Bill would weaken protections for homeowners in foreclosure

Indiana homeowners who have fallen behind in their mortgage payments and face foreclosure could lose the right to a court-monitored settlement process to try to save their homes under a new bill going through the General Assembly.

Last year, a similar measured died after housing advocates and Attorney General Greg Zoeller assailed it as unfair to homeowners. They said the settlement process, rolled out during the height of the foreclosure crisis in 2010, has helped more than 6,000 Hoosiers save their houses by letting them sit down with lenders and work out a plan.

But Sen. James Merritt, R-Indianapolis, the new bill’s sponsor, said Indiana is plagued by an abundance of abandoned houses. He said the measure could cut up to two months out of the foreclosure process, and return the houses to the market faster.

Still, he acknowledged that the measure probably doesn’t have the necessary votes. He said he plans to remove the controversial provision from the bill, Senate Bill 204, which also deals with tax sales and vandalism of foreclosed property.

“I’ll take it out,” Merritt told IBJ on Wednesday. “I just wanted to keep the conversation going. We need to address this sooner or later.”

The bill is scheduled for a hearing on Jan. 25 before the Senate Civil Law Committee. The chairman, Sen. Rodric Bray, R-Martinsville, could not be reached for comment Thursday.

The Indiana Mortgage Bankers Association, a trade group that represents hundreds of mortgage lenders around the state, has pushed hard to roll back the state settlement program. It said Indiana is one of the slowest states in completing foreclosures, about 610 days on average.

The association did not return several calls from IBJ this week to comment about the latest push to eliminate the program.

The measure in the bill would exempt large banks, which account for more than 90 percent of all mortgages, from complying with state-required mortgage settlement conferences.

In recent years, bankers have argued that those protections are now offered in a federal law, the Dodd-Frank Reform and Consumer Protection Act, that went into effect a year after the Indiana program.

The bankers said that keeping two separate programs was expensive, redundant and time-consuming.

But consumer advocates said the federal law does not offer identical protections, and does not include a court-supervised settlement process.

“This is the one opportunity a homeowner has to meet face-to-face with a lender and try to save their house,” said Chase Haller, an attorney for the Neighborhood Christian Legal Clinic, an agency that helps struggling homeowners.

Zoeller’s office says it plans to oppose any move to eliminate foreclosure settlement conferences. It said assertions that settlement conferences are preempted by federal law or contribute to abandoned housing are “myths.”

“The right to court-supervised settlement conferences and a face-to-face meeting between borrower and lender is an important consumer protection,” Zoeller spokesman Bryan Corbin said. “It can help prevent disruption and dislocation of foreclosure in some cases by facilitating a workout so the homeowner can remain in the house.”