SF 3396

4th Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to real property; providing for the Minnesota Subprime Borrower Relief
Act of 2008; proposing coding for new law in Minnesota Statutes, chapter 583.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [583.33] CITATION.
new text end

new text begin Sections 583.33 to 583.40 shall be cited as the "Minnesota Subprime Borrower
Relief Act of 2008."
new text end

Sec. 2.

new text begin [583.34] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For purposes of sections 583.33 to 583.40, the terms defined
in this section have the meanings given to them.
new text end

new text begin Subd. 2. new text end

new text begin The act. new text end

new text begin "The act" means the Minnesota Subprime Borrower Relief Act
of 2008.
new text end

new text begin Subd. 3. new text end

new text begin Commissioner. new text end

new text begin "Commissioner" means the commissioner of commerce.
new text end

new text begin Subd. 4. new text end

new text begin Deferment payment. new text end

new text begin "Deferment payment" means the monthly amount
that is due to the foreclosing lender by an eligible foreclosed borrower under section
583.37 to maintain the right to deferment.
new text end

new text begin Subd. 5. new text end

new text begin Deferment period. new text end

new text begin "Deferment period" means the period that begins on
the effective date of the act and expires one year following the effective date of the act.
new text end

new text begin Subd. 6. new text end

new text begin Deferment right. new text end

new text begin "Deferment right" means the relief provided to an
eligible foreclosed borrower in section 583.35.
new text end

new text begin Subd. 7. new text end

new text begin Eligible foreclosed loan. new text end

new text begin "Eligible foreclosed loan" means a residential
mortgage loan for which a foreclosing lender has scheduled a foreclosure sale under
chapter 580 or 581 or schedules a foreclosure sale during the deferment period for which:
(1) the closing of the loan occurred after January 1, 2001, and prior to August 1, 2007;
and (2) either is a subprime loan, or is a loan with negative amortization for which the
required minimum payment of principal and interest increased after the date the loan was
originated. An eligible foreclosed loan does not include a loan originated by a state or
federally chartered bank, savings bank, or credit union, or an organization majority owned
by one or more credit unions.
new text end

new text begin Subd. 8. new text end

new text begin Eligible foreclosed borrower. new text end

new text begin "Eligible foreclosed borrower" means a
borrower who: (1) is a mortgagor under an eligible foreclosed loan; (2) resides at the
mortgaged property and intends to reside at the mortgaged property at least until the end of
the deferment period; (3) has a household adjusted gross income of less than $250,000 per
year according to the borrower's most recent federal income tax return, provided that if the
borrower was not required to file a federal income tax return, the borrower must qualify by
providing the return that the borrower would have filed if required; and (4) is a legal United
States resident. A borrower does not reside at the property unless the property has been the
borrower's primary residence for six months prior to the date of the affidavit of deferment.
new text end

new text begin Subd. 9. new text end

new text begin Foreclosing lender. new text end

new text begin "Foreclosing lender" means the mortgagee who is
foreclosing the mortgage of an eligible foreclosed borrower.
new text end

new text begin Subd. 10. new text end

new text begin Mortgage foreclosure counselor. new text end

new text begin "Mortgage foreclosure counselor"
means an individual who provides mortgage foreclosure counseling on behalf of a
nonprofit or government agency that is a member of the Minnesota Home Ownership
Center's network.
new text end

new text begin Subd. 11. new text end

new text begin Minnesota Residential Mortgage Originator and Servicer Licensing
Act definitions. new text end

new text begin The following terms defined in section 58.02 have the same meanings for
purposes of sections 583.33 to 583.40: "residential mortgage loan"; "residential mortgage
servicer or servicer"; "residential real property" or "residential real estate"; "subprime
loan"; "negative amortization" and "fully indexed rate." For purposes of sections 583.33
to 583.40, "subprime loan" does not include a subprime loan originated by a state or
federally chartered bank, savings bank, or credit union.
new text end

Sec. 3.

