In response to the concerns of lenders and title insurers, the District of Columbia recently enacted clarifying legislation to amend the Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010 (the Act). The Act went into effect on November 17, 2010, and created a new and complex residential foreclosure process in the District. The previous residential foreclosure process replaced by the Act only required lenders to send a notice of foreclosure to a borrower by certified mail, with a copy to the District government, before the lender was allowed to proceed. The process allowed lenders to do so 30 days after issuing the notice of foreclosure. The Act significantly changed this process by requiring lenders to:
Send a statutory notice of default to the borrower and the District before issuing a notice of foreclosure
Participate in mediation and obtain a mediation certificate, which must be recorded in the District's land records
Pay a $300 mediation fee when issuing the notice of default
Potentially pay a $500 fine if the lender fails to attend the mediation, fails to bring required documents to the mediation, or fails to participate in good faith in the mediation.
Most importantly, the Act provides that any foreclosure sale that does not comply with its provisions is void.
However, the Act only imposed a quasi-judicial foreclosure procedure. This meant that lenders and title insurers would never receive an order or any other document from the District that would confirm that the residential foreclosure sale conformed with the Act's rigorous requirements. In response to the legislation, title insurers requested that the District issue a certification that a foreclosure sale complied with the new requirements of the Act. Without a mechanism to issue such a certification, the Act effectively halted foreclosures in the District because title insurers would not insure title to property obtained from a foreclosure sale.
According to the District's Department of Insurance, Securities and Banking, 1,349 foreclosure sales were conducted in the District in fiscal year 2010 prior to the effective date of the Act. Since the Act became law, the District had 566 foreclosures in fiscal year 2011, 89 in fiscal year 2012, and 39 in fiscal year 2013. Most, if not all, of the residential foreclosure sales conducted since the Act took effect occurred under notices of foreclosure that were issued before the Act's effective date.
To address the concerns of lenders and title insurers, the District recently enacted temporary and permanent legislation collectively referred to as the Saving D.C. Homes from Foreclosure Clarification and Title Insurance Clarification Amendment Act of 2013 (Amendment). Among its provisions:
The Amendment revises the definition of residential mortgage as "a loan secured by a deed of trust or mortgage, used to acquire or refinance real property which is improved by 4 or fewer single family dwellings, including condominium or cooperative units." The Act's previous definition of residential property focused on the property's designation as being the principal place of residence and owner occupancy. The Amendment also specifically carves out the Act's application to debts incurred by borrowers acting as business entities.
The Amendment increases the time period by which lenders and borrowers must complete the mediation process from 30 days to 90 days.
The Amendment addresses the Act's lack of judicial certification of compliance by stating that a mediation certificate shall serve as conclusive evidence that the lender complied with all other provisions of the Act and implementing regulations in conducting the residential foreclosure sale.
The District's Department of Insurance, Securities, and Banking has issued the mandatory corresponding regulations to the Amendment, which are currently under legal sufficiency review, and will then enter the public comment phase. It is too early to determine if the Amendment will completely solve all of the concerns of residential lenders and title insurers in the District. Instituting a mechanism for the issuance of a final mediation certificate as conclusive proof of compliance with the Act, however, is certainly an important step in the right direction.