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Wednesday, March 07, 2007

Ind. Law - Fighting foreclosures and mortgage fraud [Updated]

Today's Fort Wayne Journal Gazette has an editorial titled "Fighting foreclosures." Some quotes:

Two bills advancing in the Indiana General Assembly would take common-sense steps to attack Indiana’s staggering problem of mortgage foreclosures.

The House voted 96-2 to require builders to disclose estimated property taxes for a new home’s full value. [House Bill 1525] Because property taxes are based on the value of the previous year, many buyers of new homes face a very small tax bill – based only on the land and not the home – the first year and are surprised by a much-higher second-year bill.

“Young couples too often enter into a home-building contract not knowing that they face a $3,000-$4,000 property tax bill within a year,” the bill’s sponsor, Rep. Michael Murphy of Indianapolis, said in a news release. “When the taxes come due, these couples can lose their homes and their financial futures.”

House Bill 1525, which Rep. Win Moses of Fort Wayne co-sponsored, would also require the Indiana Housing and Community Development Authority to furnish educational material about home buying and financing to homebuyers whose credit scores of 620 or lower make them less financially stable and more at risk.

“Your credit score is a clear indicator of the probability of foreclosure, particularly in adjustable rate and zero-down-payment mortgages,” Murphy said. “I want to make sure homebuyers know what they are getting into before they commit to long-term debt.”

Senators voted 49-0 for a separate bill [Senate Bill 390] to regulate mortgage “rescuers,” some of whom unscrupulously end up taking the homes or charge high fees without results.

“A lot of people are saying, ‘Pay me money, and I’ll fix it,’ ” said Gary Avery of First Republic Mortgage in Indianapolis, a past president of the Indiana Association of Mortgage Brokers.

In too many cases, though, the “rescuers” do little more than make phone calls the mortgage holder could make.

Last year, Attorney General Steve Carter initiated action against a mortgage rescue company that resulted in a Marion County judge ordering refunds of $3,000 to three consumers, plus $82,000 in penalties and costs. [ILB - See story here]

The bills aim to address the state’s abysmally high foreclosure rate. Nearly 3 percent of Indiana home loans were in foreclosure last summer, second highest in the nation. Last year, the Allen County Sheriff’s Department sold 1,743 foreclosed properties.

The widespread approval for the respective bills in each legislative chamber indicates the bills are non-controversial. Each deserves adoption in the opposite house and should become law.

The Indianapolis Star had an editorial Monday titled "Openness laws could help put a lid on foreclosures":
The legislature has taken some encouraging strides toward bringing sanity to the homeownership scene in Indiana and especially Central Indiana, where foreclosures have ballooned along with artificially cheap mortgages.

Easy passage of bills by Rep. Michael Murphy, R-Indianapolis, and Sen. John Broden, D-South Bend, in their respective chambers bodes well for consumer protection in what has become a jungle of too-easy credit and outright fraud.

New homes in the suburbs have crowded onto the derelict heap alongside inner-city properties in recent years as first-time homeowners without sufficient reserves have taken on exotic mortgages and then floundered when higher rates kicked in along with other unforeseen expenses, including property taxes. * * *

Murphy's bill, passed by the House 96 to 2, would require:

A written estimate of fully assessed property taxes to be provided by a builder in at least 15-point type before a buyer signs a contract.

Any buyer with a credit rating of 620 or less to be given a packet of state-approved educational materials about adjustable-rate mortgages and other key subjects by the lender before a mortgage can be taken out.

Advertising to meet federal truth-in-lending strictures.

Murphy cites a billboard he saw recently on which a builder promised $1-a-month payments. "It's immoral is what it is," he says. "We can't legislate morality, but we can at least make sure everyone's eyes are wide open."

Broden's bill, passed by a vote of 49 to 0, attacks the growing phenomenon of unscrupulous "rescuers" of homeowners in default. Senate Bill 390 would limit how much the consultants can charge, require them to fully inform customers, and preserve the customers' right to rescind questionable agreements.

Senate Bill 390 deserves resounding passage in the House, and House Bill 1525 merits the same reception in the Senate. They won't slay the 800-pound gorilla of widespread mortgage foreclosure, but they will help drag it out into the light.

Here is more about "Mortgage Foreclosure Rescue Scams."

See also this entry from The Mortgage Fraud Blog, and note that the sidebar includes links to a South Bend Tribune series from earlier this year, as well as a Chicago Tribune series.

[Updated 3/9/07] See also this Journal Gazette editorial from March 9th that begins:

More complete public disclosure of who is involved in the sale of homes in Indiana would go far to protect consumers, neighborhoods and lenders from questionable home-buying practices.

A task force with representatives of Indiana Realtors, mortgage brokers, title companies, bankers, appraisers and relevant state agencies is developing several proposals that would go far to guard against mortgage fraud, and the disclosure aspect is the most important.

The state should require that each property deed include the true sales price and that the buyer and seller of each property sign the deed, attesting that the reported price is accurate. Each person or business involved at each stage of the transaction – the real estate agent, title company, appraiser, broker and any others – should be identified by name or registration number on the deed. Such disclosure is more than an incentive to make sure all prices are accurately reported – it also makes investigating any allegations of questionable practices easier because much of the key information is on public records.

Posted by Marcia Oddi on March 7, 2007 09:10 AM
Posted to Indiana Law