new text begin [583.35] RIGHT TO FORECLOSURE DEFERMENT.
new text end

new text begin An eligible foreclosed borrower has the right to defer a foreclosure sale under
chapter 580 or 581 until the expiration of the deferment period by providing an affidavit
of deferment to the foreclosing lender in accordance with section 583.36. A foreclosing
lender shall cancel a foreclosure sale if the eligible foreclosed borrower has submitted to
the foreclosing lender an affidavit of deferment prior to or at the time of the foreclosure
sale, unless the lender has served a notice of denial in accordance with section 583.38. A
foreclosing lender shall also provide written notice of receipt of an affidavit of deferment
to all parties with a recorded request for notice of mortgage foreclosure under section
580.032 or who are listed as a holder of a security interest in the subject property in the
affidavit of deferment. A lender is not required to cancel a foreclosure sale if a borrower
has previously obtained a deferment under this act. Upon expiration of the deferment
period or the loss of the deferment, a foreclosing lender may schedule a deferred
foreclosure sale by publishing the notice of foreclosure sale once in the newspaper in
which the original advertisement was published and by serving a copy of the notice of
foreclosure sale in a like manner as a summons in a civil action in the district court upon
the person in possession of the mortgaged premises, if the same are actually occupied, at
least four weeks prior to the sale.
new text end

Sec. 4.

new text begin [583.36] AFFIDAVIT OF DEFERMENT.
new text end

new text begin Subdivision 1. new text end

new text begin Affidavit of deferment. new text end

new text begin The affidavit of deferment shall state the
name of the eligible foreclosed borrower, the address of the property in foreclosure, and
contain the following statements:
new text end

new text begin "(1) I am the borrower on a mortgage loan on residential property located at [address
of property] (hereinafter "subject property");
new text end

new text begin (2) A foreclosure sale has been scheduled on the subject property;
new text end

new text begin (3) I currently reside at the subject property;
new text end

new text begin (4) I have resided at the subject property as my primary residence for six months
prior to the date of this affidavit;
new text end

new text begin (5) If permitted to reside at the subject property, I intend to reside at the subject
property until at least [end of deferment period];
new text end

new text begin (6) I have sought the assistance of a mortgage foreclosure counselor and during the
deferment I agree to continue to use the assistance of a mortgage foreclosure counselor to
negotiate in good faith with the foreclosing lender to modify the terms of the mortgage
on the subject property;
new text end

new text begin (7) I believe that the mortgage loan on the subject property is either:
new text end

new text begin (i) a subprime loan; or
new text end

new text begin (ii) a loan with negative amortization for which the required minimum payment
has increased."
new text end

new text begin The affidavit shall be signed by at least one eligible foreclosed borrower who is the
mortgagor of the residential real property being foreclosed. The affidavit also shall be
signed by a mortgage foreclosure counselor solely to certify that the borrower has sought
the assistance of the mortgage foreclosure counselor.
new text end

new text begin Subd. 2. new text end

new text begin Service on foreclosing lender. new text end

new text begin An affidavit of deferment shall be served
by personal service, United States mail, or other reliable delivery service to the address
provided in the notice of right to deferment or to the address of the counsel for the
mortgagee in the notice of foreclosure.
new text end

new text begin Subd. 3. new text end

new text begin Acknowledgment by foreclosing lender. new text end

new text begin Unless the foreclosing lender
has served a notice of denial under section 583.38, the foreclosing lender shall, within
ten days of receiving the affidavit of deferment, provide to the eligible foreclosed
borrower a written acknowledgment that it has received the affidavit of deferment. The
acknowledgment shall state the following:
new text end

new text begin (1) that the foreclosure sale has been canceled;
new text end

new text begin (2) the deferment payment amount that is due by the eligible foreclosed borrower;
new text end

new text begin (3) the date that the first deferment payment is due;
new text end

new text begin (4) the date that each subsequent deferment payment is due; and
new text end

new text begin (5) the address to which the borrower should send the deferment payment or
the payment delivery methods that are acceptable to the foreclosing lender. The
acknowledgment shall be on a single sheet of paper, shall use plain language, and
no other documents shall be included with the acknowledgment. The bottom of the
acknowledgment shall include the following disclosure in bold, 14-point type:
new text end

new text begin The cancellation of the foreclosure sale on your property is the result of a law passed
by the Minnesota Legislature in 2008. You must make the monthly payment in full
by the due dates listed in this letter. If you do not make the payments on time, we
will have the right to schedule a foreclosure sale on your property.
new text end

new text begin Subd. 4. new text end

new text begin Charges prohibited. new text end

new text begin A foreclosing lender shall not charge an eligible
foreclosed borrower any amount other than the deferment payment for exercising the
deferment right.
new text end

