New bill could improve accuracy and fairness of foreclosure process

Consumer advocates have presented the underwhelming impact of the Home Affordable Modification Program (HAMP) and the foreclosure “robo-signing” scandal, in which employees of loan servicers allegedly fraudulently signed off on foreclosure documents, as two sides of the same coin: both demonstrate a disregard of due process on the part of the servicers. In one situation, servicers drag out trial modifications well beyond their time limit and give homeowners the run-around by repeatedly losing documents, then deny modifications because of “incomplete files;” in the other, servicers entrust the job of affirming the validity of foreclosure papers to poorly-trained and overworked employees, possibly unjustly risking borrowers’ homes.

The Illinois Attorney General’s office has drafted legislation that would make servicers pay close attention to proper procedure in both the loan modification process and the preparation of foreclosure documents. HB 6951, championed by Rep. Marlow Colvin, Rep. Mary Flowers, and Sen. Jacqueline Collins, would make sure that all foreclosures in Illinois are based on accurate and truthful information. It would also ensure that no homeowner is kicked out of his or her home before all options are thoroughly considered, and that all homeowners receive the information they need to hold servicers accountable for complying with the requirements of foreclosure programs.

Importantly, the legislation would require servicers to comply with the requirements of all relevant loan modification programs, including HAMP, before completing a foreclosure case. If the homeowner is deemed ineligible for all programs, the servicer must explain its reasoning. Homeowners have long complained about servicers’ opaque decision-making process for HAMP. When a servicer denies a homeowner’s request for a HAMP modification, the servicer is supposed to give a reason for denial, but sometimes this doesn’t happen. It is up to the servicer how much detail it provides beyond a short answer, such as “insufficient income” or “incomplete file.” It is difficult for homeowners and housing counselors to dispute decisions if they don’t know what factors influenced the servicer’s decision and whether those factors are accurate. HB 6951 would require servicers to provide much more detailed information on their decision-making process, including the inputs into the calculations that allow them to estimate the modification’s profitability, 36 months of a borrower’s payment history, a record of all communications with the borrower, and the reason the modification request was denied. This information would allow a homeowner and his or her lawyer to identify inaccurate information and argue that the servicer did not adequately assess his or her application.

On the accuracy front, HB 6951 would strengthen the factual backing behind foreclosure documents. Currently, someone must sign an affidavit attesting that they have “personal knowledge” that the information in the foreclosure filing is correct. Under the legislation, the person signing the affidavit must detail exactly how he or she knows the information is correct. The servicer must also prove that it are entitled to foreclose on the mortgage by including with the filing all assignments, endorsements, and transfers of the debt. If the servicer has lost the mortgage note, they must include an affidavit detailing the efforts they made to find it and the terms of the note.

This bill may remind you of one that passed earlier this year, HB 5735. That legislation, introduced by Rep. Deborah Graham, gave homeowners an extra tool to hold servicers accountable by allowing homeowners to request that a judge put aside a foreclosure sale if the servicer cannot prove that it has complied with all applicable loan modification program requirements. HB 6951 goes a step further by requiring servicers to prove that they have fulfilled their responsibilities before the foreclosure is completed, creating an affirmative obligation on the part of servicers to show that they have explored all other options.