By David S. Hilzenrath
Washington Post Staff Writer
Friday, January 14, 2011; 10:05 PM
As Virginia's new legislative session gets underway, lawmakers are considering an overhaul of the state's foreclosure process aimed at combating alleged shortcuts and abuses by lenders seizing borrowers' homes.
Homeowners, who currently face one of the fastest foreclosure processes in the country, would be given more time to defend themselves under one proposal. Another bill would require lenders to get the approval of a judge before seizing a home. A third would give homeowners a last-minute chance to avert foreclosure by catching up on overdue payments.
The effort to transform Virginia's foreclosure process faces an early test Monday, when one of the more far-reaching bills is scheduled for a hearing and a vote in a House subcommittee. The measure would force banks to maintain up-to-date records on Virginia loans in government offices, potentially restraining global trade in these mortgages.
The proposals come as high unemployment and the real estate meltdown have made foreclosures commonplace. Overwhelmed by defaults, some lenders have been accused of using bogus or "robo-signed" documents to seize property from delinquent borrowers.
The Virginia Bankers Association strongly opposes the overhaul, saying it would gum up the process. Members of the group visited the General Assembly this week to make their arguments.
Some key lawmakers, including the speaker of the House, say the system works well and that proposed revisions could make matters worse.
Bills filed in the House and Senate call for a variety of changes.
Homeowners would be given greater warning - 30 or 45 days - before their houses could be auctioned. Current law requires that foreclosure notices be sent at least 14 days in advance, which has left some homeowners with too little time to mount a defense.
Under the new proposals, lenders would face penalties for foreclosing on the basis of false documents, and would have to seek court review before foreclosing.
In addition, banks and investors would be required to file papers in county land records whenever they transfer ownership of a mortgage. That would make it easier for homeowners to find out who controls their debt, and it would boost state and local revenue from taxes and fees associated with the filings.
This bill would also directly challenge a Reston firm called MERS, which attempts to speed the pooling and sale of mortgages to investors by supplanting the centuries-old archives maintained in county courthouses.
A creation of the mortgage industry, MERS runs a private electronic database to track the transfer of mortgages. It also serves as a proxy for mortgage owners in the foreclosure process.
The database has been widely criticized for gaps and errors, and the rise of MERS has been blamed for fueling the nation's mortgage mess, critics say.
Del. Robert G. Marshall (R-Prince William) said he filed the bill slated for consideration Monday because the current system has left title to foreclosed properties under a cloud. A hearing on the measure will take place on the holiday commemorating Martin Luther King Jr.
Marshall's bill would prevent the industry from bypassing county land records when mortgages are transferred, and require lenders and investors to file documents in the land records documenting the chain of title before foreclosing.
"The aim is to give confidence to the American public that the title they have is a good title and its not being frittered away by a bunch . . . on Wall Street who couldn't give a rat's foot about them," Marshall said.
Asked for comment on the bill, MERS spokeswoman Karmela Lejarde said by e-mail that the company is reviewing it.
Del. David B. Albo (R-Fairfax), who chairs the Courts of Justice Committee, said by e-mail that in some cases Marshall's bill "would bar foreclosure all together" because it might be impossible to reconstruct and record every link in the chain of title to a loan that has changed hands repeatedly. The bill could hurt anyone whose investment funds include mortgages, he said, because "there is no way to kick the non-paying homeowner out of the house and get someone else in it who will pay."
House Speaker William J. Howell (R-Stafford), who has served on the board of a Virginia bank, said the type of filing requirements that Marshall has proposed would probably slow the mortgage market. Howell also opposed requiring lenders to foreclose through the courts, saying, "I think the process in Virginia has served both the creditors and the borrowers well."
In the Senate, A. Donald McEachin (D-Richmond) has proposed that the state switch to court-supervised foreclosures.
"We don't deprive people of their life nor do we deprive them of their liberty without due process and having access to the court system, so it seems odd to me that we would allow their homes to be taken . . . without that same sort of due process," McEachin said.McEachin is scheduled to appear with Marshall at a news conference Monday, and Marshall said the two have found common ground on the mortgage issue despite being "polar opposites on social issues."
Maryland's foreclosure process was once similar to Virginia's, but in recent years Maryland has added protections for homeowners. As of Friday morning, no bills on mortgages or foreclosures had been introduced in the new legislative session.
Sen. Brian E. Frosh (D-Montgomery), who chairs the Judicial Proceedings Committee, said he was preparing a bill to give homeowners better information about the holders of their mortgages so they would know who to deal with when facing foreclosure.
"If somebody tells you that the owner of your mortgage is a faceless electronic company, there's nobody to talk to, nobody to deal with, and you almost guarantee foreclosure," he said.