Sec. 5.

new text begin [583.37] BORROWER PAYMENT AND RESIDENCY REQUIREMENTS.
new text end

new text begin Subdivision 1. new text end

new text begin Borrower payment required. new text end

new text begin An eligible foreclosed borrower
who has a deferment right shall make monthly payments to the foreclosing lender. The
payment shall be made no later than the 15th day of each month. The first payment is not
due until the 15th day of the month that is a minimum of 30 days after the date that the
foreclosing lender sends the acknowledgment required by section 583.36, subdivision 3.
new text end

new text begin Subd. 2. new text end

new text begin Amount of payment. new text end

new text begin For an eligible foreclosed borrower with a subprime
loan, the amount of payment shall be the lesser of: (1) the monthly payment of principal
and interest on the date the loan was originated; or (2) 65 percent of the monthly payment
of principal and interest at the time the borrower defaulted prior to foreclosure. For an
eligible foreclosed borrower with a negative amortization loan that is not also a subprime
loan, the amount of payment would be the minimum monthly payment on the date the
loan was originated.
new text end

new text begin Subd. 3. new text end

new text begin Payment advice notice. new text end

new text begin The foreclosing lender shall provide to the
eligible foreclosed borrower monthly written payment advice notices. The notice shall
be sent by the first day of each month until the expiration of the deferment period or
the loss of the deferment under subdivision 4. Each notice shall state (1) the amount
of payment owed from the eligible foreclosed borrower; (2) the address to which the
borrower should send the deferment payment; and (3) the date that the payment must be
received to avoid loss of the deferment right under subdivision 4. The payment advice
notice shall be on a single sheet of paper, shall use plain language, and no other documents
shall be included with the notice. The bottom of the notice shall include the following
disclosure in bold, 14-point type:
new text end

new text begin The deferment of the foreclosure sale on your property is the result of a law passed
by the Minnesota Legislature in 2008. You must continue to make the monthly
payment in full by the 15th day of each month. If you do not make the payments on
time, we will have the right to schedule a foreclosure sale on your property. The
deferment period will end on (last day of deferment period). By the end of the
deferment period, you will need to pay the entire amount that has been deferred plus
other costs allowed by law in order to avoid a foreclosure sale.
new text end

new text begin Subd. 4. new text end

new text begin Borrower failure to pay. new text end

new text begin An eligible foreclosed borrower who fails to
make payments in the amount required and by the date required under this section shall
lose the deferment right.
new text end

new text begin Subd. 5. new text end

new text begin Borrower residency requirement. new text end

new text begin An eligible foreclosed borrower loses
the right to deferment if the borrower ceases to reside at the mortgaged property during
the deferment period.
new text end

Sec. 6.

new text begin [583.38] RESOLUTION OF DISPUTES; EFFECT OF DEFERRAL.
new text end

new text begin Subdivision 1. new text end

new text begin Dispute as to eligible foreclosed loan status. new text end

new text begin If the foreclosing
lender determines after a reasonable investigation and in good faith that the person
submitting an affidavit of deferment is not the mortgagor under an eligible foreclosed
loan, the foreclosing lender shall provide a notice of denial of deferment to the person
submitting the affidavit of deferment and to all parties with a recorded request for notice
of mortgage foreclosure under section 580.032 or who are listed as a holder of a security
interest in the subject property in the affidavit of deferment. The foreclosing lender must
send a notice of denial by certified mail through the United States mail within ten business
days of receiving the affidavit of deferment. The notice is effective on mailing. The notice
of denial shall be on a single sheet of paper and no other documents shall be included with
the notice. Such notice must include an explanation, in plain language, of the reasons that
the loan is not an eligible foreclosed loan. Such notice must also inform the person who
executed the affidavit of deferment that the person has the right to apply to the court for an
order deferring the foreclosure sale. A copy of the notice also must be sent by any means
to the loan counselor who signed the affidavit of deferment.
new text end

