By Holly Chisa, UTA Washington State Lobbyist, HPC Advocacy
Discussions are ongoing about the future of the Foreclosure Fairness Act (FFA) as the number of NODs and NOTS fall and homeowners are not relying on the program to work out issues with their financial institution.
No one argues that when foreclosures are once again allowed to proceed in the Winter or Spring of 2021, there will be sharp rise in non-judicial foreclosures. However, the FFA is funded solely on a fee charged to financial institutions based on their numbers of NOTS completed in a year. No NOTS, not a lot of fees coming in to pay for the system. The WA Department of Commerce which administers the program estimates its budget will drop from $1.7 million in 2020 to $300,000 in fees for 2021, based on 2020 NOTS numbers. With no general fund dollars to back up the program, there will be no FFA mediation program in 2021 without statutory changes.
The crunch comes in the spring, AFTER there is a strong need for mediators to help homeowners in foreclosure, but BEFORE the Legislature can either provide funding in the 2021-23 budget, or change the fee structure for financial institutions to pay for the FFA. There will be a financial gap that will have to be filled somehow legislatively, by immediate fees on financial institutions, or cuts to the program to cover mediators.
Ironically this comes at a time when the program is serving the fewest individuals since it began almost a decade ago. At the height of the program in 2013, over 2,500 homeowners were referred to mediation after the Notice of Default was issued. By 2016, just over 1,000 homeowners have been served by the program. In 2019, only 441. This is even as the program has been expanded to include public foreclosures, and to allow for inclusion of specific circumstances like a deceased borrower’s family being allowed to mediate to retain a property. As of mid-year 2020, only 188 borrowers have been referred to mediation in Washington.
The question I’m often asked now – do we even need the mediation program anymore? The program costs a significantly higher amount for each service it provides, especially as most financial institutions are able to address issues before a borrower is referred to the FFA. Regretfully, no – lawmakers and advocates show little interest in eliminating the program. Lawmakers, in fact, want to further EXPAND mediation to include second properties and rentals even with no additional funding available.
So what is the solution? The Washington Department of Commerce wants to switch fees back from a charge to financial institutions of up to $325 per NOTS back to a charge per NOD. They also want no reduction in the fee amount. Because Commerce cannot verify exactly how many NODs are processed by a financial institution except by taking their word for it, Commerce also wants trustees to submit a copy of each NOD directly to Commerce for verification.
This creates a significant risk for trustees and for Commerce. All of the information provided to public agencies, including the Commerce, are subject to the public records act. As such, ANY document not specifically precluded from public disclosure is available for the press and available under FOIA requests to Commerce. Years ago, UTA fought against proposed legislation that would have created a database within Commerce that would have allowed law firms, data miners, and others to search for homes with NOD pending. UTA wanted to prevent opportunistic individuals from preying on borrowers facing foreclosure by culling these lists looking for individuals to scam. We did kill the bill, but it took a significant amount of work and help from various stakeholders to help lawmakers understand the vulnerability creating such a database to scam artists. The same issue is present here. By requiring trustees to send in NODs to an agency with no disclosure exemptions, any NOD submitted automatically becomes public record and available under FOIA.
There is also the consideration of the burden this places on the trustee. Trustees are already required to send a massive amount of paperwork both through certified and non-certified mail for an NOD. In addition, notices are posted. Does it create an additional burden for the trustee to also have to send in the NOD to Commerce? And if it’s not received by Commerce, or incorrectly sent in, if there are errors in the document not related to the trustee but to the financial institution, who is liable for the error – and the money owed – to Commerce?
Whether the data provided in an NOD could be useful to Commerce is unclear. There are financial institutions, servicers, and affiliated entities all that can be listed in a NOD. Bank of America could have subsidiaries and other entitles affiliated with BOA which may have a different name on the NOD. The simpler method of having Bank of America simply report in the number of NOD and submit one check prevents confusion of determining which entity is affiliated with which parent group or company and allows the financial institutions themselves to determine which NOD belongs with which entity.
For trustees, the extra reporting requirement comes with little benefit. It will be imperative that the language, if it’s agreed to by stakeholders, comes with protections for trustee firms from liability, as well as protections that the information contained in that document will not be released to the public.
Financial institutions will have additional points to fight against. Being required to pay fees on the NOD will increase costs for financial institutions. And the program is in the financial hole because of forestalled foreclosures due to the pandemic, not because of practices of financial institutions. They will still, however, carry the financial brunt of a program their customers are not utilizing at this point.
Much work will be done in October and November to figure out our next steps. If you have issue with delivering the NOD to Commerce, PLEASE LET ME KNOW AS SOON AS POSSIBLE. Also, if you have stories to share of findings of bad faith in mediations, or clients with challenges of bad faith findings, please share those as you’re able. We are gathering data points on both issues to bring to the negotiations this fall to see where we can find common ground with advocates – if at all.