City seeks to add fine to foreclosure law

01:00 AM EST on Thursday, January 7, 2010

By Philip Marcelo

Journal Staff Writer

PROVIDENCE — Banks or lenders that do not attempt to renegotiate mortgages with homeowners, as currently required by city ordinance, could now face a $2,000 fine, under amendments the City Council will consider at a special meeting on Thursday.

Vacant or abandoned homes would be exempt from the requirements, and lenders would also have more time to set up the city-mandated mediation sessions, according to the proposed amendments.

The new language would introduce substantive changes to a recently approved ordinance meant to slow the tide of foreclosures. The amendments require two votes of approval from the full council.

As it is written, the “foreclosure mediation ordinance” requires a meeting between lenders and homeowners prior to foreclosure. The goal of the meetings (moderated by an independent third party ) is to modify a mortgage so that a homeowner can remain in his or her home.

Any lender failing to comply with the requirements would not be able to have a deed of ownership recorded by the city Recorder of Deeds, a step necessary to complete the foreclosure process.

Mayor David N. Cicilline, whose administration developed the ordinance, says changes are being requested to address problems noted since the roll out of the new mandates in September.

One potential problem is the breaking of the chain of title if a bank or lender fails to comply with the ordinance.

“Should the Recorder refuse to record the foreclosure deed, it would create a gap in the chain of title, which will affect the value of the property and create a problem for the purchaser,” according to a memo from the acting Recorder of Deeds, John A. Murphy.

The $2,000 fine will be an “economic incentive” for lenders to comply since the average attorney’s fees for handling a foreclosure is about $3,000, said Cicilline.

Another problem that the amendments are trying to address is the large number of abandoned houses that have since fallen into foreclosure. The proposed amendments would require the city Department of Inspection and Standards to determine whether a property is vacant or abandoned before the city decides if foreclosure mediation is required.

“When faced with a property that is either derelict or already boarded, the forbearance process … will not work,” according to Murphy’s memo.

The final amendment proposes lengthening the time homeowners must respond to a request for foreclosure mediation to 30 days from 21 days.

Cicilline says that through its first three months, the program, which is the first of its kind in the state and has since been adopted by the City of Cranston, has been effective.

About 81 percent (22 of 27) of those who have participated in the mediation process have been able to modify their mortgages to avoid foreclosure and maintain their homes. Another 197 homeowners either did not respond to requests for mortgage mediation or declined to participate.

Many of those, he said, had been homeowners who abandoned their homes.