Banks Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-5514

Title:

AN ACT CONCERNING AN OPTIONAL METHOD OF FORECLOSURE.

Vote Date:

3/18/2014

Vote Action:

Joint Favorable Substitute

PH Date:

3/11/2014

File No.:

SPONSORS OF BILL:

Connecticut Association of Realtors, Banks Committee

REASONS FOR BILL:

To establish an alternative to short sales by creating an additional method of foreclosure that will support the Connecticut real estate market by selling residential properties at market prices.

Substitute Language

Ensures that the homeowner shall continue to have the right to mediation if a sale is not completed by no fault of their own.

RESPONSE FROM ADMINISTRATION/AGENCY:

Commissioner Howard Pitkin, Department of Banks: Although the Department of Banks does not take a position on this bill due to its role as a neutral facilitator in negotiations leading up to it, Commissioner Pitkin calls it “thoughtful.” He notes the wide range of voices represented on the working group that produced it—bankers, realtors, insurance, and government all had input, and dissenters were given opportunities to voice their concerns.

NATURE AND SOURCES OF SUPPORT:

Eugene Marconi, General Counsel, Connecticut Association of Realtors: The CT Association of Realtors supports this bill, saying that it would modernize the current outdated foreclosure process. The current process, they say, does not produce market value sales and can lead empty properties when lenders are unequipped to manage foreclosed properties. HB 5514, on the other hand, gives purchasers certainty that distressed properties will sell. It is the product of negotiations between bankers and realtors, and is not unprecedented—probate, divorce, and bankruptcy courts all use similar procedures.

Jill Nowacki, President and CEO, The Credit Union League of Connecticut: The credit union industry supports this bill because it aligns with their mission of helping their customers, which means simplifying and expediting the foreclosure process when a foreclosure cannot be avoided. This bill, Nowacki says, will provide an additional option for both the mortgager and the mortgagee, allowing the process to come to a timely and fair resolution.

Martin Geitz, President and CEO, Simsbury Bank: On behalf of the Connecticut Bankers Association, Geitz supports HB 5514. The "pre-foreclosure" option that this bill creates will allow homeowners with no equity in their properties a way to quickly sell their properties and avoid the stigma of foreclosure. This, in turn, should reduce a borrower's deficiency, and the bill might potentially reduce blight and produce better sales prices for homeowners.

NATURE AND SOURCES OF OPPOSITION:

Jeff Gentes, Connecticut Fair Housing Center: The Housing Center agrees with the proponents of this bill that short sales are crucial; however, they feel that the process proposed by the bill would create needless complexities and burdens for judges, and in general disagree with any “government-dictated short sale process.” They also disagree with what they call the “anti-mediation approach” of the bill, and urge the committee to consider focusing on state laws that make the short sale process unnecessarily difficult rather than rewriting the process. The Center recommends that the committee keep the part of the bill that eliminates hurdles created by underwater junior lien holders. They also point out several oversights in the draft, including: 1) that it does not account for federal tax liens, 2) that it limits eligible homeowners to those available for mediation, 3) that Section 1 uses the word “encumbrance” when “mortgage” would be more appropriate; 4) that Sec. 2 includes a reference to a “deed of trust” when there is no such concept in Connecticut; and 5) that in Sec. 7, the notice provisions for junior lienholders should be clarified.

Kim McClain, Executive Director, Connecticut Chapter of the Community Associations Institute (CAI-CT): CAI-CT opposes this bill on several bases, saying that it would undermine PA 13-156.
1) The bill permits a short sale to take place without input from junior lienors.
2) By allowing judgment to enter 10 days from the return date, the bill allows too little time to permit other lien holders to contest allegations of the mortgagee regarding the priority of their liens.
3) The bill does not clearly protect the rights of other lien holders, and should clearly state that it has no impact on the priority of other liens or encumbrances on the real estate or on other lien holders to enforce their rights.

Scott J. Sandler, Esq., Partner, Perlstein, Sandler & McCracken, LLC: Mr. Sandler, whose credentials include memberships in various bar associations and community associations groups, opposes this bill. He sees in the bill the same shortcomings as Ms. McClain, above: that it would allow short sales without input from junior lien holders; that it would block other holders from contesting the priority of their liens; and that it should more explicitly protect the rights of other liens to foreclose their interests.

Reported by: Sarah Gerton

Date: April 4, 2014