Indiana Seeks New Protections For Borrowers

Indiana Attorney General Greg Zoeller is asking the Indiana Supreme Court to impose new procedures to ensure that borrowers' legal rights are fully protected and mortgage lenders follow the law.

Zoeller says one need only look at the 50-state investigation into improper "robo-signing" foreclosure practices to know such safeguards are needed.

"When some mortgage lenders try to foreclose on distressed homeowners by filing foreclosure documents that are unverified, unauthenticated or riddled with errors, it not only violates the rights of the homeowners but it is also a fraud upon the court," Zoeller said. "In Indiana, we are not going to wait for federal government action; we will forge ahead to craft our own solution."

List of guidelines

A foreclosure-prevention task force established by the Indiana Supreme Court developed a list of guidelines to provide assurances to lenders, servicers, courts and borrowers that state and federal laws are being followed for the protection of homeowners.

The Indiana Supreme Court's task force included the Attorney General's Office, judges, Supreme Court staff, legal services attorneys and private-practice attorneys for mortgage lenders. Zoeller's office filed in the Supreme Court a petition -- called "Mortgage Foreclosure Best Practices" -- that included all the task force proposed guidelines and added some wording to strengthen them.

Zoeller said the Supreme Court is likely to take the proposals under advisement and decide at a later date whether to adopt them as requirements that lenders and services would have to follow.

What the guidelines would do

The proposed best practices developed by the task force would do the following:

• Require a mortgage lender seeking to foreclose to produce the original signed mortgage note when asked by the court -- or other legal proof if the original cannot be located -- and the chain of title proving that the lender has the right to enforce the note.

• Require that the court send a notice to borrowers of their legal right to a settlement conference with the lender; and require that the judge not take final action until the settlement-conference report has been filed with the court.

• Prohibit the mortgage lender from asking the borrower to waive his or her legal right to a settlement conference.

• Allow courts to impose monetary sanctions on lenders who fail to comply with the Best Practices. The petition notes that judges in Allen and St. Joseph counties have ordered sanctions of between $150 to $2,500 for similar violations.

Because of concerns that some distressed borrowers have not been given the full opportunity to pursue "loss mitigation" --  alternatives to foreclosure, such as loan modification or a short sale -- the attorney general's petition includes additional wording to strengthen the task force proposals.

It would require the mortgage lender to show, by verified affidavit, that the lender complied with federal requirements concerning borrowers' legal rights during foreclosure, including providing borrowers with reasons for a denial of modification or other loss mitigation. And it would prohibit a court from ordering a home foreclosed if the borrower is being evaluated for a loan modification under the federal Home Affordable Modification Program or similar programs.

If adopted by the Supreme Court, Zoeller's petition also would make the task force proposals requirements rather than recommendations.

"By some estimates, a sizeable percentage of homeowners facing foreclosure are not represented by attorneys, so no one is looking out for the borrower's interests except the court. We must ensure the process is fair," Zoeller said. "These proposed best practices would provide much-needed transparency to the foreclosure process, encourage appropriate investigation and disclosure by the servicer and lead to better enforcement of existing federal rules," Zoeller added. "I hope the Supreme Court will adopt the recommendations and implement them in Indiana's courts."