Minnesota homeowners facing foreclosure will soon get added protections under a bill Gov. Mark Dayton is expected to sign into law.
Backers hope the state's new Homeowners' Bill of Rights will reduce foreclosures in Minnesota, which, more than six years into the crisis, have been declining but remain stubbornly high.
The law, which codifies some protections that already largely exist at the federal level, will ban dual tracking of foreclosures, meaning loan servicers can't sell off a home until there's a clear yes or no on the person's loan modification. It also explicitly requires banks and servicers to make loan modifications to everyone who is eligible, and to assist them with the process.
But what's most significant, said Prentiss Cox, a consumer law expert at the University of Minnesota, is that the bill provides attorneys fees to enforce the guidelines, and buys homeowners more time to seek a loan modification to hold off a foreclosure sale.
Homeowners have always been free to take banks and servicers to court if they don't follow the rules, but hiring attorneys can be prohibitively expensive. Under the new law, homeowners will get their legal bills paid if they prevail in court.
Plus, homeowners can apply for a loan modification, which would halt a foreclosure process, at any time up to seven days before a scheduled foreclosure sale, giving them 30 more days than under the rules from the U.S. Consumer Financial Protection Bureau.
The group that championed Minnesota's bill is ISAIAH, an interfaith nonprofit active on racial and economic justice issues. It hailed its passage in the Legislature, saying it creates a process that is "fair, transparent and clear — for both the homeowner and the bank."
ISAIAH organizer Kate Hess Pace called the provision that extends the window for applying for a loan modification "a huge win."
'A complicated system'
"If you think about a homeowner that's in crisis, having the bigger window is really important for them because they're navigating a complicated system," she said.
San Francisco-based Wells Fargo & Co., the nation's largest residential mortgage lender that has been at the eye of the foreclosure storm, said it's still evaluating the final bill.
The dual tracking ban echos restrictions on dual tracking that are part of the national mortgage servicing rules from the Consumer Financial Protection Bureau going into effect in January 2014.
A similar but some say more sweeping homeowners' bill of rights law in California took effect Jan. 1 and has been credited for driving a steep decline in foreclosures this winter and spring.
Cox said he thinks Minnesota's new law could slow the pace of foreclosures in Minnesota "slightly."
The laws are the latest effort by states to address gaps in consumer protections that exist despite years of new state and federal rules and requirements for how banks and mortgage servicers handle loans and foreclosures. While Minnesota's law doesn't rewrite the playbook, it does address some key deficiencies in the process, Cox said.
"It moves the ball forward. … it's not a long-distance pace," Cox said.
Foreclosures have been slowing in Minnesota in recent years but remain extremely high. Last year there were 17,895 foreclosures across the state, down about 16 percent from 2011 but still nearly triple the 2005 level.