Foreclosure help may be on the way

  • Article by: PATRICIA LOPEZ , Star Tribune
  • Updated: March 3, 2008 - 11:34 PM

The Minnesota Senate passed bills to throw a lifeline to homeowners and renters at risk of going under.

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Patricia Toussaint, a resident of north Minneapolis, spoke at a legislative hearing Monday night.

Photo: David Brewster, Star Tribune

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Minnesota's foreclosure epidemic has inspired a flurry of bipartisan proposals from legislators that would throw a lifeline to some homeowners, offer some protection to renters facing eviction and bring down the growing number of abandoned properties.

"We need to do this," said Sen. Linda Higgins, DFL-Minneapolis. "This is really reaching a crisis level."

The Minnesota Senate gave preliminary approval Monday to three bills that would:

• Require lenders to contact a state-approved foreclosure counselor on behalf of the homeowner when default notices go out and inform homeowners that they've done so.

• Guarantee that tenants would have foreclosure-related eviction notices automatically erased from their records, so that their landlords' default won't affect their ability to rent another home.

• Shorten the time it takes to finalize a foreclosure sale from six months to five weeks to get abandoned properties reoccupied quicker.

Additional proposals to blunt the wave of foreclosures that has accompanied a nationwide housing bust are expected later this week, including one in the Senate that would require a one-year moratorium on some foreclosures.

Sen. Linda Scheid, DFL-Brooklyn Park, who leads the Commerce and Consumer Protection Committee, said homeowners and lenders alike would benefit from the Senate bills. In most instances, she said, lenders would rather not have the properties back.

Many homeowners are panicking when they receive default notices, which can go out as quickly as 30 days after the first missed payment.

"These people are in denial," Scheid said. They ignore phone calls and leave notices unopened, she said, not realizing that foreclosure counselors can help schedule missed payments, renegotiate rates and get them back on track.

Higgins, whose north Minneapolis neighborhood has become one of the hardest hit by foreclosures, said areas that have struggled for years to rejuvenate their neighborhoods now see blocks where vacant properties nearly outnumber those occupied. Minneapolis now has 800 abandoned residential properties, up from 300 the previous year, she said.

Surrounding homeowners are plagued not only by falling property values, but also by rising crime because thieves come in and strip abandoned homes down to the pipes.

Higgins said that Minnesota's foreclosure process is unusual in that it allows property owners up to six months to reclaim their property after the sheriff's foreclosure sale. Few do, she said, instead leaving the properties to deteriorate while cities are helpless to intervene.

Shortening that period to five weeks, she said, "would get these properties to someone who would love and take care of them."

On Monday night, about 80 citizens and community organizers packed a public hearing in north Minneapolis where concerns about the mortgage crisis were aired.

North Minneapolis resident Patricia Toussaint testified she has seen her mortgage payment double in the past year, from $800 to $1,600.

"When a predatory lender came by and said, 'I can help you,' I fell for it," she said. "After paying such a big mortgage, you can't do anything else for your house, get what you need or get anything fixed."

Help for tenants, too

Rep. Joe Mullery, DFL-Minneapolis, said Monday that national studies have shown that many homeowners were steered into subprime loans even though they could have qualified for fixed-rate mortgages, including up to 60 percent of blacks with subprime loans. "It's a disgrace," he said at a news conference to unveil the House proposals.

Mullery said the proposals were the result of months of painstaking work by legislators and coalitions that included everyone from bankers to tenant advocacy groups.

One of the most effective proposals that emerged, he said, was also the simplest -- have a foreclosure counselor contact homeowners too overwhelmed to make the call themselves.

Once homeowners fall 60 days behind, Mullery said, their chance of catching up with missed payments and fees declines dramatically.

The growing number of foreclosures also has revealed gaping holes in state laws that in some cases have left renters particularly vulnerable.

Landlords now don't have to tell prospective tenants that properties they are considering renting are in foreclosure. As part of the bipartisan House package, Rep. Paul Kohls, R-Victoria, proposed a bill that would force landlords to notify prospective tenants in writing if foreclosure proceedings are underway.

Kohls said that while he has "mixed feelings about the role of government, this [legislation] seems to make a whole lot of sense to me. Tenants who are paying their bills are faultless victims here."

Kohls said he has seen Carver County foreclosures rise significantly. "You see it in it the suburbs," he said. "You're seeing it in Greater Minnesota. It's in no way a Minneapolis only problem."

Rep. Bob Gunther, R-Fairmont, is sponsoring a bill that would allow tenants in default properties to restart utilities in their own name without having to cover the entire building's back utility bills.

Sen. Warren Limmer, R-Maple Grove, objected to some of the Senate provisions, saying lenders should not pass on homeowners' names to foreclosure counselors without permission. Scheid said lenders already have that ability. "This is just speeding up the process," she said.

Opposition to the bills was limited, with DFL and GOP senators passing the measures on a simple voice vote.

A House report released Monday by the group working on the foreclosure proposals noted that the crisis could worsen without intervention. About 40 percent of adjustable rate subprime loans in Minnesota are scheduled to jump to a higher interest rate by October, with another 22 percent resetting to higher rates shortly after.

'Where's the help?'

Citizens spoke up at Monday night's hearing at the Folwell Park Community Center in north Minneapolis.

Kionne Robinson, a 30-year-old mother of 10 who has owned her own homes since she was 18, said she fears losing her Brooklyn Center home because of the rising costs of an adjustable-rate mortgage. Since she moved in three years ago, her monthly payments have ballooned from $1,400 to $1,800, and will go up again in May, she said.

She has been getting warnings that her utilities may be cut off. "I don't know what to do," she said. "Where's the help?"

After the hearing, she said, "I just want somebody to listen and understand what people are going through."

Staff writer Emily Johns contributed to this report. Patricia Lopez • 651-222-1288

PIG'S EYE PODCAST

The housing sector is a drag on Minnesota's economy. Listen to an interview with the state economist on Pig's Eye Podcast at startribune.com/podcasts

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