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Negotiations Stall on NationStar Fix, Funding for the Foreclosure Fairness Act

Holly Chisa

By Holly Chisa, UTA Washington Lobbyist, HPC Advocacy

After eight months of negotiations, hours of discussions, and input from stakeholders across the financial spectrum, it appears no agreement will be reached on a solution for the Jordan vs. NationStar case.  Without resolution to this issue, there will also not be resolution to other issues of interest to trustees, including successor in interest and the ability to petition for non-monitory interest.

It also leaves the Foreclosure Fairness Act program, administered by the Washington Department of Commerce, short financially in its operations for the coming year.

At the time of this writing, negotiations had hit a significant stumbling block around the NationStar “fix,” specifically the retroactivity piece.  Stakeholders have spent the last eight months discussing the many aspects of the NationStar case.  The core debates centered around how a financial institution, either as its own entity or through a contractor, can approach an abandoned property when that property is in the process of foreclosure, but prior to the financial institution actually taking possession of the home.  The advocates, including the attorney that represented Ms. Jordan, want severe limitations on the ability for a financial institution to enter the property, and even more limitations on entering the home itself.  Financial institutions were concerned that limitations will prevent them from preserving properties that may be damaged or occupied by trespassers and squatters.  Everyone agreed that if the homeowner is in the house it should be considered occupied, and that homes that are truly abandoned and are becoming a community health risk, should be able to be maintained by financial institutions.  The debate centered on how to determine when a home is truly abandoned.

The advocates and financial institutions were unable to reach final agreement on how to address this issue.  Portions of a new law were drafted to address local governments’ concerns with nuisance properties and a tentative structure was built for a duty of maintain for financial institutions.  Additionally, there was tentative language drafted to address how a financial institution or its representative could approach a property, and when circumstances were appropriate to enter a home.  Final bill language was not agreed to, but concepts were developed.

Negotiations broke down over retroactivity.  Financial institutions argued that, prior to the NationStar decision, they and their contractors entered properties under what they understood to be lawful circumstances and should not carry liability.  Advocates did not agree.  Even with hours of negotiation, the parties could not reach agreement.

This issue matters to trustees not because they are heavily involved in the underlying issue around NationStar.  It matters because of what was tied TO the agreement on NationStar.  Funding for the Foreclosure Fairness Act program (FFA) is tied to financial institutions, which pay an annual fee to the state.  The FFA is underwater, and needs additional funding.  Financial institutions would not agree to a fee increase without resolution to NationStar.  If there had been resolution on NationStar, fees would have increased and been spread over all NOTS for one-of-four residential property.  This would have required trustees to float those higher fees and cost trustee firms a significant expense.  For trustees to agree to the new “float,” trustees wanted language on non-monitory interest, similar to what is offered in California.  Negotiations between the advocate attorneys and trustees on this language ran concurrently with the discussions on NationStar.  As part of those side negotiations, attempts were also made to resolve the long-standing advocate request to provide the beneficiary declaration at the NOD, in exchange for language to bring successor in interest foreclosures to the non-judiciary process.

While language was developed and exchanged between the advocates and trustee lawyers, these issues were not finalized because of the breakdown in negotiations on NationStar.  It did provide us with a foundation, however, for language on both non-monitory interest and successors in interest to be run in future sessions.

Even with the Washington Legislature well into its second special session (scheduled to end June 22), it is unlikely we will be able to resolve out the high number of issues still outstanding before the end of session.  If negotiations restart in the coming months, the United Trustees Association will participate in the discussion of NationStar, and the concurrent discussions on non-monitory interest and successor in interest for non-judicial foreclosures.  For now, it is unclear how the Washington Department of Commerce and other agencies will continue to administer the FFA with lesser funding.  It is clear, however, that without a fix to NationStar, financial institutions and their contractors will be unable to enter properties until the foreclosure is complete.

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