The spate of home foreclosures which followed the economic meltdown in 2008 led to a number of new laws in municipalities across the country, all aimed at helping Owners remain in their homes. One of the most sweeping of these new laws was the Saving D.C. Homes from Foreclosure Emergency Amendment Act passed in 2010. The new DC foreclosure law forced banks and other lenders to enter into a mediation process with the borrower, upon borrower election, before the foreclosure could take place, thus stalling, and in many cases, preventing foreclosures which otherwise would have taken place.
How The Law Works
Not every property is covered by the law. Those covered include residential properties only, and these must also be the principal residence of the owner. The mediation process is intended to provide homeowners with a number of options to stall or prevent the foreclosure, from loan modifications to short sales to refinancing. The mediation process is administered by the Department of Insurance, Securities, and Banking (DISB) of Washington, DC.
Under the law, lenders are required to notify homeowners facing foreclosure by mail of their new rights, and to include in that communication the several aspects of the mediation process. They must also inform the homeowner of counseling agencies and include an application for loss-mitigation. Finally, the lender is required to submit a $300 Mediation Fee to the District for each Notice issued on each mortgage. Oddly, that Fee is recovered by the Lender in the event there is any amount remaining after the payment of all amounts due and owing by the borrower on the residential mortgage and the costs of the sale; but not recoverable if no amounts remain to the Lender upon sale of the property. The reasoning behind the aforementioned rule eludes the author, at the time this article was written.
Homeowners notified of their default and the mediation process can opt to not to act, in which case mediation is waived and the foreclosure proceeds. Alternately, they can decide to enter mediation, in which case they must send a fee of $50 and complete the application for loss mitigation no more than 30 days from receipt of the letter.
If the homeowner opts for mediation, the lender and homeowner will participate in a mediation session which is scheduled by the Insurance, Securities and Banking Department no more than 45 days following the date of the mailing. Based upon the application completed by the homeowner, the lender is then required to perform an analysis the results of which include all options to prevent foreclosure.
Impact on Investors
The new DC foreclosure law has dramatically reduced the number of foreclosed properties available for purchase, renovation, and resale in the District. In the year prior to the new law, more than 1,300 foreclosures took place in DC. In 2011, that number dropped to fewer than 600, then to 89 in 2012 and just 39 in 2013. The drop in foreclosures has created an artificial spike in residential property values, and promises to make it more difficult to secure new loans, all of which has created a more difficult and challenging environment for potential investors.