreclosure notice comes.
“Early in the process is when we can best help,” Niederman said.
House Bill 1176 – also signed by the governor – cracks down on adjustable-rate mortgages. It doesn’t ban them but prohibits loans closed after June 30 from charging a prepayment fee or penalty. This means homeowners can refinance with no penalty if the terms are better in the future.
Kruse said a constituent contacted him about her experience, in which she still owed about $70,000 on a $170,000 mortgage and decided to refinance at a fixed rate.
She arrived at the closing to find she owed her original lender $6,000 in prepayment penalties and walked away from the deal.
“That $6,000 was pure profit. The bank didn’t do anything for it and didn’t work for it,” Kruse said. “In this culture, why are banks doing that when they get their full principal paid?”
