Two foreclosure related bills of great interest to both borrowers and lenders were introduced in the Ohio House of Representatives in February but are moving slowly, if at all, through the legislative process. One of the bills is too bold to have a serious shot at getting signed by Governor Strickland, but the other is modest enough that it may pass.
House Bill 3, the more sweeping of the two, has languished in the Housing and Urban Revitalization Committee. At a very basic level, the bill would:
1. Impose a six-month foreclosure moratorium, during which a court could not hear or issue judgment on a foreclosure complaint. The moratorium loses a bit of its teeth, however, as a mortgagee an petition the court to proceed with the action if a borrower is more than thirty days late on a payment during the moratorium.
2. Establish new filing requirements for residential foreclosure complaints, including certain notices to be given to borrowers by loan servicers, a statement of mortgage information (including the identity of the note holder), an appraisal, and a $1,500 filing fee.
3. Allow common pleas judges to modify mortgage terms, including principal amount, in residential foreclosures if the judge determines the modification would benefit both parties.
4. Require mortgage loan servicers to register with the state and be subject to extensive regulation and oversight.
5. Establish a loan modification program, run by the Director of Commerce, which would allow borrowers to modify loans when a modification would result in a greater recovery to the lender than a foreclosure.
The drastic nature of HB 3, particularly the mortgage modification provisions, has led to strenuous opposition and even promises of constitutional challenges (and here) should it pass. While the bill as a whole likely won’t move much further, it wouldn’t be surprising to see small pieces of it come up for a vote. If any significant portion of HB 3 passes, lenders will be faced with sharply increased mortgage-related operating costs. They would need to quickly develop processes to determine which distressed properties are eligible for the moratorium bypass and whether the $1500 filing fee makes a workout preferable to foreclosure on a given property.