Bills call for less notice on home foreclosures

Friday, May 6, 2011, Vol. 35, No. 18
ANDY MEEK | The Daily News

The Tennessee General Assembly is moving closer toward reducing the number of newspaper notices lenders are required to run before foreclosing on a home.

State Sen. Jack Johnson, R-Franklin, and State Rep. Jimmy Matlock, R-Lenoir, filed companion bills that originally sought to reduce the required number of newspaper notices from 3 to 1. Along with that reduction would come less of a description of the property.

The state House Judiciary Committee this week passed a version of the bill that would drop the number of notices from 3 to 2. The Senate Judiciary Committee will have its say on that language Tuesday (May 10).

Even though it’s been strongly pushed for by the Tennessee Bankers Association, supporters of the bill – as well as the TBA’s lobbyist, Amy Smith – have described it as consumer-oriented.

Homeowners, they say, end up paying the cost of the newspaper notices because homeowner agreements are written in such a way as to allow the collection of a variety of costs in the event of a foreclosure.

At the House committee hearing this week, however, Smith said the cost of the notices is one that’s frequently born by the banks alone.

“It doesn’t do any good to sue someone for the deficiency,” she said in response to a question about what a bank might do if costs still were owed in the wake of a foreclosure. “At the end of the day, the banks might get a judgment against (the borrower), but they’ll never see that money.”

Smith also said the newspaper notice requirement raises the cost of doing business for lenders.

Consumer advocates think the bill carries unintended costs that undermine the move to speed up Tennessee’s foreclosure process.

“Our problem with something like this is we are a non-judicial foreclosure state, so people don’t have to be taken to court,” said Sapna Raj, managing attorney of the Memphis Fair Housing Center, which is part of Memphis Area Legal Services. “All they get is a notice in the mail or someone tells them there’s a notice in the paper.

“The public notice requirement actually slows the process down a little bit so there is time for a homeowner to try to work something out. When you shorten that timeframe, it just means more people are going to get foreclosed on faster. And lose their homes.”

Prolonging the process is one of the few remedies available to homeowners who either aren’t aware of the default and need to catch up or are aware and want to work something out. That’s because Tennessee is one of 27 states where lenders don’t have to file a lawsuit to initiate the foreclosure process.

Some supporters of the legislation have argued more than one foreclosure notice in Tennessee is unnecessary. Publishing the notices three times, though, mirrors the practice in Tennessee’s state and local governments of holding three separate votes on bills and ordinances.

Meanwhile, elsewhere in the U.S. the push is on for lenders to revamp their foreclosure operations – not to make them faster.

Recently, Fannie Mae, Freddie Mac and their federal regulator put out new guidelines that require mortgage services to swing into action more quickly after a homeowner misses the first payment. The new rules are to create an environment in which there is a better chance that loans get modified and fewer foreclosures occur.

The mortgage industry also is trying to put behind it recent revelations around the country of lenders foreclosing on homeowners on the basis of faulty, incomplete or improper data.

The back-and-forth that takes place in front of a judge is one way those problems came to light. But that oversight only exists in the nearly two dozen judicial foreclosure states.

“Any protection being taken away is absurd at this point,” said Steve Lockwood, executive director of the Frayser Community Development Corp.