AN ACT CONCERNING FORECLOSURE MEDIATION.

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Banks Committee

JOINT FAVORABLE REPORT

Bill No.: HB-5270
Title: AN ACT CONCERNING FORECLOSURE MEDIATION.
Vote Date: 3/16/2010
Vote Action: Joint Favorable Substitute LCO # 2547
PH Date: 3/11/2010
File No.:

SPONSORS OF BILL:

Banks Committee

REASONS FOR BILL:

The bill makes various changes to the Mortgage Foreclosure Mediation Program [MFMP] with
its primary reason: to extend the expiration date..

It extends the sunset provision of the MFMP to June 30, 2011.

(sub. lang. LCO#2547, combines text of HB5052 and HB5410 into and with HB5270)

It enumerates lender and borrower documents necessary to engage in the mediation process;
provides for extension of the period; and requires that all parties mediate in good faith, which
codifies Judicial Branch standing orders.

It brings tenants rights in case of foreclosure into conformity with certain provisions of the
federal Protecting Tenants of Foreclosure Act (PTFA) and fixes the Cash for Keys program.

It opens up the sale of foreclosed properties to market sale, rather than simply through auction.

Finally, it appropriates three hundred thousand dollars ($300,000) to the Labor Department
from the State Banking Fund for the mortgage crisis job training program.

RESPONSE FROM ADMINISTRATION/AGENCY:

M. Jodi Rell, Governor:

Support [in part]:

This very successful program has already staved off numerous foreclosures. Late last year
Judicial Branch officials announced that the MFMP was running a settlement rate in excess of
70 percent. This is why I urge the Banks Committee pass [the sunset] extension.

Deborah J. Fuller, State of Connecticut Judicial Branch:

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Support [in part]:

All signs indicate that the mortgage foreclosure crisis is far from over and it is unlikely that a
one year extension will be sufficient. While it may be difficult to identify funding for this
program, it makes a valuable contribution of stabilizing the state's real estate market and
should at least continue for another two years.

The bill puts in statute the Uniform Foreclosure Mediation Standing Orders that the Judicial
Branch recently adopted. While the substantive portions of these orders should be codified
(which would obviate the current situation when the first, and sometimes more than the first,
session of a mediation is spent coordinating the exchange of financial documents), we oppose
codifying those that are purely procedural because that would diminish our flexibility to amend
procedures. Specifically we recommend removal of the prescription for handling either party's
un-readiness to mediate since it is procedural and should be covered by a standing order
rather than a statute.

MFMP currently only applies to older foreclosure actions and should be extended to those with
return dates after July 1, 2009 as well.

Richard Blumenthal, Attorney General:

Support:

Regrettably there has been no sign of significant easing of the foreclosure crisis. This bill is
needed to extend MFMP.

Furthermore the bill offers protection to tenants through enacting provisions of PTFA., which
will prevent fast-track evictions that not only harm tenants, but turn vacant properties into
eyesores and crime havens. The bill sets the amount of money a landlord may offer a tenant,
in exchange for vacating a rental unit early, to be the greater of the security deposit plus
interest, two month's rent, or $2000.

NATURE AND SOURCES OF SUPPORT:

Raphael Podolsky, Legal Assistance Resource Center of Connecticut, Inc.:

This bill addresses the “donut hole” in cash-for-keys” - tenants with a receipt for a security
deposit of less than $1000 are subject to a lower minimum than a tenant with no security
deposit at all. Adoption of this bill would ensure that the minimum cash for keys for all tenants
would be $2000.

This bill adopts provisions that would increase from 30 days (with an oral lease) or 60 days
(with a written lease) to at least 90 days after the foreclosure takes effect, or the end of the
lease, before an order to vacate could take effect.

This bill codifies and expands on the existing Judicial Uniform Foreclosure Mediation standing
orders primarily by spelling out the documentation the lender must bring to mediation,
indicating what is meant by good faith effort and illustrating sanctions for failure to mediate in
good faith.

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Amy Eppler-Epstein, New Haven Legal Assistance Association:

By codifying the tenant protections afforded in the federal PTFA law, these protections will
remain the requirement in Connecticut whether or not the federal law is extended in 2012. It
also allows tenants to live out their lease and expectation of occupancy.

Jerome N. Frank Legal Service Organization, Yale Law School:

There are strong public policy reasons for keeping tenants in foreclosed properties: forced
relocation imposes substantial monetary and emotional costs on tenants. Finding new housing
on short notice is often difficult, stressful and time-consuming, thus imposing a hefty cost on a
vulnerable population. Moreover, by emptying the property, the foreclosing lender subjects it to
risk of substantial devaluation from vandalism, looting and crime, contributing to blight and
destabilizing neighborhoods

Yvonne Pabon, resident of Manchester, CT

Despite a timely request for a loan modification, we were served with foreclosure papers,
initially denied because the bank had incorrect information about the date of our request and
then charged late fees and default fees for each month that the modification was not
concluded, even though we continued to pay at the original interest rate. We've participating in
good faith—servicers should too. There should be consequences when servicers abuse
mediation. Homeowners need help in mediation and help to save our homes.

Jeff Gentes, CT Fair Housing Center

Lengthy mediation sessions caused by mortgage servicer disorganization and delay pose a
challenge. Judicial Branch standing orders are not enough – foreclosures are more profitable
for mortgagees than mediations and they will act accordingly unless they have a counter
incentive: codification of the standing orders.

Connecticut Bankers Association [in part]:

The CBA supports MFMP extension for one year but do not support a provision to make it a
permanent part of Connecticut law.

Furthermore, there are several provisions in this bill which we view as counterproductive,
burdensome and/or unnecessary: 1] The lender would be required in all cases to bring a wide
range of documentation to the first mediation session. In most mediations, the issues
addressed by these documents are not in dispute.

2] The bill aims to codify certain tenant protection provisions currently imposed by federal law
and not the law in its entirety. We would recommend incorporation of the federal law by
reference, including the important sunset provisions.

Eugene A. Marconi, General Counsel, Connecticut Association of Realtors

The Association supports extension of MFMP and supports the portions of the bill which
provides protection for tenants who have rented a property subject to a foreclosure since
tenants and their agents have little or no means of determining a landlord's financial position.

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We are supportive of a new section of the bill: a foreclosure by market sale. The current
foreclosure by auction does not produce market value sales as it severely restricts the
universe of buyers qualified to participate through high cash deposits that are subject to
forfeiture, extremely limited inspection periods (typically an hour or two before the auction) and
refusal to allow usual and customary contingencies for home inspection or to arrange
financing.

Connecticut Bar Association Pro Bono Committee

We support extension of the sunset provision. The success of the Bar's pro bono efforts, both
in providing direct representation and reaching out to a larger population of distressed
homeowners through the foreclosure clinics, is directly correlated to the existence of the
mediation program.

Joseph Carbone, Workplace, Inc.:

We support extension and further funding of the Mortgage Crisis Jobs Training Program. The
program has become a national model and further funding will be used to continue its success.

NATURE AND SOURCES OF OPPOSITION:

None offered.

Reported by: Clare A. Lake Date: March 22, 2010

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