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Rhode Island law requires lenders to provide information on mortgage counseling

Rhode Island law requires lenders to provide information on mortgage counseling before they can begin any foreclosure process

A substantial number of homeowners are still facing foreclosure, and some are often desperate for help but don’t know where to turn.

In January, the Rhode Island General Assembly passed a new law requiring lenders to provide troubled homeowners with information about free mortgage counseling before they can begin any foreclosure process, overriding Governor Carcieri’s veto of the bill.

The legislation will take effect 60 days from passage. Its purpose is to ensure that at-risk homeowners have access to all the resources and information available to them to prevent foreclosure, according to its sponsors, Sen. Elizabeth A. Crowley of Central Falls and Rep. David A. Segal of Providence, whose hometowns respectively had the highest and third-highest foreclosure rates in southern New England in 2008.

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“People who are on the brink of losing their homes need to be aware of any help that is available to them, and where to find it,” Rep. Segal said. “It’s easy enough for banks to forward this information to them ahead of time, and doing so would be in the banks’ best interest, too, since preventing foreclosure means they will continue to receive mortgage payments from those mortgage holders.”

What the new law requires

Under this new law, lenders will be required to send a written notice in English and Spanish to mortgagors 45 days before initiating foreclosure. This notice must tell the homeowner the free HUD-approved mortgage counseling is available, and the toll-free number and websites where information about such counseling available in Rhode Island must be provided.

Foreclosure rates in Rhode Island surpass neighboring states

In 2008, there were 56.9 foreclosures for every 1,000 residential properties in Central Falls and 45.8 in Providence, according to a report by the Boston-based consulting firm The Warren Group. The statewide rate of 8.9 was 35 percent higher than Massachusetts and 64 percent higher than Connecticut.

“Our state, particularly in urban areas, is facing an epidemic of foreclosures that are ruining families’ lives, subjecting them to homelessness, poverty, and countless dangers,” Sen. Crowley said. “People who are about to lose their homes desperately need all the information available to them to prevent foreclosure. No doubt there are many people who are not even aware that free counseling is available to them.”

New law may have some challenges

Partridge Snow & Hahn, LLP, a full service business law firm in Providence, Rhode Island, said duplicative and inconsistent laws now affect many Rhode Island foreclosures. New local municipal ordinances in Providence and Cranston now require duplicate notice of the availability of HUD counseling and impose mandatory mediation of mortgage defaults paid by the lender. This, the firm says, highlights the need for state preemption in this area.

In addition, Patridge Snow & Hahn said the effective date of the act, March 6, 2010, presents a dilemma. To comply with the new legislation, servicers will be required to send out notices on or about January 20. However, the Rhode Island Department of Business Regulation has 30 days to promulgate the required forms, which means the documents will not be ready until February.

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