SB 255

Under current law, if a mortgagee brings an action for foreclosure of a mortgage

on a residential property, the homeowner (mortgagor or borrower) is served with a

summons and complaint and the normal civil procedural rules of pleadings,

discovery of evidence, pretrial, and trial apply. If the court finds that the mortgagee

has the right to the foreclosure, the court issues a judgment for foreclosure of the

mortgage, which entitles the mortgagee to force a sale of the property after a

redemption period has ended.

This bill creates a process to allow a borrower who owes a first or second

mortgage loan on a residential property to seek mediation when the borrower is in

default on the loan and the mortgagee is beginning a mortgage foreclosure action.

Under the bill, if the borrower has failed to make two consecutive mortgage loan

payments, the mortgagee must send the borrower a notice when commencing a

foreclosure action. The notice must inform the borrower of the default and what must

be done to cure the default, state that the mortgagee intends to start a foreclosure

action, and provide the names and addresses of credit counseling services available

to homeowners.

Under the bill, when a mortgagee starts a foreclosure action, the mortgagee

must inform the borrower of the right to request mediation by submitting a request

to the director of state courts (director). If mediation is requested, the foreclosure

action is stayed until mediation is completed. When the borrower requests

mediation, the bill requires the director to refer the borrower to a financial analyst

for advice regarding the mortgage foreclosure and to provide the mortgagee and

borrower with names of persons who are available to provide mediation services. The

bill requires the director to create a list of persons who have knowledge of financial

matters to serve as mediators, create a separate list of persons to serve as financial

analysts, and provide those persons with training related to their duties under the

bill.

The bill requires the director to notify the parties of the time and place of the

mediation session. The mediator may not compel a settlement between the parties,

but must attempt to achieve a resolution of the issues involved in the mediation. The

bill requires the parties to engage in the mediation in good faith, which includes

attending the mediation sessions, providing full information to the mediator and

other party, and considering debt restructuring alternatives as a method of resolving

the default. The cost of the mediator may be added to the mortgage loan payments

required by the borrower.

Under the bill, if the mediator determines that the borrower or mortgagee has

not mediated in good faith, the mediator provides that information to the court. If

the mortgagee has not mediated in good faith, the court may supervise the mediation

directly, prohibit the mortgagee from continuing an action to foreclose on the

residential property for 180 days, or order the mortgagee to pay the borrower's court