A bill aiming to protect consumers from scammers who prey on homeowners facing foreclosure is making its way through the Colorado legislature as lawmakers nationwide seek to combat the problem.
Two other states, Minnesota and Maryland, have recently enacted laws protecting consumers from such scams. Maryland’s law went into effect last May, while Minnesota’s was enacted a year and a half ago. New York and other states also have legislation pending, according to Elizabeth Renuart, staff attorney at the National Consumer Law Center.
“There is definitely a trend,” Renuart said. California, Georgia and Missouri already have such laws on the books, the attorney said.
According to a report published by the National Consumer Law Center in June 2005, thousands of people across the country are losing their homes to foreclosure “rescue” scams. The report, which identified scams in 18 states including Colorado, recommended that states ban or regulate such activity.
In a typical foreclosure scam, the mortgage consultant promises to make the overdue mortgage payments to the lender, and in return, the homeowner transfers the deed to the property. The owner is given a year to buy the deed back, but the more common result is that the consultant ends up with the home after paying thousands of dollars less than it is worth.
Though the Colorado bill, introduced by Republican Rep. Tom Massey and Democratic Sen. Jennifer Veiga, has bipartisan support, it faces opposition from a real estate investors’ lobbying group and has drawn criticism from one of Colorado’s two mortgage bankers’ associations.
The Colorado Foreclosure Protection Act, S.B. 06-071, would require purchasers of residences in foreclosure to give homeowners information necessary to make informed decisions; prohibit contract terms that are “unreasonably favorable” to the consultant or investor; and give homeowners five days to cancel the contract.
The Colorado bill was first announced by Colorado Attorney General John W. Suthers in December 2005 after it was crafted by the state’s Mortgage and Foreclosure Fraud Task Force.
But one of the state’s mortgage bankers’ associations is critical of the bill, and it faces opposition from a national lobbying group.
“I applaud their (the bills’ authors) efforts to clean up the industry, but they’re advancing this bill without our perspective,” said Becky Creighton, a board member of the two-year-old, Washington, D.C.-based National Association of Responsible Home Builders and Investors.
The two-year-old group is made up mostly of real estate investors, according to Creighton, who owns a HomeVestors franchise in Colorado. HomeVestors claims to be the nation’s largest real estate business specializing in buying, rehabbing and selling single-family homes.
“It appears to me that the authors of the bill haven’t taken the time to include the perspective of ethical real estate investors. They left us out,” Creighton said.
Creighton said she is in favor of the bill’s provisions requiring purchasers of residences in foreclosure and foreclosure consultants to give homeowners information necessary to make informed decisions.
“The part where they want everything spelled out clearly is good,” she said. Other provisions, such as one giving the seller the right to cancel a contract until noon on the day before the day scheduled for the foreclosure sale, don’t meet with her approval.
John Grant, executive director of the National Association of Responsible Home Builders and Investors, last week told the Rocky Mountain News that an unintended consequence of the Colorado legislation could be a rise in foreclosures, if private investors aren’t able to bail homeowners out.
However, foreclosures have not risen in Maryland since that state’s law passed, nor have they gone up in Minnesota since that state’s law passed a year and a half ago, according to Doyle Niemann, a member of Maryland’s House of Delegates who crafted his state’s anti-foreclosure-scam law.
Though a Colorado mortgage bankers’ group recognizes the bill’s consumer protection, it has some concerns about the proposed act.
“The Colorado Mortgage Lenders Association approves of the bill insofar as it protects consumers against foreclosure scams,” said Chris Holbert, president of the Colorado Mortgage Lenders Association.
“I understand and appreciate the attorney general attempting to do something through this task force to protect consumers in that scenario,” said Holbert. “But it would certainly be helpful to mortgage bankers and brokers if foreclosure avoidance schemes were not portrayed and described as predatory lending.”
The association president said, “Predatory lending and foreclosure avoidance are two different issues, and foreclosure consultants and mortgage originators are different as well.”
Also, “It would be helpful to have better clarification that a mortgage originator who is working with a consumer at or about the same time an existing loan goes into foreclosure isn’t somehow portrayed as counseling to avoid foreclosure,” Holbert said. “For example, a mortgage originator might not even know a loan is going to go into foreclosure.”
The association is also unhappy that it was not allowed to select a representative to serve on the task force.
Investors’ input was included when the legislation was crafted, according to Kristen Hubbell, a spokeswoman for Suthers’ office.
“Hans Sedge, a mortgage broker and member of the Colorado Association of Mortgage Brokers and the Colorado Mortgage Lenders Association, is on the task force,” Hubbell said.
“Zachary Urban with Brothers Redevelopment, a HUD-approved program, is on the task force. This was a very inclusive process; we got advice from many groups. We also held public forums to solicit the response of local communities. We had good representation,” Hubbell said.
Bart Bartholomew, past president of Colorado’s other mortgage association, the Colorado Association of Mortgage Brokers, agreed with Hubbell.
“As far as CAMB and CMLA not being technically invited to be on the panel, we were duly represented by a gentleman who is a highly considered expert, so I do not feel slighted in the least,” Bartholomew said.
“I am completely in favor of the legislation,” Bartholomew said. “I think it will put Colorado in the forefront of many states trying to solve this problem. Foreclosure scams are a cancer across the nation.”
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