AN ACT CONCERNING FORECLOSURE PROCEDURES.

This bill makes the foreclosure mediation program established under PA 08-176 mandatory, rather than optional. To that end, the bill changes the mechanism by which borrowers are notified and makes other conforming changes.

The bill specifies that no judgment of strict foreclosure or foreclosure by sale can be entered before July 1, 2010 unless the mediation period has expired or otherwise terminated, whichever is earlier, or the mediation program is not otherwise required or available (see COMMENT).

By law, lenders must appear in person at the first mediation session and be authorized to agree to a proposed settlement. If the lender's attorney appears instead, he or she must have such authority, and the lender must be available by phone or electronic means. The bill specifies that the court cannot award attorney's fees to any lender for time spent in the first mediation session if the lender does not have a person with authority available during the session in person, by phone, or electronic means. This appears to contradict existing law, which requires the person with authority to be present.

Finally, for FYs 10 and 11, the bill requires that some funds the Banking Department receives or collects from assessments or fees that the law requires Connecticut credit unions and banks pay to fund the department be used to fund the mediation program. It requires the Office of Policy and Management secretary to allocate enough of the money in the State Banking Fund to the Judicial Department and the State Comptroller for the program (see BACKGROUND).

EFFECTIVE DATE: October 1, 2009, except for the funding mechanism, which is effective July 1, 2009.

By law, the lender has to inform the borrower about the mediation program by attaching a notice of availability of foreclosure mediation and a mediation request form to the front of the foreclosure complaint. Because the bill makes mediation automatic, it requires lenders to attach instead (1) a notice of foreclosure mediation; (2) a foreclosure mediation certificate; and (3) a blank appearance form, all in a chief court administrator-prescribed form. The foreclosure mediation certificate must require the borrower to provide enough information to allow the court to confirm that the defendant in the foreclosure action is actually an owner-occupant of a one-to-four family residential real property located in Connecticut and also the borrower under a mortgage encumbering the real property, which is the primary residence. The bill also specifies that the notice and certificate should be attached to the front of the writ summons, which typically appears in front of the complaint.

Generally, when a lender serves a borrower in the foreclosure action, it must return the writ to the court. After the lender returns the writ, the bill gives the court three days to issue a notice of foreclosure mediation to the borrower. The notice must tell the borrower to file the appearance form and foreclosure mediation certificate with the court no more than 15 days after the foreclosure action return date (the date by which the lender must respond to the foreclosure action). When the court receives the forms from a borrower who meets the above-referenced requirements, the court must schedule a foreclosure mediation date and notify all appearing parties two business days after receiving the forms (see COMMENT). If the forms are not returned by the deadline, the court cannot schedule mediation. However, the bill allows the court to refer people meeting the requirements to the program any time they appear in a foreclosure action.

By law, the DOB commissioner generally assesses Connecticut banks and credit unions the amount necessary to cover DOB expenses. The assessments cannot be more than the budget estimates the commissioner must submit. The State Treasurer must place all funds received from the commissioner and all moneys received from any person for documents or reports sold by the commissioner in the State Banking Fund. Money in the fund can spent only after being appropriated by the General Assembly.

The Comptroller must determine DOB expenses for each fiscal year. The Office of Policy and Management secretary must annually examine the fund after the Comptroller makes her determination and direct the Treasurer to set aside within the Banking Fund amounts in excess of a reasonable contingency reserve.

This amount is considered surplus, which must be used to reduce pro rata the bank and credit union assessments of prior fiscal years.

On April 22, the Senate referred the bill to the Appropriations Committee, which added the funding mechanism.

By law, and under the bill, mediations are allowed to begin up until June 30, 2010 (and therefore continue after that date). However, it appears that this provision allows actions that continue after June 30, 2010 to go to judgment without meeting the bill's requirements.

The section on scheduling the first mediation session appears to conflict with another section of the bill which, except as noted above, requires the notice scheduling the first mediation to be sent no more than two business days after the foreclosure action's return date. It is unclear in what situation this timeline would apply. Additionally, the provision is unworkable in conjunction with the first timeline because the trigger for the scheduling (the borrower's filing of an appearance the certificate) is not required until 15 days after the return date.

Yea

Nay

(03/10/2009)

Yea

Nay

(04/27/2009)