new text begin Subd. 2. new text end

new text begin Other disputes. new text end

new text begin For any other dispute about the deferment right or other
rights or requirements under the act, other than the arbitration of a dispute of good-faith
negotiation under section 583.381, a person can apply to the district court in the county
where the property is located for an order establishing the rights of the parties to the
dispute.
new text end

new text begin Subd. 3. new text end

new text begin Effect of deferral right. new text end

new text begin Nothing in this act shall alter contractual rights of
the parties to the mortgage loan other than providing the right to defer a foreclosure sale.
A bona fide purchaser of an interest in real property mortgaged by an eligible foreclosed
loan takes the interest in the real property not subject to any claims of ownership by a
party based on any rights under this act. No act, agreement, or deferment granted under
sections 583.33 to 583.40 alters the rights of other parties or lenders with an interest in the
subject property. Execution by the sheriff of the sheriff's certificate of sale is prima facie
evidence of compliance with this act, provided that the eligible foreclosed homeowner
has the remedies for monetary relief under section 583.40 for a reckless or bad faith
violation of the act.
new text end

new text begin Subd. 4. new text end

new text begin Mortgage foreclosure counselors. new text end

new text begin A mortgage foreclosure counselor, and
the person employing or paying the mortgage foreclosure counselor, shall not be liable to
any person for signing or failing to sign an affidavit of deferment under the act.
new text end

Sec. 7.

new text begin [583.381] RIGHT TO REVOKE DEFERMENT FOLLOWING
GOOD-FAITH NEGOTIATION.
new text end

new text begin Subdivision 1. new text end

new text begin Cancellation of deferment. new text end

new text begin If the foreclosing lender has negotiated
in good faith to modify the eligible foreclosed loan, the foreclosing lender may send a
notice of deferment cancellation to the eligible foreclosed borrower and, no less than 30
days after sending the notice, publish a notice of foreclosure sale in accord with section
583.35. The notice shall be on a single sheet of paper and shall include the name and
contact information for an employee or representative of the foreclosing lender. The
notice must include an explanation, in plain language, of the reasons that the deferment
is being canceled. The notice must prominently state the date the notice is mailed to the
eligible foreclosed borrower and the bottom of the notice shall include the following
disclosure in bold, 14-point type: "If you do not agree that we have negotiated in good
faith to modify your loan, you may request that an arbitrator be appointed to review
your case. The arbitrator will be a volunteer who will work at no cost to you. You have
until (insert date 30 days after date of notice) to complete and mail the attached request
for arbitration form to the address listed on the form. The state of Minnesota encourages
you to contact a mortgage foreclosure counselor right away to discuss your options." The
foreclosing lender shall include a copy of the written loan modification that the foreclosing
lender offered as part of a good-faith negotiation offer under subdivision 2. No documents
other than the written loan modification offer and the arbitration request form required by
subdivision 2 shall be included with the notice. A copy of the notice also must be sent by
any means to the mortgage foreclosure counselor who signed the affidavit of deferment.
new text end

new text begin Subd. 2. new text end

new text begin Arbitration of disputes. new text end

new text begin (a) The eligible foreclosed borrower may dispute
a notice of deferment cancellation by sending to the commissioner a request for arbitration
form along with a copy of the notice of deferment cancellation, including a copy of the
written loan modification that the foreclosing lender asserts is a good-faith negotiation
offer under this subdivision. The request for arbitration must be delivered or postmarked
within 30 days of the date of the notice of deferment cancellation. The deferment
continues pending resolution of the dispute.
new text end

new text begin (b) On receipt of a timely request for arbitration, the commissioner shall appoint a
volunteer arbitrator to resolve the dispute as to whether the foreclosing lender negotiated
with the eligible foreclosed borrower in good faith. The commissioner may appoint any
person the commissioner deems qualified to act as a volunteer arbitrator.
new text end

new text begin (c) The volunteer arbitrator may request additional documents or appearances
from either the foreclosing lender or the eligible foreclosed borrower prior to making a
determination. The decision of the arbitrator is binding on both the foreclosing lender and
the eligible foreclosed borrower.
new text end

