House panel weighs changing New Hampshire’s foreclosure process

Bill would require court involvement ‘to level the playing field’ for homeowners

Should a lender have to go to court to foreclose on a home?

In New Hampshire and six other states, the answer right now is no, but Rep. Kermit Williams, D-Wilton, would like to make that answer yes.

For the third time, Williams is sponsoring a bill to turn New Hampshire into a judicial foreclosure state, but this is the first time he has done so while the Legislature is controlled by his own party. And on Tuesday, the bill had a hearing before the House Judiciary Committee.

“Lawmakers have passed complex laws for the financial services industry’s benefit,“ said Williams. “This is a small step to level the playing field for consumers. It’s important to have a judge in the process.”

Currently, a lender can notify a homeowner of a foreclosure via certified mail. The homeowner can then challenge the foreclosure in Superior Court. If the homeowner doesn’t respond to that notice and challenge it, he or she is no longer the homeowner. In most cases, the foreclosure never gets to court.

Some people don’t even receive that notice. That’s what Jeff Bradley – and his attorney, Terrie Harman – said happened to him.

Bradley had borrowed against his Epping home to pay medical bills for his wife, who had broken her neck. Payments to the lender never got posted, said Harman, because it had already sold the loan to a servicer who was not interested in accepting a regular payment on a loan that was now deemed to be in default.

“He couldn’t find anyone who would take his money,” Harman said.

Bradley found out from a neighbor that his home was padlocked. That case has been in litigation for some 13 years. Meanwhile, the home has been sold twice – the first time for $180,000, $40,000 more than he owed on it, and the next time for $280,000. Bradley currently lives with relatives.

That is all the result of a servicer’s scheme to “manufacture default,” hiking up fees to raise a borrower’s debt, Harman said. How much better, and cheaper, if the matter had to go before a judge in the first place. The foreclosure would never have happened, said Harmon.

The cost of a routine equity case in court is about $265 – more when the case is complicated, testified Howard Zibel, the legislative liaison for the states judiciary. But those costs add up, not so much in good economic times like now, when about 500 homes are foreclosed against per year, but in bad times, such as the 4,000 foreclosures seen during the height of the Great Recession.

In the latter case, that comes out to a cost of about $1 million a year, and in bad times, budget cuts often mean the judiciary is understaffed, and the waiting time to get into court is longer

Fewer rights than tenants

Local bankers objected to the bill citing concerns over both the time and money involved.

NH Bankers Association lobbyist Tom Fahey estimated that the costs add 15 to 30 basis points to interest rates, which could mean thousands of dollars. And foreclosures also mean delays, he said. The five states with the longest time lines are judicial foreclosure states, he said.

As far as local bankers, are concerned, there isn’t a problem to address, according to Mike Mulhern, assistant vice president of real estate lending at Service Credit Union, who said out of that institution’s 7,000 loans, there were only a handful of foreclosures. About ten times that number were avoided because of good communication.

“We have a process that is under control. It’s not broken,” he said.

When the committees chair, Rep. Marjorie Smith, D-Durham, asked whether it was broken for the borrower, he said, “we never had a complaint from a foreclosure. “By the time we foreclose, its not worth any money. They look forward to the bank taking over the property.”

But most advocates weren’t complaining about the actions of local banks.

“I wish what was true of this credit union was true around the country. It’s not,” said Stephanie Bray, Foreclosure Relief Project director at NH Legal Assistance. “They are not dealing with someone they can call, but some large impersonal call center.”

Homeowners, even though they have made a substantial investment, have fewer rights than tenants, who at least have to be taken to court before they are evicted, she said. While homeowner can challenge a foreclosure, they often don’t have the money, the know-how or the documentation to start a complicated legal proceeding.

“These loans get lost in the dim recesses, assigned by entities that no longer exist. It’s really hard for someone just trying to make their mortgage nut to even say securitization,” she said.