General Assembly Ratifies Emergency Foreclosure Reduction Legislation
On July 17, the General Assembly ratified House Bill 2623, which is designed to reduce home foreclosures resulting from the current subprime lending crisis. Once enacted, the bill would require special notices to be sent to the court and to the borrower prior to foreclosing on any subprime mortgage created on or after January 1, 2005, but before December 31, 2007 (“Covered Period”). Using the information contained in these notices, the Administrative Office of the Courts (“AOC”) will construct a database to monitor subprime foreclosures. The North Carolina Commissioner of Banks (“Commissioner”) is responsible for monitoring this database, and if he believes that foreclosure on a particular home can be avoided, the Commissioner is authorized to delay the foreclosure filing for one 30 day period.
In North Carolina, a subprime loan is a consumer home loan which has both of the following characteristics: (1) a rate spread of more than 3% on first mortgages and more than 5% on second mortgages when compared to the loan’s annual percentage rate and the U.S. Treasury bills; and (2) a rate spread of more than 1.75% for first mortgages and 3.75% for second mortgages when compared to the “conventional mortgage rate” for fixed rate mortgages published by the Federal Reserve Board. At least sixty days prior to the legislation becoming effective, the Commissioner will provide a chart to help lenders and borrowers determine if the loans qualify for relief under these new provisions. If so, lenders must provide the special notice (“Special Notice”) described below prior to beginning foreclosure.
The Special Notice must be sent to the borrower at least forty-five days prior to the filing of a notice of hearing in a foreclosure proceeding on the borrower’s primary residence. The Special Notice must contain, among other things: an itemization of past due charges and amounts causing the loan to be in default; contact information for the lender, mortgage servicer, or agents who can help the borrower avoid foreclosure, contact information for HUD-approved counseling agencies, contact information for the consumer complaint section of the Commissioner’s office, and other statutory disclosures. Additionally, at least three days after sending a Special Notice to the borrower, the lender must certify electronically with the AOC that the Special Notice was issued.
The Commissioner will review the database to determine which subprime loans are appropriate for efforts to avoid foreclosure. If the Commissioner reasonably believes that further efforts offer a reasonable prospect of avoiding foreclosure on a borrower’s home, then the Commissioner may extend one time the allowable filing date for any foreclosure proceeding by up to 30 days beyond the earliest filing date established by the Special Notice. The Commissioner must notify the borrower, lender and the AOC of its actions. Foreclosure notices filed on subprime loans on or after November 15, 2008, must contain a certification by the filing party that the proper notices required by this legislation have been sent, and that the time periods established in this legislation have elapsed, or in the alternative, that the loan is not subprime.
This legislation will be effective on November 1, 2008, and is scheduled to expire on October 31, 2010.
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