new text begin (d) The appointed arbitrator will act as a volunteer and may not charge any person
for the arbitrator's services or costs related to the arbitration.
new text end

new text begin Subd. 3. new text end

new text begin Good-faith negotiation by foreclosing lender. new text end

new text begin (a) A foreclosing lender
has not negotiated in good faith unless it offers in writing to modify the terms of
repayment of the eligible foreclosed loan to permit the eligible foreclosed borrower to
make monthly payments that the borrower would have had the reasonable ability to pay as
of the date the loan was originated or, if the borrower's income and financial resources
have increased since the loan was originated, monthly payments that the borrower has the
current reasonable ability to pay.
new text end

new text begin (b) For purposes of this section, "monthly payments" includes principal, interest,
real estate taxes, homeowner's insurance, assessments, and mortgage insurance premiums,
as applicable.
new text end

new text begin (c) For purposes of this section, "reasonable ability to pay" shall be determined
based on the following:
new text end

new text begin (1) the income and financial resources available to the borrower at the time the
loan was originated, provided that tax returns, payroll receipts, bank records, or other
similarly reliable documents that verify the borrower's income and financial resources at
the time of origination shall replace unverified statements of income or financial resources
contained in the loan application, and such verified information shall serve as the basis for
computing the borrower's reasonable ability to make monthly payments; or
new text end

new text begin (2) if the borrower's income and other financial resources have increased since the
loan was originated, the borrower's current income and other financial resources to the
extent such information can be verified by tax returns, payroll receipts, bank records, or
other similarly reliable documents.
new text end

new text begin (d) There is a presumption that the borrower has the reasonable ability to pay if the
monthly payments do not exceed a combined debt-to-income ratio of 41 percent based on
the borrower's documented and verified monthly gross income, provided the borrower
has sufficient residual income as defined in Code of Federal Regulations, title 38, section
36.4337(e).
new text end

Sec. 8.

new text begin [583.39] NOTICE OF RIGHT TO DEFERMENT.
new text end

new text begin Subdivision 1. new text end

new text begin Notice requirement; form and delivery of notice. new text end

new text begin Every
foreclosing lender shall send to each borrower who has an eligible foreclosed loan a notice
of right to deferment. The notice of right to deferment shall be in the form of, and subject
to the delivery requirements specified in, section 580.041, subdivision 1b. The notice of
right to deferment must also indicate an address at which the foreclosing lender will
accept service of an affidavit of deferment under section 583.36, subdivision 2. No notice
is required for a foreclosure commenced on or before the effective date.
new text end

new text begin Subd. 2. new text end

new text begin Content. new text end

new text begin The notice required by this section must appear substantially
as follows:
new text end

new text begin "Emergency Help For Homeowners in Foreclosure:
new text end

new text begin IMPORTANT: You are eligible to have the foreclosure of your home stopped until at
least (end of deferment period).
new text end

new text begin The state of Minnesota recently passed a law that lets homeowners stop a foreclosure sale.
To qualify, you must currently live at the home in foreclosure and intend to live at the
home until the end of the deferment period.
new text end

new text begin You will also need to complete and sign a special form (called an "affidavit") and provide
that affidavit to us at the following address: (insert address in the state of Minnesota).
new text end

new text begin There are many government agencies and nonprofit organizations that can help you
complete this affidavit. For the name and telephone number of an organization near
you, please call the Minnesota Housing Finance Agency (MHFA) at (insert telephone
number/Web site). The state does not guarantee the advice of these agencies.
new text end

new text begin Do not delay dealing with the foreclosure because your options for foreclosure deferment
end with the foreclosure sale."
new text end

Sec. 9.

new text begin [583.40] BAD FAITH OR RECKLESS VIOLATION.
new text end

new text begin A foreclosing lender who acts in bad faith or recklessly in violation of sections
583.35 to 583.39 shall be liable to a person injured by the violation for actual damages,
statutory damages of up to $25,000, punitive damages in an amount determined by the
court, costs, and reasonable attorney's fees.
new text end

Sec. 10. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 9 are effective seven days following final enactment.
new text end